Gaines v. Parker (In re Shaver Lakewoods Development Inc.)

9th Cir. Bankrupcy Appellate Panel Case No. EC-15-1312-TaJuD (Not or Publication)
The BAP agreed that the assignment in favor of the Appellant did not give rise to a mortgage against the real property at issue. The terms of the agreement between the Appellant and Debtor did not rise to level of being considered an equitable mortgage on the real property at issue. Therefore, the bankruptcy court correctly ruled that the assignment in favor of the Appellant did not supply Appellant with a lien against the real property.
Procedural context:
Verlyn Gaines ("Appellant") appealed the bankruptcy court's judgment determining that Appellant did not hold a secured lien against real property owned by Shaver Lakewoods Development ("Debtor") and subsequently sold by the Chapter 7 Trustee ("Trustee").
Prior to the bankruptcy Appellant extended lines of creditor and other financing to the Debtor for a planned community is California. There were no formal agreements in place; however, the Appellant and Debtor generally agreed that Appellant would be paid from the proceeds of the developed lots upon sale. Despite the general agreement, Debtor subsequently sold some of the lots and Appellant did not receive any of the sale proceeds. Appellant discovered the transfers; therefore, the Appellant and Debtor entered into an "Assignment of Proceeds" (which was later amended). The Debtor granted Appellant right, title, and interest in partial net sale proceeds of the remaining 13 lots (collectively referred to as the "Property"). The use of the assignment in lieu of a trust deed was a "considered choice". The Property was subject to an existing deed of trust. The first position holder of the deed of trust was entitled to enforce entire amount due if any junior liens were recorded. Debtor sold 9 homes and paid Appellant as agreed upon. The Trustee sold the remaining lots after the Debtor filed for Chapter 7 relief. Appellant asserted a secured lien in the bankruptcy case in the amount of $280,000. The Trustee commenced an adversary against Appellant to determine whether the Appellant had any rights in the sale proceeds. The bankruptcy court bifurcated the trials, and first determined assignment related to the personal property of the Debtor; therefore, the Appellant failed to perfect any personal property security interest. Therefore, the personal property security interest was subject to being set aside under the Trustee's strong arm powers.
Honorable TAYLOR, JURY, and DUNN, Bankruptcy Judges.

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