Hooshim, et al. v. Wolkowitz (In re Kim)

In re Kim, No. CC-15-1273-TaKuF (9th Cir. B.A.P. May 2, 2016). Not-for-publication memorandum.
A trustee may not avoid a lien as a fraudulent transfer after selling the property subject to (i.e., not free and clear of) the lien.
Procedural context:
The chapter 7 trustee sold to the debtor estate real property subject to two deeds of trust. Seven months later, the trustee commenced an adversary proceeding against the beneficiaries of the deeds of trust to avoid the liens as actual-intent fraudulent transfers by the debtor. The beneficiaries asserted that the trustee lacked standing to avoid the liens because the estate no longer owned the property. The bankruptcy court entered judgment for trustee, avoiding the deeds of trust and, under sections 550 and 551, providing that all rights in the deeds of trust were transferred to the trustee and preserved for the benefit of the estate. On appeal, the BAP reversed and remanded.
A party has standing only when an injury can be redressed through a favorable judicial decision. After the trustee’s sale of the property subject to the liens, the estate’s injury was no longer redressable through a lien-avoidance action. The trustee thus lacked standing to avoid the liens after the property sale. The trustee could have sought under section 550 to recover the value of the avoidable liens, but he did not do so. Had he done so, he would have faced the requirement that the lien be “appropriately valued,” which the BAP described a “significant hurdle[] to recovery.”
Laura S. Taylor, Frank L. Kurtz, and Robert J. Farris, Bankruptcy Appellate Panel Judges.

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