In re Madrid, Bankruptcy No. 81-00038

• Decision Date: 01 May 1981
• Docket Number: Adv. No. 81-0003.,Bankruptcy No. 81-00038
• Citation: 10 BR 795
• Parties: In re Judith Lynne MADRID, Debtor. Judith Lynne MADRID, Plaintiff, v. DEL MAR COMMERCE COMPANY, a California Corporation; Lawyers Title Insurance Corporation, a Virginia Corporation, Donald Turney, an individual; and DOES I through V, inclusive, Defendants.
• Court: U.S. Bankruptcy Court — District of Nevada

10 B.R. 795 (1981)

In re Judith Lynne MADRID, Debtor.

Judith Lynne MADRID, Plaintiff, v. DEL MAR COMMERCE COMPANY, a California Corporation; Lawyers Title Insurance Corporation, a Virginia Corporation, Donald Turney, an individual; and DOES I through V, inclusive, Defendants.

Bankruptcy No. 81-00038, Adv. No. 81-0003.

United States Bankruptcy Court, D. Nevada.

May 1, 1981.

Alan R. Smith, Miller & Daar, Reno, Nev., for plaintiff.

Timothy J. Henderson, Henderson, Nelson & Moschetti, Reno, Nev., for Del Mar Commerce Co. & Lawyers Title Insurance Corp.

Roger A. Bergmann, Reno, Nev., for Donald Turney.

JUDGMENT AND NOTICE OF HEARING ON LIENS

BERT M. GOLDWATER, Bankruptcy Judge.

The Court having rendered its Opinion and Decision which states findings of fact and conclusions of law, and good cause appearing, Judgment is hereby entered that:

1. The foreclosure sale of plaintiff's residence at 1528 Debra Lane, Incline Village, by defendant Lawyers Title to defendant Don Turney is hereby rescinded and the trustee's deed recorded as Document No. 717630 on January 13, 1981 with County Recorder of Washoe County, Nevada, is cancelled.

2. A hearing to establish the lien rights of the holder of the second deed of trust and defendants for principal, interest, costs, taxes, insurance premiums, and attorney fees is hereby set for Wednesday, May 6, 1981, at 10:00 a.m.

OPINION AND DECISION

This is an action by a Chapter 11 debtor to set aside a transfer of her residence by a nonjudicial foreclosure sale upon the grounds that (1) she did not receive notices of default and sale pursuant to N.R.S. 107.080 and 21.130, and (2) the sale is a voidable transfer under 11 U.S.C. § 548(a)(2)(A) and (B)(i).

In late summer 1979, debtor, Judith Lynne Madrid (Judith), and her husband, Al Madrid (Al), decided to purchase a family residence as part of a property settlement agreement in which Al was to quitclaim his interest in the residence to Judith but continue to make the payments on the residence.¹ In September 1979, Judith and Al purchased a home at 1528 Debra Lane, Incline Village, Nevada, from George G. Sayre/Pulver Co. (Sayre/Pulver) for $290,000. Sayre/Pulver asked $125,000 down and was willing to accept a one-year note secured by a first deed of trust for the balance of $165,000. The Madrids arranged through Del Mar Commerce Company of Oakland, California (Del Mar), to borrow $142,500 for the cash down payment from one Laurel Blum to be secured by a second deed of trust.² Del Mar was trustee of record in the second deed of trust until August 12, 1980, when Lawyers Title Insurance Corporation of Reno, Nevada (Lawyers), was substituted as trustee.³ The address given in the deed of trust for the trustor was 1528 Debra Lane.⁴

On September 4, 1979, Al quitclaimed his interest in the home to Judith. Escrow closed October 1979.

In January 1980, Judith rented Post Office Box No. 5926 at the Incline Village Post Office for one year and received the key. Soon thereafter, Al took the key away from her. In March 1980, Judith rented Post Office Box No. 6647, but did not advise the Incline Village Post Office to transfer her mail from Box No. 5926 to Box No. 6647. In October 1980, debtor became concerned she was not receiving her mail at Box No. 6647 and obtained another key to Box No. 5926. She kept the new key to Box No. 5926 until mid-November when she learned that a criminal investigation against her husband was pending, and, out of fright, threw away the key.⁵

Debtor contends that she gave Del Mar her 6647 Post Office Box Number during a telephone call on November 19, 1980. Although Del Mar's witness testified that Del Mar has no record of such a telephone call, the Court finds that Del Mar knew as of November 19, 1980 that debtor wished to receive her mail at Post Office Box No. 6647.

