Miranda v Banco Popular de Puerto Rico

Case Type:
Business
Case Status:
Affirmed
Citation:
20-9006 (1st Circuit, Aug 06,2021) Published
Tag(s):
Ruling:
The U.S. Court of Appeals for the First Circuit (Circuit) affirmed the decision of the Bankruptcy Appellate Panel for the First Circuit (BAP), which itself affirmed the entry of summary judgment by the U.S. Bankruptcy Court for the District of Puerto Rico (BC) against the trustee for the estate of José Antonio López Cancel and Carmen Nereida Medina Gonzá. (TR), on the same basis: that an unrecorded mortgage in Puerto Rico is not "[a] transfer of property of the debtor . . that is voidable by a bona fide purchaser" adequate to trigger a bankruptcy trustee's right to avoid and preserve the lien.
Procedural context:
The Bankruptcy Appellate Panel for the First Circuit (BAP) affirmed the BC's entry of summary judgment against the TR on one ground: because no "transfer of property of the debtor" that could be avoided under § 544(a) can take place when Puerto Rico law does not recognize that any such property interest created by an unrecorded mortgage, the TR could not avoid the unrecorded encumbrance (and the accompanying promissory note) held by Banco Popular de Puerto Rico (BPPR) on the eve of the filing of a joint chapter 7 petition by José Antonio López Cancel and Carmen Nereida Medina González (DRs). The TR for the DRs' joint estate, Wilfredo Segarra Miranda, appealed; both BPPR and the debtor home-intervenors urged affirmance.
Facts:
In December 2003, the DRs had executed a promissory note in the amount of $163,400, secured by a mortgage on property located in San Juan, Puerto Rico (the Property). Inexplicably, the mortgage was never presented to the registry of property in Puerto Rico for recording. On September 17, 2015, the DRs filed their chapter 7 petition; on January 8, 2016, they received their discharge. In January 2016, the TR filed a complaint against BPPR, alleging that the Property was property of the estate, and he could avoid the unrecorded mortgage held by BPPR under either § 549 or § 544 and preserve the avoided lien for the benefit of the estate under § 551. The DRs intervened and moved for summary judgment; the TR filed a counter motion for summary judgment, citing DeGiacomo v. Traverse (In re Traverse), 753 F.3d 19 (1st Cir. 2014), which held, as a matter of Massachusetts law, that "[w]here a creditor has an unperfected lien on a debtor's property, the Bankruptcy Code empowers a trustee to avoid and preserve the lien for the benefit of the estate." The BC first granted summary judgment in favor of the TR; upon review of the DRs' motion for relief from judgment, it reversed itself and held in the DRs' favor.
Judge(s):
Jeffrey R. Howard; Sandra L. Lynch; and William J. Kayatta Jr.

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