REAL ESTATE & BANKRUPTCY (Preferential Transfer)

REAL ESTATE & BANKRUPTCY (Preferential Transfer)

Whether a non-judicial foreclosure sale, carried out under State law in the 90 days to 1 year before bankruptcy, will be considered a “preferential transfer,” and therefore invalid, will depend upon many factors. The court must hear evidence regarding whether or not the foreclosing creditor received more in the pre-bankruptcy foreclosure sale than it would have received through the bankruptcy. The court cannot say, as a matter of law, that such creditors always receive more in a pre-bankruptcy non-judicial foreclosure than they would have received in the bankruptcy. Therefore, whether a particular sale is barred as a preferential transfer will be determined on a case-by-case basis.

In re: Buckskin Realty Inc., Case No. 1-13-40083-nhl, Adv. Pro. No.: 15-01004-nhl
United States Bankruptcy Court, E.D. New York filed March 26, 2021, interpreting 11 USC Sec. 547 and BFP v. Resolution Trust Corp., 511 U.S. 531 (1994).

 

The “Minority Rule,” Holds That “Residence” Includes A Non-Primary Residence

The “Minority Rule,” Holds That “Residence” Includes A Non-Primary Residence

BANKRUPTCY LAW (Homestead Exemption): In a recent case, the federal Second District Court of Appeal (NY, NJ, Connecticut) held that any “residence” in which the debtor has an interest is eligible for application of the homestead exemption. The court adopted the “minority rule,” which holds that “residence” includes a non-primary residence (e.g., a vacation home, or a property in which a spouse or child lives), and thus federal, controls the application of the homestead exemption.

As a result, a debtor may seek to have the homestead apply to her non-primary residence, if the federal courts in that state have taken a position on the application of the federal defeinitions of “homestead” and “residence.”
Notably, California law allows a debtor to assert a homestead exemption as to property in which the debtor’s spouse or former spouse lives. Calif. Code of Civil Procedure Sec. 704.720(d).

The Maresca court said:

“When a debtor files for bankruptcy, she may “exempt” certain interests from her “estate,” thus removing them from the pool of assets available to satisfy her creditors. 11 U.S.C. § 522(b)(1); see also id. § 541(a)(1) (defining property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case”). With some exceptions not relevant here, a debtor may also “avoid the fixing of” judicial liens on encumbered property that would otherwise be subject to an exemption. Id. § 522(f)(1)(A); see Owen v. Owen, 500 U.S. 305, 311-13, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).

“[T]he bankruptcy court adopted what it called the “minority ‘plain meaning’ approach,” [under] which the term “residence” is interpreted, using traditional canons of construction, to include primary and non-primary residences. See, e.g., In re Demeter, 478 B.R. 281, 286-92 (Bankr. E.D. Mich. 2012).

“[Para.] When a debtor files for bankruptcy, she may “exempt” certain interests from her “estate,” thus removing them from the pool of assets available to satisfy her creditors. 11 U.S.C. § 522(b)(1); see also id. § 541(a)(1) (defining property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case”). With some exceptions not relevant here, a debtor may also “avoid the fixing of” judicial liens on encumbered property that would otherwise be subject to an exemption. Id. § 522(f)(1)(A); see Owen v. Owen, 500 U.S. 305, 311-13, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).

“[Para.] The federal exemption at issue in this case, referred to as the “homestead” exemption, allows the debtor to exempt—and thereby avoid a judicial lien upon—her “aggregate interest, not to exceed [$23,675] in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence.” Id. § 522(d)(1) & (f)(1)(A); see 4 Collier on Bankruptcy ¶ 522.09[1].”

In re Melissa Maresca, 982 F.3d 859 (2020)

Argued: October 22, 2020.

Decided: December 14, 2020

Real Estate: Legal Actions And Trusts

Real Estate: Legal Actions And Trusts

Sometimes, real estate is held in a trust. What happens when there is a legal action by or against a trust? A trust itself cannot sue or be sued. (Presta (2009) 179 CA4 909, 914). “As a general rule, the trustee is the real party in interest with standing to sue and defend on the trust’s behalf.” (Estate of Bowles (2008) 169 CA4 684, 691) “A claim based on a contract entered into by a trustee in the trustee’s representative capacity . . . may be asserted against the trust by proceeding against the trustee in the trustee’s representative capacity . . .” (Calif. Prob. C. § 18004).

Both the trustee and anyone who thinks to sue the trust must keep these matters in mind, among other things.

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