In re: Migdalía Valle Hiraldo v. Banco Popular de Puerto Rico

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: May 29, 2012
• Docket: 09-00152
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 IN RE: : CASE NO. 08-04692 (ESL) 3 : MIGDALIA VALLE HIRALDO : 4 Debtor : CHAPTER 13 ____________________________________: 5 : MIGDALIA VALLE HIRALDO : ADVERSARY NO. 09-00152 6 : Plaintiff : : 7 vs. : : 8 BANCO POPULAR DEPUERTO RICO : : 9 Defendant : ____________________________________: 10 11 OPINION AND ORDER 12 This case is before the court upon the Motion for Summary Judgment filed by defendant 13 Banco Popular de Puerto Rico (as servicing agent for Fannie Mae, hereinafter “BPPR”) praying to 14 be deemed a secured creditor and to deny the Debtor’s request to have its secured credit voided 15 (Docket No. 17). Also before the court is Debtor’s Opposition [Thereto] and Cross Motion for 16 Summary Judgment (the “Opposition & Cross Motion”, Docket No. 35) seeking to void BPPR’s 17 mortgage, rendering it an unsecured creditor. For the reasons stated below, BPPR’s Motion for 18 Summary Judgment is granted, Plaintiff’s Cross Motion is denied and the instant adversary 19 proceeding is hereby dismissed. 20 Procedural Background 21 On October 10, 2000, the Debtor (along with her former spouse, Reinaldo Villegas 22 Maldonado) executed Deed No. 428 before Notary Public Jesus M. Rivera Delgado to segregate and 23 purchase a real property located at Lot #3, Block B, Hato Tejas Ward, Bayamon, Puerto Rico (the 24 “Real Property”). Said Deed was filed at the Property Registry on September 15, 2003 at Entry No. 25 283 of the Daily Entries Book No. 447. See Docket Nos. 23, pp. 6-9, and 60, pp. 7-8 (Property 26 Registrar’s Certifications issued on March 5, 2010 and May 25, 2011, respectively, affirming that 27 Deed No. 428 was filed on that date at that entry). 28 Also on October 10, 2000, the Debtor executed two mortgage deeds to secure two separate liens on the Real Property: (1) Deed No. 207 executed before Notary Public Ahmed Arroyo Romeu 1 to secure a first mortgage in favor of Champion Mortgage Corp. (which was subsequently assigned 2 to BPPR) filed at the Property Registry on September 15, 2003 at Entry No. 284 of the Daily Entries 3 Book No. 447 (the “Mortgage Deed”); and (2) Deed No. 429 executed before Notary Public Jesus 4 M. Rivera Delgado to secure a second mortgage in favor of the Puerto Rico Public Housing 5 Administration (the “PR Housing Administration”) filed at the Property Registry on September 15, 6 2003 at Entry No. 285 of the Daily Entries Book No. 447. See Docket No. 16, pp. 10-11. Also see 7 Docket No. 60, p. 8 (Property Registrar’s Certification issued on May 25, 2011 confirming that both 8 mortgage deeds were filed on that date at those entries). 9 On September 3, 2004, Debtor, along with several of her neighbors, filed a Complaint against 10 the PR Housing Administration and the Commonwealth of Puerto Rico before the Court of First 11 Instance, Superior Court of Bayamon (the “PR Court of First Instance”), Case No. D PE 2004-0752 12 (504), alleging that the defendants had not filed any of the executed segregation and purchase deeds 13 for the registration of their properties at the Property Registry. Plaintiffs in that case, including the 14 Debtor, sought a temporary and permanent injunction relief against defendants, as well as monetary 15 damages. See Docket No. 16, pp. 41-59. 16 On March 1, 2007, R&G Mortgage Corp. (“R&G”, now BPPR) filed an ordinary foreclosure 17 Complaint (“demanda de ejecución de hipoteca por la vía ordinaria”) against the Debtor and her 18 former husband before the Court of First Instance, Superior Court of Bayamon, Case No. D CD 2007- 19 0623 (503), alleging that the Debtor (and her husband) had defaulted on their mortgage payments. 