In re Steiner
| Decision Date | 20 July 2000 |
| Docket Number | No. B-00-04519-PHX-RJH.,B-00-04519-PHX-RJH. |
| Citation | 251 BR 137 |
| Parties | In re Kathryn Olegna STEINER, Debtor. LR Partners, L.L.C., an Arizona limited liability company, Movant, v. Kathryn Olegna Steiner, and Ralph M. McDonald, Chapter 13 Trustee, Defendant. |
| Court | U.S. Bankruptcy Court — District of Arizona |
Allan D. NewDelman, Allan D. NewDelman, P.C., Phoenix, AZ, for Debtor.
Richard J. Rubin, Rubin & Rubin, Phoenix, AZ, for Movants.
Ralph M. McDonald, Phoenix, AZ, for Chapter 13 Trustee.
Kathryn Steiner filed this chapter 13 case on May 1, 2000. That filing date was after her secured creditor Ocwen Federal Bank had conducted a trustee's sale on her home on April 17, 2000, but was prior to the recordation of the trustee's deed resulting from that sale, on May 2, 2000. This raises the question of whether a chapter 13 debtor can assert the rights of a bona fide purchaser under Bankruptcy Code § 544(a)(3) to avoid the sale of her home, because the deed resulting from that sale was not of record as of the date of the petition.
Kathryn Steiner's home was subject to a deed of trust in favor of Ocwen Federal Bank FSB ("Ocwen"), securing an original principal amount of $59,850.00. She defaulted on the debt sometime in 1999, but on November 30, 1999 entered into a forbearance agreement with Ocwen, pursuant to which Ocwen agreed to forbear in pursuit of its collection remedies if Ms. Steiner made a down payment in the amount of $2,407.85 that same day and made a $632.00 monthly payment from January 1 to May 1, 2000. Ms. Steiner made the down payment and the January payment, but no payments thereafter, while she attempted to negotiate with Ocwen an assignment of her anticipated income tax refund. The forbearance agreement specifically permitted Ocwen to continually postpone its foreclosure action and take all steps necessary to maintain its pending status.
Ocwen held its trustee's sale on April 17, 2000, where the property was purchased by a third party purchaser, 402 Property Wholesalers, for a bid of $76,866.00, just slightly more than the total debt allegedly due Ocwen of $76,865.37. The purchaser paid the bid price the next day, and a trustee's deed in favor of the purchaser was executed on April 24, 2000, which was subsequently recorded in the County Recorder's Office on May 2, 2000. That same day there was also recorded a special warranty deed from 402 Property Wholesalers to LR Partners LLC, which had been dated April 18 and was notarized on April 19, 2000. At the evidentiary hearing on this matter, the principal of LR Partners testified that LR Partners is in the business of buying properties at trustee's sales and foreclosure sales. He also testified that 402 Property Wholesalers was also in the business of buying properties at such sales, and that he and the principals of 402 Property Wholesalers were friends but otherwise had no connection.1 He testified that LR Partners purchased the property from 402 Property Wholesalers for the amount it had paid for the property.
Steiner filed her chapter 13 case on May 1, 2000. LR Partners filed a motion for relief from the stay to permit it to proceed with a state law action to evict the debtor. The debtor responded and also filed an adversary proceeding seeking to set the trustee's sale aside. The final hearing on LR Partners' lift stay motion was held on July 13, 2000, at which the Court heard testimony from Kathryn Steiner and from the principal of LR Partners and then took the matter under advisement.
Steiner's principal argument why stay relief should be denied and the trustee's sale avoided is to assert the rights of a bona fide purchaser pursuant to Bankruptcy Code § 544(a)(3). This raises the threshold question, however, of whether a chapter 13 debtor may assert those avoiding powers.
Unlike Bankruptcy Code § 1107 applicable to chapter 11 debtors in possession, Bankruptcy Code § 1303 does not give chapter 13 debtors the rights and powers of a trustee under § 544. Although a handful of bankruptcy court decisions from the 1980's held that chapter 13 debtors could exercise the trustee's avoiding powers, the reasoning of the Fifth Circuit Court of Appeals in Realty Portfolio, Inc. v. Hamilton (In re Hamilton), 125 F.3d 292 (5th Cir.1997) is more convincing. The lack of any express authority in the Code granting chapter 13 debtors such powers, particularly in light of the significant differences between § 1107 and § 1303, means that Congress did not elect to confer such extraordinary powers on chapter 13 debtors. The Fifth Circuit's reasoning finds further substantial support in the Supreme Court's recent decision holding that creditors do not have rights that the Code expressly grants only to the trustee under § 506(c). Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., ___ U.S. ___, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000).
