In re Koshar

• Decision Date: 02 December 2005
• Docket Number: Adversary No. 04-88641.,Bankruptcy No. HK 04-05159.
• Citation: 334 B.R. 889
• Parties: In re Russel Keith KOSHAR, Debtor. Thomas R. Tibble, Trustee, Plaintiff, v. Consumers Credit Union, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Michigan

334 B.R. 889

In re Russel Keith KOSHAR, DebtorThomas R. Tibble, Trustee, Plaintiff, v.Consumers Credit Union, Defendant.

Bankruptcy No. HK 04-05159.

Adversary No. 04-88641.

United States Bankruptcy Court, W.D. Michigan.

December 2, 2005.

Timothy Hillegonds, Grand Rapids, MI, for Plaintiff.

Gordon C. Miller, Kalamazoo, MI, for Defendant Consumers Credit Union.

Christopher E. Tracy, Kalamazoo, MI, for Defendant Republic Bank.

OPINION RE: CONSUMER CREDIT UNION'S OCTOBER 25, 2004 MOTION FOR SUMMARY JUDGMENT

JEFFREY R. HUGHES, Bankruptcy Judge.

The Chapter 7Trustee commenced this action against Consumers Credit Union ("CCU") on August 18, 2004.His complaint requests that CCU's mortgage lien in Debtor's home be avoided as a preferential transfer.¹

CCU answered the Chapter 7Trustee's complaint on September 9, 2004 and CCU filed its motion for summary judgment shortly thereafter.The motion was first scheduled for hearing on December 16, 2004.However, the hearing was adjourned first to February 3, 2005, and then again to March 17, 2005.The parties filed briefs and supporting affidavits.They also filed supplementary briefs and a deposition transcript pursuant to my December 23, 2004 scheduling order.²

The parties offered argument at both the December 16, 2004 and March 17, 2005 hearings.I took the matter under advisement at the conclusion of the March 17, 2005 hearing.

STANDARD FOR SUMMARY JUDGMENT

Summary Judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.Fed.R.Bankr.P. 7056.The summary judgment rule requires that the disputed facts be material, that is, facts which are defined by substantive law and are necessary to apply the law.The rule also requires that the dispute be genuine.A dispute is genuine if a reasonable jury could return a judgment for the nonmoving party.First National Bank of Arizona v. Cities Service Co.,391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569(1968)."Only disputes over the facts that might affect the outcome of the suit under the governing law will preclude the entry of a summary judgment.Factual disputes that are irrelevant or unnecessary will not be counted."Anderson v. Liberty Lobby, Inc.477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202(1986).The court must draw all inferences in a light most favorable to the nonmoving party but the court may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party."Agristor Financial Corp. v. Van Sickle,967 F.2d 233, 236(6th Cir.1992)(quotingMatsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp.,475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538(1986)).

Boyd v. Chase Manhattan Mortgage Corp.(In re Kroskie),258 B.R. 676, 678-79(Bankr.W.D.Mich.2001).

FACTUAL BACKGROUND

Debtor and his non-filing spouse owned a home in Kalamazoo, Michigan.On February 9, 2004, they granted a lien in their home to CCU.The lien is evidenced by a mortgage of that same date.CCU kept the mortgage so that it could be recorded with the Kalamazoo County register of deeds office.

Mr. Kosak was the CCU loan officer assigned to this account.Mr. Kosak's uncontroverted deposition testimony establishes that he mailed the mortgage to the register of deeds for recording on the same day it was granted.However, Mr. Kosak also states that the register of deeds office returned the mortgage by mail with a note that it had a question concerning the authenticity of Debtor's signature.Mr. Kosak's best recollection is that he received the returned mortgage sometime between Monday, February 16, 2004 and Friday, February 20, 2004.³

Mr. Kosak recalls responding to the register of deeds office's inquiry by immediately remailing the mortgage to the register of deeds office together with his own brief note.It does not appear that Mr. Kosak or anyone else made any alteration to the February 9, 2004 mortgage before it was mailed again.

Mr. Kosak's response was apparently satisfactory, for the register of deeds office thereafter processed the mortgage.The parties agree that the Kalamazoo register of deeds returned the processed mortgage sometime after March 8, 2004.Stamped on each page of the processed mortgage was a bar code, a filing number assigned by the register of deeds, and the date "3/8/04."