20 See Docket No. 36, pp. 7-9. On or about September 18, 2007, R&G (now BPPR) filed a Motion 21 informing that its mortgage had not then been recorded at the Property Registry and thus requested 22 the entry of a collection of monies judgment. See Docket No. 36, pp. 10-11. On October 8, 2007, 23 notified and docketed on November 5, 2007, the PR Court of First Instance issued a Collection of 24 Monies Judgment against the Debtor and her former husband, in the amount of $54,958.73, including 25 principal, interests and late fees, $5,350.00 in attorneys fees and a fixed annual interest rate at 26 12.00%. See Docket No. 36, pp. 12-16. On December 6, 2007, R&G filed a Motion for a lis pendens 27 lien on the Debtor’s Real Property under Puerto Rico’s former Civil Procedure Rule 56.4, 32 28 2 1 L.P.R.A. Ap. III R. 56.41, to which Debtor opposed on or about January 11, 2008. See Docket No. 2 36, pp. 17-19 and 20-21. On December 20, 2007, the PR Court of First Instance issued an Order 3 granting the lien requested by R&G, and on January 8, 2008, issued the corresponding Writ of 4 execution ordering the Property Registrar to record a lien over the Debtor’s Real Property (Docket 5 No. 36, pp. 24 & 25-26). On May 1, 2008, the PR Court of First Instance issued an Order to its 6 Marshal to hold a public auction to sell the Debtor’s Real Property in execution of the Collection of 7 Monies Judgment (Docket No. 36, pp. 29-30). On May 16, 2008, the Debtor filed a Motion to set 8 aside the Order authorizing the lien requested by R&G (Docket No. 36, pp. 31-33). 9 On July 21, 2008, the Debtor filed a Chapter 13 Bankruptcy Petition (Lead Case Docket No. 10 1). 11 On June 2, 2009, the Debtor, along with the rest of the co-plaintiffs in Case No. D PE2004- 12 0752 (504), signed a Stipulation of Judgment by Settlement with the PR Housing Administration 13 whereby plaintiffs would receive a total amount of $140,400.00 for all the alleged damages and 14 defendants would take all the necessary actions to have all the purchase deeds filed and registered 15 at the Property Registry within 6 months (Docket No. 16, p. 50-59). On June 12, 2009, notified and 16 docketed on June 22, 2009, the PR Court of First Instance issued a Settlement Judgment approving 17 said Stipulation (Docket No. 16, pp. 56-59). 18 On August 11, 2009, the Debtor filed the instant Complaint alleging that BPPR has not 19 perfected its mortgage lien on her Real Property and therefore its Claim 2-1 should be reclassified 20 as unsecured (Docket No. 1). On December 7, 2009, BPPR filed its Answer to the Complaint 21 (Docket No. 11) alleging that a title search performed at that time revealed that the Property Registry 22 had not notified any defects that could impair BPPR’s Mortgage Deed and that the fact that a 23 mortgage deed that has been filed but not yet not recorded, absent of a finding or notice of error in 24 the mortgage deed, does not render BPPR an unsecured creditor. 25 On December 8, 2009, a pre-trial hearing was held in which the court granted the parties 60 26 27 1 Puerto Rico’s Civil Procedure Rules of 1979 were repealed through Act No. 20 of December 29, 2009, adopting the current Rules of Civil Procedure of 2009, which became effective on July 1, 2010. The citation of the 28 current rule is 32 L.P.R.A. Ap. V R. 56.4. The amendment to Rule 56.4 does not vary the result of this Opinion & Order. 3 1 days to conclude discovery. A continuance was scheduled for March 5, 2010 at 9:30 a.m. (Docket 2 No. 14). 3 On March 2, 2010, BPPR filed the Motion for Summary Judgment along with its Statement 4 of Uncontested Facts (Docket Nos. 17 & 16, respectively). BPPR sustains that the Mortgage Deed 5 was filed at the Property Registry on September 15, 2003, without the Registrar having notified any 6 defects on it, which had been pending registration in the Property Registry’s back-log ever since. 7 Consequently, BPPR argues that pursuant to Sections 362(b)(3), 506 and 547 of the Bankruptcy Code 8 and this court’s decision in Soto-Ríos v. BPPR (In re Soto Ríos), 420 B.R. 57 (Bnkr. D.P.R. 2009)2, 9 it is a secured creditor. 10 On March 5, 2010, the continuation of the pre-trial was held and was continued without a date 11 pending a decision on BPPR’s Motion for Summary Judgment. Debtor was granted 20 days to file 12 her opposition (Docket No. 18). 