Hulm, In re, s. 83-2060
| Decision Date | 05 July 1984 |
| Docket Number | 83-2085 and 83-2143,Nos. 83-2060,s. 83-2060 |
| Citation | 738 F.2d 323 |
| Parties | 11 Collier Bankr.Cas.2d 152, Bankr. L. Rep. P 69,924 In re Theodore George HULM, a/k/a Ted Hulm, Debtor. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellee, v. Theodore George HULM, a/k/a Ted Hulm, Appellant. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellee, v. Theodore G. HULM, a/k/a Ted Hulm, Appellant. In re Theodore George HULM, a/k/a Ted Hulm, Debtor. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellant, v. Theodore George HULM, a/k/a Ted Hulm, Appellee. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellant, v. Theodore G. HULM, a/k/a Ted Hulm, Appellee. In re Theodore George HULM, a/k/a Ted Hulm, Debtor. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellee, v. Theodore George HULM, a/k/a Ted Hulm. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF BISMARCK, INC., Appellee, v. Tom A. BRIGHAM, Trustee, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
James P. Rausch, Bismarck, N.D., for appellee/cross-appellant.
Richard G. Carver, Bismarck, N.D., Alan Grindberg, Steele, N.D., for appellant/cross-appellee.
Before BRIGHT, ARNOLD and FAGG, Circuit Judges.
The questions in this case are (1) whether a foreclosure of a mortgage pursuant to the North Dakota statutory scheme, involving a judicial foreclosure sale and issuance of a sheriff's deed following expiration of a redemption period, effects a transfer of an interest of the debtor in property within the meaning of 11 U.S.C. Sec. 548(a), which permits the bankruptcy trustee to avoid a fraudulent transfer of an interest of the debtor in property, and, if so, (2) whether absent improprieties the price received for property at a judicial foreclosure sale provides a reasonably equivalent value for the transfer of the debtor's interest under 11 U.S.C. Sec. 548(a)(2)(A) as a matter of law. We hold that foreclosure of a mortgage pursuant to the North Dakota statutory scheme effects a transfer of an interest of the debtor in property, and that on remand the bankruptcy court must conduct an evidentiary hearing to determine whether the sale price at the judicial foreclosure sale which occurred in this case provided a reasonably equivalent value in exchange for the transfer of the debtor's interest.
George Hulm and Linda Heikes granted a mortgage on residential property to First Federal Savings & Loan Association of Bismarck on November 24, 1978, to secure a note for $61,000. Hulm and Heikes failed to make payments as required, and on November 12, 1981, a notice of intention to foreclose was served. A complaint commencing the foreclosure action was served on December 31, 1981, a default judgment foreclosing the mortgage was entered on February 4, 1982, and the house was sold at a judicial foreclosure sale on March 4, 1982. First Federal purchased the property at the foreclosure sale for $64,443.64, an amount which represented the unpaid balance of the note, accrued interest, and statutory costs awarded in the foreclosure action. On July 9, 1982, following expiration of the statutory period for redemption, a sheriff's deed was issued to First Federal, giving it title to the property. Hulm filed his petition in bankruptcy on July 26, 1982.
First Federal filed this adversary action seeking a determination that the property was not a part of Hulm's bankruptcy estate and a modification of the automatic stay so that First Federal could proceed with eviction proceedings under state law. Heikes had already been evicted. The trustee contended that the mortgage foreclosure should be set aside because it was a preferential transfer under 11 U.S.C. Sec. 547 or a fraudulent transfer under 11 U.S.C. Sec. 548. The bankruptcy court rejected both contentions, but only the fraudulent transfer question is presented to us on appeal.
The principal rules governing fraudulent transfers are found in 11 U.S.C. Sec. 548, which provides in pertinent part:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor--
* * *
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(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation * * *.
There appears to have been no real dispute concerning whether Hulm fell within the insolvency requirement of section 548(a)(2)(B)(i). Similarly, there is no doubt that the judicial foreclosure sale, the expiration of the redemption period, and issuance of the sheriff's deed all occurred within one year before Hulm's bankruptcy petition was filed. As a consequence, we are not asked to decide in this appeal precisely when during the foreclosure process the transfer took place. We are concerned with the remaining elements of a fraudulent transfer, i.e., whether the mortgage foreclosure procedures in this case effected a transfer of an interest of the debtor in property and whether a reasonably equivalent value was received in exchange for the transfer.
The bankruptcy court held that absent a showing of fraud or collusion the sale price at a judicial foreclosure sale is a reasonably equivalent value for the property transferred, and that since there was no such showing in the present case, any transfer resulting from the foreclosure sale could not be set aside under 11 U.S.C. Sec. 548(a). On appeal the district court held that sale of the property at the foreclosure sale was a transfer within the meaning of 11 U.S.C. Sec. 548(a), and then, after discussing the facts involved, concluded that the sale price was a reasonably equivalent value. At that time, however, no evidentiary hearing had been conducted concerning the issue of reasonably equivalent value. Although the bankruptcy court and the district court focused on the total price received for the property at the sale, it is more accurate to consider the value received for Hulm's interest, which comprised less than all rights in the property. This point is not of practical significance, however, since examination of the adequacy of the total sale price necessarily subsumes the issue of the adequacy of the value received for Hulm's interest.
On appeal Hulm and the trustee contend that the district court erred in its determination that the sale price at the foreclosure sale was a reasonably equivalent value under 11 U.S.C. Sec. 548(a)(2)(A). In its cross-appeal First Federal contends that the transfer of Hulm's interest occurred when the mortgage was recorded and perfected under state law on November 29, 1978, more than one year before Hulm's bankruptcy petition was filed. First Federal also contends that actual market value is irrelevant because absent a showing of fraud or collusion the sale price at a judicial foreclosure sale is a reasonably equivalent value for the property transferred as a matter of law.
The question of whether the judicial foreclosure of a mortgage effects a transfer within the meaning of section 548(a) is a question of federal law. See McKenzie v. Irving Trust Co., 323 U.S. 365, 369-70, 65 S.Ct. 405, 407-08, 89 L.Ed. 305 (1945). Thus, to aid in determining whether the foreclosure of the mortgage was a transfer of an interest of the debtor in property, we turn to the definition of transfer found in 11 U.S.C. Sec. 101(41): " '[T]ransfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest." If at the time of the mortgage foreclosure Hulm held an interest in the property, the language of section 101(41) clearly establishes that the mortgage foreclosure procedure in...
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