Marcusen v. Glen (In re Glen)
- Citation:
- United States Court of Appeals for the Eighth Circuit, No. 10-2031, An Appeal from a Decision of the Eighth Circuit Bankruptcy Appellate Panel
- Tag(s):
-
- Ruling:
- A reduction in in the value of an unperfected lender's original equity, as a result of undisclosed subsequent perfected liens in the same property, is not sufficient to satisfy Section 523(a)(2)(A)'s requirement that money or property must have been obtained from the junior lender.
- Procedural context:
- Appeal from the decision of the Eighth Circuit Bankruptcy Appellate Panel, reversing the bankruptcy court's decision that the debt owed to an unperfected junior lender was non-dischargeable, pursuant to Section 523(a)(2)(A). The Eighth Circuit Court of Appeals affirmed the BAP's decision.
- Facts:
- The debtors were home builders who obtained initial financing from the Marcusens which was evidenced by a series of promissory notes. The notes were secured by corresponding mortgages executed by the debtors. The Marcusens did not record the mortgages.
The debtors were subsequently unable to complete some of the construction without additional financing. Since the Marcusens were unable to provide additional funds, the debtors obtained additional financing from Winona National Bank (the "Bank") evidenced by a promissory note and secured by a mortgage. The debtors did not disclose the Marcusens' prior unrecorded mortage on the same property and did not tell the Marcusens about the Bank's mortgage. The Bank recorded its mortgage, thus taking priority over the Marcusens' unrecorded mortgage interest. The debtors then sought additional financing to build another home. They obtained a loan from Sunny Acres Development, LLC ("Sunny Acres") in return for a promissory note secured by a mortgage on the property. The debtors failed to disclose the Marcusens' prior unrecorded mortgage on the same property and failed to tell the Marcusens about Sunny Acres' mortgage. Sunny Acres recorded its mortgage, thus taking priority over the Marcusens' unrecorded mortgage on the property.
After the debtors filed for Chapter 7 bankruptcy, the Marcusens filfed an adversary proceeding seeking to have their debt excepted from discharge, pursuant to Section 523(a)(2)(A) and (a)(2)(B). The Marcusens argued that the debtors had fraudulently obtained the Marcusens' equity in the property by concealing that the debtors had granted mortgages to the Bank and Sunny Acres. The debtors contended that the omission was not contemporaneous with the Marcusens' investment and thus any subsequent reduction in value of the Marcusens' equity is not within the scope of Sec. 523(a)(2)(A).
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