Justia Real Estate & Property Law Opinion Summaries

Chapter 11 Debtor, an LLC, held certain parcels of undeveloped land that were included within property-owners' improvement districts (the Districts) formed in accordance with Arkansas law. After Debtor entered into bankruptcy, secured creditor National Bank of Arkansas (the Bank) filed a motion with the bankruptcy court seeking a ruling that a proposed state court action against the Districts would not violate the automatic stay. The bankruptcy court determined (1) the automatic stay applied to the Bank's proposed action and that relief from the stay was unwarranted, and (2) the Bank's motion was barred by laches. The bankruptcy appellate panel (BAP) affirmed. The Eighth Circuit Court of Appeals reversed, holding (1) the automatic stay did not apply to the Bank's proposed action against the Districts because the Districts were neither property of the Debtor nor debtors themselves, the Bank's action would only impact the value of the estate in some undetermined and indirect manner, and the action would not divest the Debtor of its property; and (2) the doctrine of laches did not apply in this situation because there was no showing of detrimental reliance by the Debtor upon the Bank's failure to raise this particular challenge in a more timely fashion. View "Nat'l Bank of Ark. v. Panther Mtn. Land Dev. " on Justia Law

Orton filed a Chapter 7 petition. On Schedule A (realty), he listed his one-eighth interest in vacant land that is subject to an oil and gas lease, stating fair market value as $34,000 and claiming an exemption for $4,250 (1/8). On Schedule B (personal property), Orton listed his one-fourth interest in royalty interest in the oil and gas lease, assigning a fair market value of $1; no well has been drilled. On Schedule C (claimed exemptions), Orton claimed wildcard exemptions, 11 U.S.C. 522(d)(5), for $4,250 and $1. No party objected. The Trustee moved to close the case and to except Orton’s royalty interest from abandonment, preserving ability to recover any future royalties for the estate. Orton objected, claiming that he had successfully, permanently removed the assets from the estate, securing for himself future appreciation, free from creditors’ claims. The Bankruptcy Court held that the Trustee was entitled to pursue any future increase in value above the amount stated in Schedule C. The district court and Third Circuit affirmed. The Trustee, not the Debtor, is entitled to post-petition appreciation in value of estate assets that surpasses the amount exempted. Orton had exempted only an interest, not the asset itself, and was entitled to only the amount listed in Schedule C, not to future appreciation. View "In Re:Orton" on Justia Law

In 2005, Banks, a construction worker, wanted to flip houses, but did not have capital. John, a mortgage broker, suggested that they purchase homes from distressed owners at inflated prices, with the sellers promising to return money above what they owed their own lenders. Owners cooperated rather than face foreclosure. Banks renovated the houses using funds received from sellers and resold them. Johns collected a broker’s fee. When they purchased a house from owners in bankruptcy, they wanted a mortgage to secure payment from the sellers and informed the trustee of the bankruptcy estate. Despite protestations by the trustee, the sale went through, and Banks used the rinsed equity to pay off sellers’ creditors through the trustee. The sellers’ lawyer discovered the scheme, which led to indictments. Johns was convicted of making false representations to the trustee regarding the second mortgage and for receiving property from a debtor with intent to defeat provisions of the Bankruptcy Code. With enhancements for financial loss and for targeting vulnerable victims, Johns was sentenced to 30 months. The Seventh Circuit affirmed the conviction, rejecting challenges to sufficiency of the evidence and jury instructions, but remanded for clarification of sentencing enhancements. View "United States v. Johns" on Justia Law

The debtors are limited partnerships that own real estate on which they operate low-income housing. In their Chapter 11 cases, the bankruptcy court concluded that, for purposes of determining the value of the secured portion of the bank’s claims under 11 U.S.C. 506(a), determination of the fair market value of various apartment complexes included consideration of the remaining federal low-income housing tax credits. The court also concluded that various rates and figures used by the bank’s appraiser were more accurate. The Sixth Circuit affirmed. A major component of the value of the bank’s claims was determination was whether the value of the remaining tax credits would influence the price offered by a hypothetical willing purchaser of the property that serves as collateral for the claims.

Debtor appealed an order of the bankruptcy court sustaining the chapter 7 trustee's objection to debtor's claimed homestead exemption. The court concluded that the bankruptcy court identified debts debtor incurred prior to October 2007, when the property at issue became his homestead. Debtor had not challenged that finding on appeal. Pursuant to Iowa Code 561.21(1), therefore, the house could be sold to satisfy those debts, notwithstanding debtor's claimed homestead exemption. Accordingly, the court affirmed the order.