There is, however, another potential source of the avoiding powers for chapter 13 debtors other than § 1303, found in § 522(h).2 The Ninth Circuit has held that for a transfer to be avoidable under § 522(h), five conditions must be satisfied: (1) the transfer must not have been a voluntary transfer by the debtor; (2) the debtor must not have concealed the property; (3) the trustee must not have attempted to avoid the transfer; (4) the debtor must exercise an avoidance power that is usually used by the trustee and that is listed in § 522(h); and (5) the transferred property must be of a kind that the debtor would have been able to claim as exempt from the estate if the trustee had avoided the transfer pursuant to § 522(g). DeMarah v. United States (In re DeMarah), 62 F.3d 1248, 1250 (9th Cir.1995).
The evidence received at the lift stay hearing demonstrates that this debtor has satisfied the first two conditions, and the docket in this case reflects that the third condition is satisfied. The fourth condition is satisfied because the avoiding power of § 544 is specifically referenced in § 522(h)(1). This leaves only the fifth condition.
The evidence received at the lift stay hearing, and the contents of the Court's files, support the conclusion that the property was the debtor's homestead and that her equity in the property was well within the $100,000.00 limit of Arizona's homestead exemption. Debtor's Schedule A lists the current market value of the property as $98,000, and she claims its equity value of $28,000 on her homestead exemption in Schedule C.
Consequently this chapter 13 debtor does have the right, by virtue of § 522(h), to exercise the trustee's avoiding powers under § 544 with respect to her homestead.
In order to prevail under § 544(a), the debtor must demonstrate that a bona fide purchaser of the real property, as of the time of the commencement of the case, would prevail against the rights of the purchaser under the then unrecorded trustee's deed. To determine who would prevail in such a hypothetical contest requires an analysis of the Arizona statutes governing trustee's sales.
A.R.S. § 33-808(A)(3) requires a notice of the time and place of the trustee's sale be recorded in the office of the County Recorder of the county where the property is situated. Thereafter, the sale may be postponed by public declaration at the time and place last appointed for the sale, and no other notice of the postponed date is required. A.R.S. § 33-810(B). Because it is recorded in the County Recorder's Office, the notice of trustee's sale provides the world constructive notice that a sale is scheduled. A.R.S. § 33-818 (); Bisbee v. Security Nat. Bank & Trust Co. of Norman Okla. (In re Bisbee), 157 Ariz. 31, 754 P.2d 1135 (1988).
Although the notice of trustee's sale was not submitted in evidence at the lift stay hearing, the trustee's deed upon sale was received in evidence without objection. By A.R.S. § 33-811(B), this trustee's deed raises "the presumption of compliance with the requirements of the deed of trust and this chapter relating to the exercise of the powers of sale and the sale of the trust property, including recording, mailing, publishing and posting of notice of sale and the conduct of sale." Since no evidence was submitted to rebut that presumption, the trustee's deed suffices to demonstrate that the notice of trustee's sale was in fact duly recorded as required by the statute.
The Arizona statute further provides that A.R.S. § 33-810(A). The evidence established that the bid price was paid, in form satisfactory to the trustee, by 5:00 p.m. of the day following the sale as required by A.R.S. § 33-811. Consequently, by statute, the sale was "completed" on that day. The question therefore becomes whether a bona fide purchaser, consciously unaware of the fact of the sale, could have acquired good title to the property by a conveyance from Ms. Steiner on May 1, 2000, prior to the recordation of the trustee's deed.
For two independent reasons, I conclude that there could be no hypothetical bona fide purchaser who could have acquired rights superior to that of the purchaser at the trustee's sale.
First, the legislature took pains to specify that the recordation of the trustee's deed was a mere "ministerial act." This language must have been intended by the legislature to preclude courts from giving some more operative significance to the requirement for the recordation of the trustee's deed. This raises the question of what possible operative significance the "ministerial act" language was meant to preclude. It could have...
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