Randall L. Seaver, Trustee v. New Buffalo Auto Sales (In re Hecker)

No. 13-6005, --- B.R. --- (B.A.P. 8th Cir. Aug. 8, 2013)
Affirming the judgment of the bankruptcy court (“BC”), the Bankruptcy Appellate Panel for the Eighth Circuit (the “BAP”) held that (1) a junior lienholder lacked a cognizable injury required to have appellate standing to challenge the postpetition registration of prepetition judgments on real property subject to the junior lienholder’s interest when the senior lienholder foreclosed on the property and the junior lienholder had failed to redeem and (2) the trustee’s action to avoid the registration of the judgments as an unauthorized postpetition transfer under § 549 did not warrant damages under § 550 because the estate lost a worthless redemption right and the financial benefit received by the judgment creditors from registering their judgments came at the expense of senior lienholders rather than the estate.
Procedural context:
GMAC moved for a BC order voiding the postpetition registration of the prepetition judgments as a violation of the stay. The BC held that GMAC lacked standing to challenge the stay violation. GMAC appealed. As for the trustee’s § 549 action, the BAP ruled in Hecker I that the registration of the judgments was an avoidable transfer, but remanded the case to the BC to determine whether a money judgment under §550(a) was necessary to restore the estate to its prior financial condition. On remand, the trustee contended that the estate was entitled to the value of the benefit received from the registration of the judgments and the redemption by the judgment creditors of the real property which wiped out GMAC’s equity. The BC held that no money damages were warranted. The trustee appealed, and the BAP consolidated both appeals.
The debtor owned a home, encumbered by U.S. Bank’s first mortgage. GMAC held second and third mortgages. New Buffalo and Palladium (the “Judgment Creditors”) obtained prepetition judgments against the debtor. These judgments were unregistered when the debtor filed chapter 7. U.S. Bank obtained relief from the stay and foreclosed on the home. The trustee failed to exercise the debtor’s right to redeem the property. GMAC had some equity in the home via its second mortgage, but did not exercise its right to redeem. By failing to redeem, GMAC lost its lien and equity under state law, giving more junior lienholders the right to redeem. Without obtaining relief from the stay, the Judgment Creditors registered their judgments, enabling New Buffalo to redeem the home. The redemption operated as an assignment of U.S. Bank’s interest in the home to New Buffalo. New Buffalo then sold the home to Palladium.
Federman, Chief Judge, Saladino and Nail, Bankruptcy Judges.

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