In re Housey, Bankruptcy No. 03-43473-HJB.

• Decision Date: 06 August 2009
• Docket Number: Bankruptcy No. 03-43473-HJB.,Adversary No. 07-04128-HJB.
• Parties: In re Patrice L. HOUSEY, Marie Housey, Debtors David W. Ostrander, Chapter 7 Trustee, Plaintiff, v. Sandra Brown and Deutsche Bank National Trust Company, As Trustee for Morgan Stanley Loan Trust 2006-NC2, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

409 B.R. 611

In re Patrice L. HOUSEY, Marie Housey, Debtors David W. Ostrander, Chapter 7 Trustee, Plaintiff, v. Sandra Brown and Deutsche Bank National Trust Company, As Trustee for Morgan Stanley Loan Trust 2006-NC2, Defendants.

Bankruptcy No. 03-43473-HJB.

Adversary No. 07-04128-HJB.

United States Bankruptcy Court, D. Massachusetts.

August 6, 2009.

COPYRIGHT MATERIAL OMITTED

David W. Ostrander, Northampton, MA, pro se.

Meredith A. Swisher, Bernkopf Goodman, LLP, Boston, MA, David M. Rosen, Harmon Law Offices P.C., Newton, MA, for Defendants.

New Century Mortgage Corporation, pro se.

MEMORANDUM OF DECISION

HENRY J. BOROFF, United States Bankruptcy Judge.

Before the Court are cross-motions for summary judgment filed by the plaintiff Chapter 7 trustee (the "Trustee") and the defendants in this adversary proceeding. The Trustee seeks avoidance, pursuant to 11 U.S.C. § 549(a), of a postpetition, unauthorized transfer of estate property. For these purposes, the defendants do not deny that the facts establish a voidable transfer under subsection (a), but have raised a defense under § 549(c).¹ Accordingly the Court must determine whether in this case subsection (c) excepts the transfer from avoidance.

I. FACTS AND TRAVEL OF THE CASE

Patrice and Marie Housey (the "Debtors") filed a petition under Chapter 13 of the Bankruptcy Code on June 9, 2003. In Schedule A² of their bankruptcy petition, the Debtors disclosed that they owned a two-family house located at 50 Orange Street in Springfield, Massachusetts (the "Property"). Neither the Debtors nor the Chapter 13 Trustee filed a notice of the Debtors' bankruptcy case filing with the Hampden County Registry of Deeds (the "Registry"), whose jurisdiction includes the city of Springfield.

In their original submissions, the Debtors listed the current market value of the Property as $100,000, subject to two mortgages totaling $99,150.81. On September 5, 2003, the Debtors amended Schedules A and C. In amended Schedule A, the Debtors reduced the value of the Property to $69,200. And in amended Schedule C,³ the Debtors made no request for an exemption in the Property, represented to have no equity per the amended schedules. The Debtors' First Amended Chapter 13 Plan of Reorganization (the "Plan") was confirmed in January 2004. The Plan did not provide for a sale of the Property.

On November 4, 2005, with their Chapter 13 bankruptcy case still pending and without court authorization, the Debtors sold the Property to defendant Sandra Brown ("Brown") for $182,900.⁴ To finance the purchase, Brown granted a purchase money mortgage on the Property to New Century Mortgage Corporation ("New Century") for $164,610, which mortgage (the "Mortgage") was subsequently assigned to Deutsche Bank National Trust Company, as Trustee for Morgan Stanley Loan Trust 2006-NC2 ("Deutsche Bank"). The Mortgage was properly recorded at the Registry on November 7, 2005.⁵ Brown had no relationship with the Debtors prior to the sale, and it is undisputed that neither Brown nor New Century had knowledge at any relevant time that the Debtors had filed a bankruptcy case.

On July 5, 2006, at the request of the Debtors, the case was converted to one under Chapter 7, and David Ostrander was appointed the Trustee. On August 14, 2007, he commenced an adversary proceeding against Brown and New Century to avoid the unauthorized transfer of the Property and to recover the Property or its value. In November 2007, the Trustee amended the complaint to substitute Deutsche Bank for New Century (the "Complaint"). The Trustee thereafter filed a motion for summary judgment only on Count I of the Complaint — his request that the sale of the Property be avoided pursuant to § 549(a). Brown and Deutsche Bank (the "Defendants") responded with oppositions and a cross-motion for summary judgment on all counts of the Complaint.⁶ After a hearing on the competing summary judgment motions (the "Hearing"), the Court took them under advisement.