13 On April 12, 2010, BPPR filed a Motion Submitting Documents in Support of [its] Motion 14 for Summary Judgment (Docket No. 23). 15 On June 21, 2010, Debtor filed her Opposition & Cross Motion for summary judgment along 16 with its Statement of ... Uncontested Facts (Docket Nos. 35 & 36). The Debtor alleges that BPPR 17 “abandoned” the execution of its mortgage foreclosure cause of action because since the Mortgage Deed 18 had not registered at the Property Registry, it decided and requested from the PR Court of First Instance 19 to only continue a personal collection of monies judgment instead (Docket No. 35, p. 9, referring to 20 Docket No. 36, pp. 10-11). Based on the “abandonment” argument, the Debtor also purports that the res 21 judicata doctrine precludes BPPR from foreclosing the Debtor’s mortgage based on the decision by the 22 Supreme Court of Puerto Rico in Banco de la Vivienda v. Carlo Ortiz, 130 D.P.R. 730 (1992). 23 Additionally, and also following the “abandonment” premise, Debtor sustains that the PR Court of First 24 Instance’s Order granting the judicial lien is null because it was issued without a hearing contrary to the 25 Puerto Rico Supreme Court’s decision in Rivera Rodriguez & Co. v. Lee Stowell Taylor, 133 D.P.R. 881 26 27 2 The decision was appealed to the District Court for the District of Puerto Rico and to the Court of Appeals for the First Circuit. See Soto-Ríos v. BPPR (In re Soto-Ríos), 662 F.3d 112 (1st Cir. 2011). The Court is aware that 28 at the time that BPPR filed its Motion for Summary Judgment (Docket No. 17), the Opinion by the First Circuit had not been issued or published. The First Circuit affirmed this court’s decision. 4 1 (1993). 2 On December 10, 2010, the Court issued an Order & Notice scheduling a hearing for February 3 8, 2011 to consider the motions for summary judgment and oppositions filed by BPPR and Debtor, which 4 was subsequently rescheduled for May 11, 2011 (Docket Nos. 48, 50, 52, 54 & 55). In that hearing, the 5 court ordered the parties to inform the court whether the Stipulation in Case No. D PE2004-0752 (504) 6 before the PR Court of First Instance had been complied with by the PR Housing Administration to 7 ensure that the properties were recorded in plaintiffs’ name, including the Debtor. 8 On July 12, 2011, BPPR filed a Motion in Compliance with Order (Docket No. 60) including 9 an updated Certification issued by the Property Registrar on May 25, 2011 that reveals that BPPR’s 10 Mortgage Deed had been filed since September 13, 2003 and that no defects had been notified to that 11 effect as to that date. 12 On September 7, 2011, the court issued an Order (Docket No. 64) for Debtor to show cause 13 within 21 days why the instant Complaint should not be dismissed for failure to comply with this 14 court’s order of May 11, 2011 (Docket No. 58) and defendant BPPR’s request (Docket No. 60). On 15 September 26, 2011, Debtor filed a Motion to Show Cause (Docket No. 66) alleging that the delay 16 was caused by the inability of her attorney to obtain the evidence to reflect the status of the mortgage 17 in question in the Property Registry, notwithstanding efforts directed to obtain the same, which was 18 granted on October 3, 2011 (Docket No. 67). 19 On November 3, 2011, Debtor filed an Informative Motion (Docket No. 69) attaching the 20 latest title search on the Real Property dated October 11, 2011, which reveals that the Property has 21 been recorded to Debtor’s name (and her husband Reinaldo Villegas Maldonado), along with BPPR’s 22 Mortgage Deed. It also shows that the Property Registrar recorded a lis pendens and a judicial lien 23 Order from the PR Court of First Instance dated February 14, 2008, both in favor of BPPR (Docket 24 No. 69, pp. 2-3). 