OPINION

CCU concedes for purposes of its motion that Debtor's grant of the mortgage to it meets all of the Section 547(b) requirements of a preferential transfer.⁴However, CCU argues in its motion that Section 547(c)(3) precludes the Chapter 7Trustee from avoiding the February 9, 2004 mortgage.

(c)The trustee may not avoid under this section a transfer —

(3) that creates a security interest in property acquired by the debtor —

(A) to the extent such security interest secures new value that was —

(i) given at or after the signing of a security agreement that contains a description of such property as collateral;

(ii) given by or on behalf of the secured party under such agreement;

(iii) given to enable the debtor to acquire such property; and

(iv) in fact used by the debtor to acquire such property; and

(B)that is perfected on or before 20 days after the debtor receives possession of such property.

11 U.S.C. § 547(c)(3)(Emphasis added).⁵

CCU contends that it perfected its mortgage from Debtor and his wife within the 20-day period provided by Section 547(c)(3)(B).However, CCU misinterprets this section.The 20-day "relation back" period for purposes of Section 547(c)(3) is measured from when the debtor acquired possession of the subject property, not from when the mortgage or security interest was granted.In the instant case, CCU itself concedes that Debtor and his wife acquired their home in December, 2003.Therefore, the Section 547(c)(3) defense is clearly not available to CCU.⁶

Interestingly, CCU did not assert Section 547(c)(3) as an affirmative defense when it answered the Chapter 7Trustee's complaint.On the other hand, CCU did identify Section 547(c)(1) as an affirmative defense.

(c)The trustee may not avoid under this section a transfer —

(1) to the extent that such transfer was

(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and

(B) in fact a substantially contemporaneous exchange;

* * * * * *

11 U.S.C. § 547(c)(1).

In many instances, a transfer is made for purposes of Section 547 when the transfer is "perfected."11 U.S.C. § 547(e)(2)(B).However, if, for example, a mortgage lien is perfected within 10 days of when it became effective, then the date when the mortgage lien became effective is treated as the date of transfer.11 U.S.C. § 547(e)(2)(A).⁷Consequently, a mortgage granted at the same time as a new loan will be treated as being "in fact" contemporaneous for purposes of Section 547(c)(1) if the mortgage lien is perfected within 10 days of its creation.

Therefore, the "relation back" issue raised by CCU in the context of its failed Section 547(c)(3) defense is also relevant with respect to CCU's separate Section 547(c)(1) defense.The question is whether CCU perfected its mortgage lien in Debtor's home within 10 days of its creation.⁸

Perfection is a defined term.

(e)(1) For the purposes of this section —

(A) a transfer of real property other than fixtures, but including the interest of a seller or purchaser under a contract for the sale of real property, is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee; and

* * * * * *

11 U.S.C. § 547(e)(1)(A).

Michigan, like all states, utilizes a recording system to establish whether an interest holder in real property has "perfected" its interest in that same property.The register of deeds office of the appropriate county must accept and record all instruments evidencing a Michigan real estate transaction.The only condition is that the instrument submitted conform with certain statutory requirements.MICH. COMP. LAWS §§ 565.8and565.201.Once accepted, the register of deeds must certify upon each instrument "the time when it was received."MICH. COMP. LAWS § 565.27.If the instrument is a mortgage, the register of deeds must also enter information concerning the mortgage in an entry book for mortgages that the register of deeds is required to maintain.MICH. COMP. LAWS § 565.25.Specifically, the register of deeds is to enter into the mortgage entry book the names of the mortgagor and the mortgagee and the month, day and hour the mortgage was received.MICH. COMP. LAWS § 565.24.The register of deeds must also file a copy of the mortgage received in a separate set of books the register of deeds is required to maintain.MICH. COMP. LAWS § 565.26.These books are sometimes referred to as the record books.Once filed, the register of deeds must certify upon each page of the mortgage the liber (book) and page where the filed copy can be found.MICH. COMP. LAWS § 565.27.The register of deeds also adds to an alphabetical index the name of each party to the mortgage recorded.MICH. COMP. LAWS § 565.28.The register of deeds then returns to the appropriate party the certified original of the recorded mortgage.

Parties rely upon these records to determine the priority of their interests in real property relative to the competing interests of other parties.

Sec. 29.Every conveyance of real estate within the state hereafter made, which shall not be recorded as provided in this chapter, shall be void as against any subsequent purchaser in good faith and for a valuable consideration, of the same real estate or any portion thereof, whose conveyance shall be first duly recorded....

MICH. COMP. LAWS § 565.29.

Statutes like MICH....