Ehring v. Western Community Moneycenter (In Re Ehring)

91 B.R. 897, 19 Collier Bankr. Cas. 2d 1030, 1988 Bankr. LEXIS 1870, 18 Bankr. Ct. Dec. (CRR) 668, 1988 WL 115951
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedSeptember 22, 1988
DocketBAP CC-86-1170-MeMoJ
StatusPublished
Cited by17 cases

This text of 91 B.R. 897 (Ehring v. Western Community Moneycenter (In Re Ehring)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Ehring v. Western Community Moneycenter (In Re Ehring), 91 B.R. 897, 19 Collier Bankr. Cas. 2d 1030, 1988 Bankr. LEXIS 1870, 18 Bankr. Ct. Dec. (CRR) 668, 1988 WL 115951 (bap9 1988).

Opinions

OPINION

MEYERS, Bankruptcy Judge:

I

This case involves a pre-petition foreclosure sale of the Debtor’s real property. The Debtor brought a preference action under Section 547 of the Bankruptcy Code (“Code”), alleging that the transfer of the property occurred within 90 days of bankruptcy. The Bankruptcy Court found there was no preference and the Debtor now appeals. The issue presented is whether the transfer occurred when the creditor perfected its security interest or at the time of the foreclosure sale. Because we find that the transfer occurred at the time the security interest was perfected, we AFFIRM.

II

BACKGROUND

On March 2, 1983, the Debtor borrowed $145,000 from Coast Home Loans in exchange for a promissory note secured by a second deed of trust. The next day, Coast Home Loans assigned its trust deed to Western Community Moneycenter (“Western”). Western recorded its deed of trust on March 15, 1983.

The Debtor defaulted on his note payments, causing Western to foreclose on the property. Western held a valid foreclosure sale on February 22, 1985 and purchased the property for $199,746.41, the amount of the indebtedness, which was secured by a deed of trust in the second position. This transaction was recorded on March 21, 1985.

On April 18, 1985, Western resold the subject property to Gary Miller and Margaret Reid Miller for $390,000, which was the approximate total fair market value of the property, with escrow closing in July 1985.

On May 21, 1985, less than 90 days after the initial foreclosure sale, the Debtor filed a bankruptcy petition under Chapter 11. He thereafter commenced an action against Western under Section 547 of the Code, claiming that the foreclosure sale and the subsequent resale to the Millers constituted a voidable preference. In his complaint the Debtor prayed for $110,000, which represented the amount that the sales price to [899]*899the Millers exceeded the sums owed on the first and second deeds of trust. The Bankruptcy Court granted summary judgment for Western finding no preference in either the foreclosure sale or the resale.

Ill

DISCUSSION

Section 547 of the Code authorizes the bankruptcy trustee to avoid certain “preferential transfers” by the debtor to creditors within a fixed period prior to the filing of the petition. 11 U.S.C. § 547. The purpose of this section is to discourage creditors from “racing to the courthouse to dismember the debtor during his slide into bankruptcy” and “to facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor.” Matter of Vance, 721 F.2d 259, 260 (9th Cir.1983). In addition, the provision is intended to discourage the imposition of secret liens upon the debtor’s collateral which are not perfected until just before the debtor files for bankruptcy, as other creditors might extend credit on the assumption that the collateral was free and clear. In re Gulino, 779 F.2d 546, 549 (9th Cir.1985).

In order to establish a voidable preference, the trustee must prove seven elements set out in 11 U.S.C. § 547(b). There must be: (1) a transfer; (2) of the debtor’s property; (3) to or for the benefit of a creditor; (4) for or on account of an antecedent debt; (5) made while the debtor was insolvent; (6) within 90 days before the original filing of the petition; (7) which enables the creditor to receive more than he would receive under a Chapter 7 liquidation. In re Gulino, supra, 779 F.2d at 549.

The present case involves a dispute over the date of the transfer. If the transfer of property occurred when Western perfected its security interest under state law, then it clearly would fall outside the preference period. On the other hand, a transfer occurring at the time of the foreclosure sale would fall within the preference period.

Generally, the Code defines “transfer” broadly under Section 101(50):

[Tjransfer 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 and foreclosure of the debtor’s equity of redemption.

11 U.S.C. § 101(50) (emphasis added).

The definition of when a transfer occurs is set forth in Section 547(e)(2) which states:

For purposes of this section ... a transfer is made
(A) At the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time; [or]
(B) At the time such transfer is perfected, if such transfer is perfected after such 10 days[.]

11 U.S.C. § 547(e)(2). Consequently, establishing the date on which a transfer was made requires a preliminary determination of when the transfer was perfected under state law. In re Gulino, supra, 779 F.2d at 549.

A. Applicability of Madrid

The Ninth Circuit has held that for purposes of Section 548, a transfer of real property occurs at the time the creditor’s security interest is perfected, as opposed to the time of the subsequent foreclosure sale. In re Madrid, 725 F.2d 1197, 1200-01 (9th Cir.1984). Thus, where the perfection occurs more than one year prior to the date of bankruptcy, the transfer is not avoidable as a fraudulent conveyance under Section 548. 725 F.2d at 1201. The Court rejected an earlier contrary decision by the Fifth Circuit which ruled that the transfer occurs at the time of the foreclosure sale. See Durrett v. Washington Nat. Ins. Co., 621 F.2d 201, 204 (5th Cir.1980).

The issue presented before this Panel is whether Madrid’s interpretation as to the time of the transfer applies to the present case. The Debtor first argues that because the present case falls under Section 547, Madrid should not apply.

[900]*900We find the interpretation of when a transfer occurs in Madrid to be applicable to the present case. Although Madrid involved Section 548, the Code provisions regarding fraudulent transfers, and while this appeal involves allegedly voidable preferences under Section 547, both sections define the time of transfer in relation to when the transaction is perfected under state law against the interests of a bona fide purchaser. In addition, the Madrid court specifically stated that its holding was consistent with the treatment of similar transfers under Section 547. 725 F.2d at 1201 n. 2. The Panel is not free to disregard such a clear statement from the Ninth Circuit on this issue. See Zuniga v. United Can Co.,

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91 B.R. 897, 19 Collier Bankr. Cas. 2d 1030, 1988 Bankr. LEXIS 1870, 18 Bankr. Ct. Dec. (CRR) 668, 1988 WL 115951, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ehring-v-western-community-moneycenter-in-re-ehring-bap9-1988.