25 Applicable Law & Analysis 26 Automatic Stay under 11 U.S.C. § 362(a) 27 The automatic stay is one of the fundamental debtor protections in the Bankruptcy Code. It 28 provides the debtor with a “breathing spell” from creditors and it stops all collection efforts, all 5 1 harassment, and all foreclosure actions upon filing for bankruptcy. H.R. Rep. No. 95-595, 95" Cong. 2 Sess. 340-342 (1977); S. Rep. No. 989, 95" Cong., 2™ Sess. 54-55 (1978), reprinted in 1978 3 U.S.C.C.A.N. 5787, 5840, 6296-97. “It allows the debtor to attempt a repayment or reorganization 4 plan or simply be relieved of the financial pressures that drove him into bankruptcy.” Id. The 5 |jautomatic stay prohibits “any act to create, perfect, or enforce any lien against property of the estate.” 6 }11 U. S.C. §362(a)(4). Despite the fundamental importance of the automatic stay, Congress has 7 |jallowed certain exceptions to the automatic stay, such as those included under Section 362(b) of the 8 Bankruptcy Code. See Soto-Rios v. BPPR (In re Soto-Rios), 662 F.3d at 116; 229 Main St. Ltd. 9 v. Mass. EPA (In re 229 Main St.), 262 F. 3d 1, 3-4 (1* Cir. 2001); Perez Mujica v. FirstBank, 10 (in re Perez Mujica), 457 B.R. 177, 184-185 (Bankr. D.P.R. 2011). 11 |\Exception to Automatic Stay under 11 U.S.C. § 362(b)(3) 12 Section 362(b)(3) of the Bankruptcy Code provides an exception to the automatic stay, under 13 |lsubsection (a) of Section 362 of the Bankruptcy Code by allowing “any act to perfect, or to maintain 14 lor continue the perfection of, an interest in property to the extent that the trustee’s rights and 15 |lpowers are subject to such perfection under Section 546(b) of this title.” 11 U.S.C. § 362(b)(3) 16 |\(emphasis added). “Section 362(b)(3) does not authorize the creation of new rights or interests for 17 |Ithe creditor. Instead, it merely permits perfection, or maintenance or continuation of perfection, free 18 the automatic stay that would otherwise be applicable, under circumstances in which the creditor’s 19 would be effective against a trustee.” Alan N. Resnick & Henry J. Sommer, 5 Collier on 20 ||Bankruptcy § 362.05[4] (16" ed. 2012). To qualify for this particular exception to the automatic stay, 21 creditor must satisfy the following three requirements: (7) an act to perfect; (7) an interest in 22 |Iproperty; and (iii) under the circumstances in which the perfection-authorizing statute fits within the 23 |lparameters of Section 546(b) of the Bankruptcy Code. Soto-Rios v. BPPR (In re Soto-Rios), 662 24 ||F.3d at 116; In re 229 Main St., 262 F. 3d at 5. Thus, Section 362(b)(3) depends on the limitations 25 |limposed on the trustee’s avoiding powers pursuant to Section 546(b) of the Bankruptcy Code. The 26 |lpurpose of Section 546(b)(1) is to “protect, in spite of the surprise intervention of a bankruptcy 27 |Ipetition, those whom State law protects by allowing them to perfect their liens as of an effective date 28 |Ithat is earlier than the date of perfection.” Alan N. Resnick & Henry J. Sommer, 5 Collier on

1 ||Bankruptcy § 546.03[1] (16" ed. 2012) quoting S. Rep. No. 989, 95" Cong., 2"! Sess. 86-87 (1978), 2 |IH.R. Rep. No. 595, 95" Cong., 1“ Sess. 371-371 (1977). 3 Section 546(b)(1) exempts from the trustee’s avoiding powers under Sections 544, 545 and 4 549 of the Bankruptcy Code “any generally applicable law that permits the perfection of an interest 5 property to be effective against an entity that acquires rights in such property before the date of 6 ||perfection; or provides for the maintenance or continuation of perfection of an interest in property 7 be effective against an entity that acquires rights in such property before the date on which action 8 taken to effect such maintenance or continuation.” 11 U.S.C. §§ 546(b)(1)(A) & 546(b)(1)(B). 9 simply stated, if a creditor possesses a pre-petition interest in property, and state law 10 jlestablishes a time period for perfection of a lien based upon that interest, the ‘lien does not lose its 11 |lpreferred standing by reason of the fact that it [is] not perfected until after the commencement of a 12 bankruptcy’ so long as it is perfected within the time period established by state law.” Lincoln Sav. 13 ||Bank, FSB v. Suffolk County Treasurer (In re Parr Meadows Racing Ass’n), 880 F. 2d 1540, 1546 14 Cir. 1989), cert. denied, 493 U.S. 1058 (1990), quoting from Poly Industries, Inc. v. Mozley, 362 15 ||F.2d 453, 457 (9" Cir. 1966). “For a creditor to enjoy this haven, (1) the creditor must act pursuant 16 Ito alaw of general applicability; (2) that law must allow the creditor to perfect an interest in property; 17 jland (3) such perfection must be effective against previously acquired rights in the property.” 