Arnot v. Endersen, et al. (In re Endersen)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
9 years 10 months ago

Citation:

In re Endresen, No. OR-15-1141-KiFJu (9th Cir. B.A.P. Apr. 8, 2016).

Tag(s):

Ruling:

Assignment to a trust-deed beneficiary of proceeds of damage to the property gave the beneficiary a lien on funds paid in settlement of construction-defect litigation, notwithstanding 552. Published.

Procedural context:

In 2011, debtors filed for chapter 7 in Oregon and obtained a discharge, after which their case was closed. In 2013, debtors were added as co-plaintiffs in a state-court action against the builder of rowhomes on properties debtors own, subject to trust deeds. In that action, the plaintiffs alleged that the rowhomes were negligently constructed. In 2014, the bankruptcy court reopened the chapter 7 case, and debtors’ claims in the action were settled. The bankruptcy court approved the settlement, and the proceeds net of attorney fees are held in trust by debtors’ state-court attorney. The chapter 7 trustee brought an adversary proceeding seeking a determination that the trust-deed beneficiaries had no enforceable security interests in the settlement payment. In a published opinion on cross-motions for summary judgment, the bankruptcy court determined that the beneficiaries had valid and continuing security interests in the settlement proceeds as proceeds of their collateral. Arnot v. Endresen, 530 B.R. 856 (Bankr. D. Or. 2015). On appeal, the BAP affirmed.

Facts:

Each trust deed is modeled after the Fannie Mae/Freddie Mac Uniform Instrument with MERS for an Oregon Single Family Residence, identified as Form 3038 1/01. Under 552(b)(1), if a prepetition security interest encumbers collateral and its proceeds, any proceeds of the collateral remain subject to the security interest, even if they are received after the petition date. Oregon UCC law does not govern trust deeds and mortgages. The beneficiaries’ security interests in the real property and proceeds attached by virtue of the assignments in the trust deeds and were perfected upon recording. The proceeds were paid for the purpose of repairing damage to the collateral and thus were substitute collateral subject to the beneficiaries’ liens under the trust deeds. Thus, the beneficiaries’ liens extended to the settlement proceeds as proceeds of the real-property collateral and thus are proceeds under 552(b)(1).

Judge(s):

Ralph B. Kirscher, Robert J. Faris, and Laura S. Taylor, Bankruptcy Appellate Panel Judges.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!