There were frequent defaults on the payments due under the first deed of trust, but the first few defaults were cured.⁶ Default on the payment due under second deed of trust was made within a few months after the close of escrow. On June 19, 1980, debtor made a $75,300 principal payment on the second deed of trust, and signed a Modification and Extension Agreement which provided for a three-month extension for payment of principal to January 31, 1981, and an increased monthly interest payment.⁷ After that payment, there was a principal balance of $67,200 with interest of $1,416.45 due on July 1, and interest of $840 per month due on the first day of each month thereafter. When debtor failed to pay the installments of interest due July 1, August 1, and September 1, the holder of the second deed requested Lawyers begin foreclosure proceedings.

Notice of default and election to sell the property under the second deed of trust was recorded September 10, 1980. A copy of the notice was mailed on that date, certified mail, to debtor at 1528 Debra Lane. That notice was returned unclaimed with the number "5926" written on the envelope. On October 6, 1980, another copy was sent certified mail to debtor at Post Office Box No. 5926. Notices for receipt of certified mail were placed in Box No. 5926 by the Post Office at Incline on October 7 and 16. The mail was not claimed and was returned to sender October 28, 1980.

On December 16, 1980, the notice of time and place of the sale scheduled for January 9, 1981 was mailed to debtor, certified mail, at 1528 Debra Lane and at Post Office Box No. 5926. Both envelopes were returned unclaimed.

The sale was held on January 9, 1981. At the time of the sale there was approximately $175,000 due on the first deed of trust and $80,224.39 due on the second deed of trust. Defendant Turney, the only bidder at the sale, bid the amount due on the second deed of trust plus one dollar. He testified that he went to the sale prepared to bid as high as $86,500.⁸ With expenses on the day of the sale, Turney planned to pay approximately $256,000 for the property. He immediately insured the improvements for fire in the amount of $325,000.

In the spring of 1980, debtor listed her property with a real estate broker for sale at $395,000. Extensive exposure was given by the realtor due to the uniqueness of the property. The "nearly" new 2700 square foot residence is situated on a private road on a half-acre lot a short distance from a 250 foot private Lake Tahoe beach and pier shared by the Debra Lane homeowners.⁹ The house was shown approximately twelve times, but no offers were received. Debtor terminated the realtor's listing in August 1980, but continued to try to sell the house or obtain financing until after the sale on January 9, 1980. The evidence showed that debtor was negotiating at the time of the sale with a potential buyer who had no knowledge of the sale. The buyer made a $342,000 offer for the property on January 10, 1981.

In connection with her own efforts to sell or finance, debtor requested a title report on another piece of real property from Lawyers in early November. The debtor appeared at Lawyers Reno office to request the order and the order was sent to her at Post Office Box No. 6647. That incident was not sufficient to put Lawyers on notice that debtor was using Post Office Box No. 6647 rather than Box No. 5926.

Also in connection with her efforts, debtor telephoned Jay Graves (of Del Mar) on December 24, 1980 to learn the amount due on the second deed of trust and whether or not the holder of the second would allow assumption of the debt.¹⁰ The secretary who talked to debtor wrote a message on December 24 as follows:

Judith Madrid called. She wants extention (sic) of 1-9-81 sale because she thinks she has buyer. She is at Nevada house.

Debtor filed under Chapter 11 on January 16, 1981. Her schedules show her insolvent financial condition. She owes in excess of $25,000 mostly for improvements on the residence,¹¹ and is insolvent but for the potential equity in her residence. That equity, had the house been sold for its appraised value on January 9, 1981, would have been between $125,000 and $145,000. Defendant Turney's appraiser put the fair market value of the house at $330,000.¹² Established Incline real estate brokers and plaintiff's appraiser placed the market value between $380,000 and $400,000, which the Court finds to be the fair market value on January 9, 1981.

Debtor contends she had no notices of the default or sale. Alternatively, debtor contends that even if she had constructive notice she did not have proper notice because she should have been noticed at her last known address, Post Office Box No. 6647.

Debtor also contends that the transfer of her residence to defendant Turney for approximately $256,000 was a fraudulent transfer under 11 U.S.C. § 548(a)(2)(A) and (B)(i) because the sale price was less than a reasonably equivalent value.

I.

N.R.S. 107.080 provides in part:

3. The 15- or 35-day period provided in paragraph (a) of subsection 2 commences on the first day following the day upon which the notice of default and election to sell is recorded in the office of the county recorder of the county in which the property is located and a copy of the notice of default and election to sell is mailed by certified mail with postage prepaid to the grantor or to his successor in interest at the address of the grantor or his successor in interest if known, otherwise to the address of the trust property. Such notice of default and election to sell must describe the deficiency in performance or payment and may contain a notice of intent to declare the entire unpaid balance due and payable if acceleration is permitted by the obligation secured by the deed of trust, but acceleration must not occur if the deficiency in performance or payment is made good and any costs, fees and expenses incident to the preparation or recordation of such notice and incident to the making good of the deficiency in performance or payment are paid within the time specified in subsection 2.

4. The trustee, or other

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