18 ||Soto-Rios v, BPPR (In re Rios), 662 F.3d at 116. “The gist of this exception is that the filing of a 19 bankruptcy petition does not prevent the holder of an interest in property from perfecting its interest 20 absent the bankruptcy filing, the interest holder could have perfected its interest against an entity 21 |lacquiring rights in the property before the date of perfection.” Id. at 116 (quotations omitted). 22 ||BPPR’s Pre-petition Interest in Debtor’s Real Property 23 One of the requirements that BPPR must satisfy under Sections 362(b)(3) and 546(b)(1) of 24 |Ithe Bankruptcy Code is that to demonstrate a pre-petition property interest in Debtor’s Real Property. 25 Soto-Rios v. Banco Popular de P.R., 662 F.3d at 117-121. 26 The existence and extent of an entity’s interest in property is dictated by local law. Soto-Rios 27 28

1 Banco Popular de P.R., 662 F.3d at 117. A mortgage is a lien’ and alien” is defined in the 2 Bankruptcy Code as a “charge against or interest in property to secure payment ofa debt”. 11 U.S.C. 3 101(37). Puerto Rico Mortgage Law follows that trend applying the “lien theory”, meaning that 4 mortgage is a mere security for the debt, creating a lien interest without divesting the mortgagor 5 legal title during the period of the debt repayment”. Soto-Rios v. Banco Popular de P.R., 662 F.3d 6 lat 118. Also see Article 155 of Puerto Rico’s Mortgage Law, 30 L.P.R.A. § 2551; Liechty v. 7 Descartes Sauri, 9 P.R. Offic. Trans. 660, 109 P.R. Dec. 498 (1980) (holding that a “mortgage” 8 |jencompasses “a property right’). 9 BPPR argues that it acquired a pre-petition property interest in Debtor’s Real Property when 10 lit acquired the mortgage loan from Champion Mortgage Corp., evidenced by the Debtor’s execution 11 a mortgage note incorporated into the Mortgage Deed on October 10, 2000, which was presented 12 the Property Registry on September 15, 2003, that is, about 6 years and 6 months prior to the 13 |\Debtor’s filing for bankruptcy. See BPPR’s Motion for Summary Judgment (Docket No. 17, pp. 11- 14 21). The Debtor does not dispute these facts. Instead, she purports that BPPR “abandoned” its 15 mortgage upon requesting from the PR Court of First Instance to only continue only the personal 16 collection of monies cause of action instead of prosecuting the foreclosure of the mortgage in Case No. 17 CD2007-0623 (507). See Debtor’s Opposition & Cross Motion (Docket No. 35, p. 9, referring to 18 Docket No. 36, pp. 10-11). Debtor also argues that the res judicata doctrine precludes BPPR from 19 |foreclosing the Debtor’s mortgage based on Banco de la Vivienda v. Carlo Ortiz, 130 D.P.R. 730 (1992). 20 ||Additionally, Debtor sustains that because BPPR “abandoned” its mortgage, it only holds a judicial lien 21 |jover Debtor’s Real Property and that the PR Court of First Instance’s Order granting the judicial lien is 22 |Inull because it was issued without a hearing contrary to the Puerto Rico Supreme Court’s decision in 23 Rodriguez & Co. v. Lee Stowell Taylor, 133 D.P.R. 881 (1993). 24 The court rejects Debtor’s argument that BPPR “abandoned” its mortgage when it sought a 25 |Ipersonal collection of monies judgment and a judicial lien over the Real Property. Contrary to the 26 | tC; RTC > See Black’s Law Dictionary, 9" ed. 2009, p. 1101 (defining a “mortgage” as a “lien against property that is granted to secure an obligation”. Also see In re Endlich, 47 B.R. 802, 807 (Bankr. E.D.N.Y 1985) (“A mortgage 2g || is a consensual lien”); In re Acevedo-Vargas, 2012 Bankr. LEXIS 1701 at *14, 2012 WL 1345076 at *5 (Bankr. D.P.R. 2012) (“A mortgage is a lien and a “lien” is a security interest pursuant to 11 U.S.C. § 101(37)”).