In 2005, Defendants-Appellants Robert and Shelly Heath executed a promissory note in favor of Option One Mortgage Corporation (Option One) which was secured by a mortgage. Defendants defaulted on the note in 2008. Plaintiff-Appellee Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2005-4 Asset Backed Certificates, Series 2005-4 (Appellee), filed its petition to foreclose. Attached to the Petition was a copy of the note, mortgage and assignment of the mortgage. The note contained neither an indorsement nor an attached allonge. The assignment of mortgage was made by Option One Mortgage Corporation to Appellee and was dated February 28, 2008. It did not purport to transfer the note. The bank filed a motion for summary judgment and Appellants did not respond. The judgment was granted in rem and in personam against Appellants. The property was sold at a sheriff's sale, and a motion to confirm the sale was filed on the same day. A day before the hearing to confirm the sale, Appellants filed for bankruptcy. In the pendency of the sale confirmation proceedings, Appellants obtained new counsel, and filed a motion to vacate the confirmation hearing. They alleged the bank did not prove it was entitled to enforce the note or to foreclose. The bank responded that because Appellants had their personal liabilities discharged in the bankruptcy, they no longer held any interest in the foreclosed property. Upon review, the Supreme Court found that the bank with its unindorsed note did not prove that it was entitled to foreclose. The Court reversed the trial court's grant of summary judgment in favor of the bank and remanded the case for further proceedings.

Debtor borrowed from Arvest to purchase a newly-constructed home, executing a promissory note and mortgage. After debtor filed a voluntary petition for Chapter 13 bankruptcy relief, Arvest then purchased the mortgaged property at a foreclosure sale for substantially less than what debtor owed on the promissory note and filed this adversary proceeding, seeking a judgment declaring the mortgage debt nondischargeable under 11 U.S.C. 523(a)(2) and (4). At trial, the bankruptcy court directed a verdict for debtor on the section 523(a)(2) claim but concluded that $65,000 of the remaining debt was nondischargeable under section 523(a)(4) because debtor held that amount of settlement proceedings in a fiduciary capacity created by section 4-58-105(b)(2) of the Arkansas Code. The BAP reversed and Arvest appealed. The court agreed with the BAP that the statute did not create the requisite fiduciary relationship, and that debtor was not guilty of embezzlement within the meaning of section 523(a)(4), affirming the judgment.

The Supreme Court was asked to respond to a certified question posed by the United States Bankruptcy Court for the District of Colorado. The question arose out of an adversary proceeding in which the plaintiff, in his capacity as Chapter 7 Trustee, sought to assert his "strong arm" powers under 11 U.S.C. § 544(a)(3) to avoid the defendants' security interest in the debtor's property and to recover the property for the benefit of the estate. At the time the bankruptcy petition was filed, the defendants' security interest was documented in a deed of trust that was recorded and properly indexed in the City and County of Denver, where the encumbered property is located. The recorded deed identified the encumbered property by a correct and complete street address and expressly referred to an attached legal description of the property. The recorded deed, however, omitted the referenced attachment. The Trustee contended that because the recorded deed of trust did not contain a legal description of the encumbered property, it failed to provide sufficient notice of the defendants' security interest to a subsequent purchaser of the property under sections 38-35-109(1) and 38-35-122, C.R.S. (2011). The Supreme Court held that, under the circumstances of this case, actual knowledge could not be imputed to the trustee, and the deed of trust did not otherwise provide sufficient notice of the defendant's security interest in the debtor's property. The supreme court answered the certified question in the negative and returned the case to the United States Bankruptcy Court for the District of Colorado for further proceedings.

In 2007, Debtor purchased a manufactured home, borrowing the funds from Creditor and granting a security interest. Creditor filed an application for first title and a title lien statement in Whitley County, Kentucky. The seller of the manufactured home is located in Whitley County. Debtor resided at the time in Laurel County, Kentucky. Later, the Kentucky Transportation Cabinet issued a Certificate of Title for the Manufactured Home showing the lien as being filed in Whitley County. In 2010, Debtor filed his voluntary Chapter 7 bankruptcy petition. The Chapter 7 Trustee initiated an adversary proceeding. The Bankruptcy Court avoided the lien, 11 U.S.C. 544. The Sixth Circuit affirmed. The statute requires that title lien statements be filed in the county of the debtor’s residence even if the initial application for certificate of title or registration is filed in another county under KRS 186A.120(2)(a).

Debtors began development of a subdivision and entered into a construction loan agreement with Bank Lenders, who retained a lien on substantially all of Debtors' assets. Debtors subsequently borrowed from Cornerstone, which similarly received liens and later agreed to subordinate the claims to that of Bank Lenders. After selling approximately a quarter of the planned units, Debtors filed petitions for relief under Chapter 11. The final plan of reorganization, confirmed by the court, specified that claims of Cornerstone would be secured to the extent determined by the court and included a budget that anticipated full payment of both Bank Lenders and Cornerstone; unsecured claimants would receive about 45 percent. The court valued Cornerstone's claims, using fair market value of the project on the plan confirmation date, rather than potential use and disposition value. Because the amount due Bank Lenders exceeded that value plus the value of other assets, no collateral remained to secure Cornerstone's claims; Cornerstone was treated as unsecured. The district court and Third Circuit affirmed. The Bankruptcy Court properly accepted the valuation because it overcame the presumed validity and amount of the Cornerstone’s secured claims. Cornerstone did not prove that secured claims were worth more than the valuation indicated.