Summary:
The Debtor owned real property with her husband as tenants by the entireties, but then separated. Pursuant to a Separation Agreement, the Debtor signed a Quit Claim Deed granting the property to her husband in 2005 and the parties divorced in 2006. She later filed Chapter 13 on December 3, 2008, but, apparently unbeknownst to the Trustee, the Quit Claim Deed was not recorded until January 9, 2009, one day after the §341 Meeting of Creditors. The Debtor’s confirmed plan abandoned her interest in the property to the secured creditors. In 2010, she converted to Chapter 7 and the Trustee initiated an adversary proceeding to avoid the transfer under 11 U.S.C. § 549, as it was completed only after the filing of this bankruptcy and without authorization.
The Defendant, the ex-husband, moved for summary judgment, first arguing that she had no interest in the property at the time of filing due to the executed Quit Claim Deed. He also argued that the estate had only a negligible interest in the property, since he had since 2005 made all mortgage payments, as well as paying for all maintenance and improvements, for the property. He further argued that the Confirmation Order, which abandoned the property, did have the effect of authorizing the transfer.
The Court, however, found that the Confirmation Order only abandoned the property to the mortgage holders. As the Confirmation Order was not conclusive and "significant questions" remained whether the Chapter 13 Trustee was aware that the Quit Claim Deed was unrecorded and was also abandoning any interest the estate had in the property, summary judgment was denied.
Commentary:
An unmentioned issue here is whether the Chapter 7 Trustee could pursue an action against the Chapter 13 Trustee for failing to pursue or preserve this action. This opinion subtly seeks to avoid that unpleasant possibility. As many Chapter 7 Trustee are more aggressively attacking mortgages, and the documentation for those mortgages are mostly easily obtainable if there was a Proof of Claim filed in the Chapter 13 case prior to conversion, it is not unlikely that this tension between Trustees will increase.
For a copy of the opinion, please see:
Henries- Whether Abandonment of Property by Chapter 13 Trustee is Binding on later Chapter 7 Trustee.PDF
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