1 |Debtor’s contention, BPPR’s motion for a personal Collection of Monies Judgment before the PR 2 of First Instance does not constitute an abandonment of its in rem cause of action. In Puerto 3 |/Rico, an ordinary foreclosure action --like in the one initiated by BPPR before the PR Court of First 4 |Instance against Debtor-- is mixed in nature, meaning that “it is real and personal”. P.R. Prod. Credit 5 v. Registrador, 23 P.R. Off. Trans. 213, 222 (1989), 123 D.P.R. 231, 241 (1989), citing Widow 6 Carlo v. Toro, 99 P.R.R. 196, 212 (1970). Both remedies are considered to be merged into “one 7 mixed claim” when they are sought against the owner of the mortgaged real property like the 8 instant case. P.R. Prod. Credit Ass’n v. Registrador, 23 P.R. Off. Trans. at 224, 123 D.P.R. at 245- 9 First Federal Savings v. Nazario, 138 D.P.R. 875, 880-881 (1995). A creditor seeking personal 10 land in rem remedy within the ordinary foreclosure action may only continue with the personal 11 |lcollection of monies action as “it is perfectly lawful for a creditor to resort to a preventive measure 12 |las is the attachment to protect [its] rights and prevent the judgment from becoming ineffective”. P.R. 13 Credit Ass’n v. Registrador, 23 P.R. Off. Trans. at 224, 123 D.P.R. at 244. The First Circuit 14 adopted a similar posture. For instance, in Goya Foods, Inc. v. Wallack Management Co., 290 15 ||F.3d 63, 71 (1* Cir. 2002), the Court of Appeals for the First Circuit ruled that the “greatest virtue” 16 Rule 56.4 of the Puerto Rico Rules of Civil Procedure is the “flexibility” upon which it must be 17 |linterpreted instead of “mystifying it with technical concepts”. The only “limitation [to that 18 |\flexibility] is that the measure be reasonable and adequate to the essential purpose of the same, which 19 |lis to guarantee the effectiveness of the judgment which in due time may be rendered.” Id. at 71. 20 That is exactly what BPPR did before the PR Court of First Instance: take all the necessary 21 to secure its judgment. Ultimately, the remedy is one and the same: ordering the payment of 22 |Ithe unpaid credit. See First Federal Savings v. Nazario, 138 D.P.R. at 880. Therefore, while BPPR 23 |lawaited the Property Registrar to record the Mortgage Deed filed on September 15, 2003, it was 24 |lentitled to seek a provisional collection of monies judgment and a judicial lien to secure it over the 25 Property. Such a course of action does not constitute an “abandonment” on its potential in rem 26 |lmortgagor rights and subsequent execution mechanisms upon the registration of Mortgage Deed nor 27 it invalidate BPPR’s secured credit in these proceeding. Consequently, BPPR had a valid 28 |linterest in the Debtor’s Real Property.

1 Because the Debtor used the alleged “abandonment” of the mortgage as the main premise for 2 remaining arguments of res judicata and the nullity of the judicial lien (which Debtor’s sustains 3 jis BPPR’s only security interest over the Real Property), both are also denied. Moreover, as of today, 4 |BPPR’s Mortgage Deed has already been recorded at the Property Registry, as well as the /is pendens 5 jjand a post-judgment pre-petition judicial lien in BPPR’s favor as to the Collection of Monies 6 Judgment. See Docket No. 60, pp. 2-3. 7 |BPPR’s acts to perfect its pre-petition property interest 8 The second requirement for the exception of the automatic stay under Section 362(b)(3) of 9 Bankruptcy Code is “any act to perfect, or to maintain or continue the perfection, of an interest 10 property”. 11 U.S.C. § 362(b)(3). “[T]he filing of a bankruptcy petition does not automatically 11 an act to perfect, the simultaneous post-petition creation and perfection of a lien may come 12 the pertinent exception to the automatic stay so long as the creditor holds a valid pre-petition 13 |linterest in the property.” In re 229 Main St, 262 F. 3d at 9. A “[c]reditor’s pre-petition property 14 |linterest in the real properties is based on taking all possible administrative steps ... in order for its 15 |property interest to be duly recorded by the Property Registrar so that their mortgage lien could become 16 |leffective from the date the mortgage deeds were presented to the Property Registry pursuant to Article 17 of the Mortgage Law of Puerto Rico’, 30 L.P.R.A. § 2256.” Soto-Rios v. BPPR (In re Soto-Rios), 18 B.R. at 69, aff'd at 662 F.3d 112. 