II. POSITIONS OF THE PARTIES

The Trustee contends that the sale of the Property (the "Transfer") is avoidable under § 549(a) of the Bankruptcy Code as an unauthorized postpetition transfer of estate property. The Trustee argues that the Transfer must be avoided, because the undisputed facts establish each element required for avoidance pursuant to § 549(a); namely: (1) a transfer; (2) of estate property; (3) that was not authorized; and (4) after the commencement of the bankruptcy case.

For these purposes, the Defendants do not deny that all required elements for avoidance of the Transfer under § 549(a) have been met. But, according to the Defendants, the Transfer is nevertheless excepted from the avoidance provisions by operation of § 549(c). Section 549(c) protects a transfer of estate property otherwise avoidable under § 549(a) when the purchaser has taken in good faith, without knowledge of the bankruptcy case, and for fair equivalent value. The § 549(c) exception also requires that a purchaser's interest in the transferred property be perfected before a copy or notice of the bankruptcy petition is filed where interests in real estate may be recorded pursuant to state or local law. See 11 U.S.C. § 549(c).

The Defendants argue that Brown purchased the property in good faith and without knowledge of the Debtors' bankruptcy case and properly recorded her interest in the Property. Therefore, because a copy or notice of the petition was never filed in the Registry, the Transfer may not be avoided. The Defendants have also moved for summary judgment on Counts II and III of the Complaint, arguing that the Trustee is not entitled to recovery under § 550 because the Transfer itself may not be avoided.⁷

In response to the Defendant's cross-motion for summary judgment, the Trustee argues that Brown does not qualify as a good faith purchaser without knowledge of the bankruptcy case. His argument is grounded on the availability of a "bankruptcy index" (the "Bankruptcy Index") through the computer terminals located at the Hampden Registry. In their Joint Statement of Undisputed Facts, the parties stipulated to the following regarding the Bankruptcy Index:⁸

. . . .

20. In addition to the Registry itself, the Hampden County Registry of Deeds houses various indices, including a bankruptcy index. This bankruptcy index is a separate and distinct index that is linked to PACER⁹ and not to the Registry.

21. The Hampden County Registry of Deeds obtains the bankruptcy records from the United States Bankruptcy Court for the District of Massachusetts through PACER, an outside service to which the Registry subscribes through a paid subscription. The records available through PACER are not official records of the Registry, and the availability of the information through PACER does not cause the information to be recorded with the Registry. M.G.L. c. 36 §§ 14-15.

. . . .

23. The bankruptcy records available by computer terminal at the Hampden County Registry of Deeds are updated by Registry staff, who obtain the information through PACER. According to the Registry staff, the records are updated weekly and contain information about bankruptcy filings for the Bankruptcy Court for the District Of Massachusetts from 1994 to the present. Specifically this information includes name of the debtor(s), the case number, the chapter of the case and the filing date. The bankruptcy records have not been verified by the Hampden County Registry of Deeds. These bankruptcy records are separate from any notices that are recorded or filed with the Hampden County Registry of Deeds.

. . . .

25. According to registry staff, ... 15 registries currently have no computer bankruptcy indices available[.]

26. According to registry staff, ... 5 registries currently have computer indices available for bankruptcy and/or probate records[.]

The Trustee argues that knowledge of the Debtors' pending bankruptcy case should be imputed to Brown, because "checking for bankruptcy records simply requires the entry of a few additional keystrokes at the same computer station at which other real estate records can be accessed and viewed." Masse Aff. ¶ 9. Relying on the affidavit of Robert J. Masse,¹⁰ deposition testimony given by the title examiner and closing attorney working on Brown's behalf in connection with the Transfer, and printed materials from certain continuing legal education seminars on title examination standards, the Trustee argues that the title examiner and closing attorney were essentially derelict in their duties by failing to check the Bankruptcy Index to confirm that the sellers (the Debtors) had not previously filed for bankruptcy.¹¹

The Defendants strenuously argue that the Masse affidavit and seminar materials are irrelevant to the issues presented here. Instead, the Defendants maintain that the issue presented is one of straightforward statutory interpretation — that the language of § 549(c) is clear and unambiguous and does not require consideration of extraneous materials for its interpretation.¹² And, because the undisputed facts demonstrate that notice of the Debtors' bankruptcy was not recorded at the Registry and because Brown paid fair value, acted in good faith, and had no knowledge of the Debtors' bankruptcy case, summary judgment must be entered in the Defendants' favor.

III. DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2) (2009) (made applicable to this adversary proceeding by Fed. R. Bankr.P. 7056). The parties contend, and the Court agrees, that no triable issue of fact exists in this case; no material fact is disputed. Accordingly, the Court reaches its conclusions as a matter of law.

A. Section 549(a): Avoidance of Unauthorized...