19 Puerto Rico law regards the filing of a mortgage at the Property Registry to be a legally 20 |/significant act that initiates the certifying role of the Property Registrar, begins the process of registration 21 |jand operates as the decisive point for resolving any competing registrations in the same property. See 22 L.P.R.A. § 2256; Soto-Rios v. BPPR (In re Soto-Rios), 662 F.3d at 121. Registration will relate- 23 to the filing of the deed. Id. at 121. 24 BPPR satisfies this requirement: it filed its Mortgage Deed for registration on September 15, 25 26 * Article 53 of the Puerto Rico Mortgage Law provides that “[r]egistered titles become effective for third 97 || patties from the date of their registration. For all intents and purposes, the registration date, including the determination of the term needed for cancellation of entries must appear in the registration itself. In order to 2g || determine preference between two or more registrations of the same property, attention shall be given to the date, hour and presentation number of the respective titles in the Registry.” 30 L.P.R.A. § 2256. 10

1 2003, which had been pending registration ever since without any notifications of defects from the 2 Property Registrar. See the Property Registrar’s Certification dated May 25, 2011 (Docket no. 60, p. 8). 3 Therefore, the second prong is also met. 4 Circumstances for the perfection-authorizing statutes within the parameters of 11 U.S.C § 546(b) 5 The third requirement for the exception to the automatic stay to apply is that creditor meets 6 the requirements set forth in Section 546(b)(1) of the Bankruptcy Code, namely: (i) that the creditor 7 must act pursuant to the law of general applicability; (ii) that law must allow the creditor to perfect 8 an interest in property; and (iii) such perfection must be effective against previously acquired rights 9 in the property. The first two (2) elements established pursuant to Section 546(b)(1) were previously 10 discussed under the requirements of Section 362(b)(3) of the Bankruptcy Code. As to this third 11 requirment, there is no dispute regarding the general applicability of the Puerto Rico Mortgage Law 12 and that its Article 53 has a specific relation-back provision which provides for the perfection of a 13 creditor’s secured interest (interest in property) to relate back to the date of presentation. 30 L.P.R.A. 14 § 2256. This requirement consists of whether absent of the bankruptcy filing, the creditor could have 15 perfected its interest against an entity acquiring rights in the property before the date of perfection. 16 It is intimately related to Mortgage Law of Puerto Rico’s relation back-provision, since any other 17 liens or encumbrances presented or registered with a prior date to the filing of the bankruptcy petition 18 but with a subsequent date to the dates the mortgage liens were presented would not take precedence 19 over the mortgage liens based on the principle of prior tempore potior iure. See Ponce Federal 20 Savings v. Registrador, 105 P.R.R. 563, 570, 105 D.P.R. 486, 492 (1976) (“The principle of register 21 priority (prior tempore potior iure) compels the Registrar to handle the titles presented by the strict 22 order of their presentation to the Registry.”) 23 In this case, BPPR’s Mortgage Deed has already been recorded by the Property Registrar as of 24 October 11, 2011, which pursuant to Article 53 of the Mortgage Law, relates-back to September 15, 25 2003. See Docket No. 69, pp. 2-3. 26 Avoidance Action under 11 U.S.C. §§ 544(a)(1) & 544(a)(3) 27 Sections 544(a)(1) and 544(a)(3) of the Bankruptcy Code provide in their relevant parts that: 28 [t]he trustee shall have, as of the commencement of the case, and without regard to any 11 1 knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable 2 by—(1) acreditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all 3 property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; ... (3) a bona fide purchaser of real property, other 4 than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the 5 commencement of the case, whether or not such a purchaser exists [and has perfected such transfer]. 11 U.S.C. §§544(a)(1) & 544(a)(3). 6 7 The rights of a trustee under 11 U.S.C. § 544 are determined by state law. Abboud v. The 8 Ground Round, Inc., 482 F.3d 15, 20 (1* Cir. 2007) (holding that Pennsylvania law determined the 9 of a hypothetical lien creditor under 11 U.S.C. § 544(a)(1)). See also In re Santos & Nieves, 10 814 F. 2457, 61 (1* Cir. 1987) citing Carina Mercury, Inc. v. Igaravides, 344 F. 2d 397 (1* Cir. 11 Moreover, the extent of the trustee’s rights as a judicial lien creditor or a bona fide purchaser 12 real property is dictated by the state law of the jurisdiction governing the property in question. 13 Alan N. Resnick & Henry J. Sommer, 5 Collier on Bankruptcy §] 544.03[1] (16" ed. 2012). The 14 |lpurpose of the trustee’s avoiding powers is simply “to foster the equal distribution of a debtor’s assets 15 lamong its general non-priority creditors.” Segarra v. Melendez-Osorio (In re Chardon-Rubero), 2006 16 LEXIS 3912 at *8, 2006 WL 3909922 at *3 (Bankr. D.P.R. 2006). However, the trustee’s 17 |lavoiding powers under Section 544(a) are subject to Section 546(b) of the Bankruptcy Code, which 18 |lprovides an important exception to the trustee’s avoiding powers since the same are subject to “any 19 generally applicable law that permits” relation-back. Alan N. Resnick & Henry J. Sommer, 5 Collier 20 jon Bankruptcy §] 544.04 (16" ed. 2012). As previously discussed, this court concludes that BPPR 21 |\satisfies the requirements under Section 546(b) of the Bankruptcy Code, thus falling within the 22 |lexception to the trustee’s avoiding powers pursuant to Section 544(a) of the Bankruptcy Code. 23 |\Preferential Transfers under II U.S.C. §§ 547(b) & 547(e)(1)(A) 24 Section 547(b) of the Bankruptcy Code allows the trustee to avoid, as a preference: 25 any transfer of an interest of the debtor in property— (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was 26 made; (3) made while the debtor was insolvent; (4) made-(A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the 27 date of the filing of the petition, if such creditor at the time of such transfer was an insider; and (5) that enables such creditor to receive more that such creditor would receive 28 if-(A) the case were a case under chapter 7 of this title; (B) the transfer had not been 12

1 made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title. 11 U.S.C. § 547(b). 2 Section 547(e)(1)(A) provides that “a transfer of real property other than fixtures, but 3 including the interest of a seller or purchaser under a contract for the sale of real property, is 4 perfected when a bona fide purchaser of such property from the debtor against whom applicable law 5 permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the 6 transferee.” 11 U.S.C. § 547(e)(1)(A). Moreover, Section 547(e)(3) establishes that “a transfer is 7 not made until the debtor has acquired rights in the property transferred.” 11 U.S.C. §547(e)(3). 8 Perfection as to real property depends entirely upon state law. See Alan N. Resnick & Henry J. 9 Sommer, 5 Collier on Bankruptcy ¶ 547.06[1] (16 th ed. 2012). As discussed above, the applicable 10 state law is Article 53 of the Mortgage Law of Puerto Rico, 30 L.P.R.A. § 2256, which has a relation 11 back mechanism that establishes that mortgage liens become effective against third parties from the 12 date the mortgage deeds were presented to the Property Registry. It is important to note that, “the 13 entry of presentation is constructive notice to all the world until the document is recorded.” Flores 14 v. Arroyo, 43 D.P.R. 282, 283 (1932). Thus, in order for a bona fide purchaser to acquire an interest 15 superior to BPPR’s interest in these properties the same had to present to the Property Registrar for 16 recordation a deed prior to the date in which BPPR presented its Mortgage Deeds, to wit, September 17 15, 2003. See Docket No. 16, pp.14-39, and Docket No. 60, p. 8. No such evidence exists in the docket 18 of this case. 19 Conclusion 20 For the reasons stated above, this court finds that the actions by BPPR satisfy the 21 requirements of Sections 362(b)(3) and 546(b)(1) of the Bankruptcy Code, thus falling within the 22 exception to the automatic stay and the exception to the trustee’s avoiding powers under Section 23 544(a) of the Bankruptcy Code. This court also concludes that Plaintiffs have not established the 24 necessary elements of a preferential transfer under Section 547(b) and 547(e)(1)(A) of the 25 Bankruptcy Code. 26 In view of the foregoing, BPPR’s Motion for Summary Judgment is hereby GRANTED and 27 Debtor’s Opposition & Cross Motion for summary judgment is hereby DENIED. Therefore, it is now 28 13 1 lordered that the instant adversary proceeding be and is hereby dismissed. 2 Judgment shall be entered accordingly. 3 In San Juan, Puerto Rico, this 29" day of May 2012. 4 5 ° Atfarvgrle. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14