Thomas v. Bender (In re Thomas)

Summarized by Melissa Youngman , Melissa A. Youngman, P.A.
12 years 10 months ago

Citation:

William Arthur Thomas, III v. Theresa M. Bender (In re Thomas); Case No.: 12-13936 (11th Cir. Apr. 16, 2013)(unpublished)(per curiam)

Tag(s):

Ruling:

The Eleventh Circuit found no reversible error in lower court's holding that proceeds from a post-petition real estate sale arising from a pre-petition option contract constituted property of the debtor's bankruptcy estate, pursuant to 11 U.S.C. §541.

Procedural context:

Appeal from the U.S. District Court for the Northern District of Florida, affirming the Bankruptcy Court's entry of summary judgment in favor of the chapter 7 trustee, for the turnover of sale proceeds from a post-petition real estate sale, arising from a pre-petition option contract held by the debtor. Reviewed de novo.

Facts:

William Arthur Thomas, III (the "Debtor") is a real estate investor, involved in the "flipping" of real estate. In September 2009, the Debtor entered into an option contract to purchase certain real property from Craig Mobley ("Mobley"). At that time, the real property in question was facing foreclosure. Accordingly, the debtor and Mobley also entered into a Short Sale Agreement, whereby the Debtor agreed to negotiate a short sale of the property. In the event the Debtor successfully obtained approval of a short sale of the property from the mortgage holder, the contract further provided that the Debtor would be permitted to sell the property to a third party, and would then be entitled to the net profit of the sale proceeds, less the short sale payoff amount. Sometime thereafter, the Debtor recorded the option contract and hired third party negotiators to obtain approval for a short sale of the property from the mortgage holder. The mortgage holder ultimately agreed to release the mortgage for a reduced amount in a short sale. After the Debtor filed his chapter 7 bankruptcy case, the Debtor exercised his option to buy the property, and then entered into a sales contract to sell the property to third party purchasers. The Debtor received $30,839.13 at the closing of the sale to the third party purchasers. He remitted $22,000 of the sale proceeds to the third party negotiators he employed to obtain approval of the short sale from the mortgage holder. Subsequently, Theresa Bender (the "Trustee") filed an action against the Debtor, seeking the proceeds of the post-petition real estate sale. The Bankruptcy Court granted summary judgement in favor of the Trustee, concluding that the sale proceeds constituted property of the Debtor's bankruptcy estate. Noting that 11 U.S.C. § 541(a)(1) defines property of the estate very broadly, and finding that under Florida law, the Debtor’s pre-petition option contract gave the Debtor a valid legal interest in Mobley’s property, the Court rejected the Debtor’s argument that the post-petition sale proceeds were too attenuated from the pre-petition option contract in order to be considered property of the Debtor’s bankruptcy estate. Citing 11 U.S.C. § 541(a)(6), the Court held that the sale proceeds “constituted proceeds of the option contract, and thus, were also property of the estate.” The Court also rejected the Debtor’s argument that the post-petition sale proceeds were only earned as a result of his post-petition personal services. In so finding, the Court explained that the exception outlined in 11 U.S.C. § 541(a)(6) only relates to post-petition services performed personally by the debtor. In this case, the Debtor “assigned the task of negotiating the short sale” to the mortgage holder and the third party negotiators he hired. He also hired a real estate broker to list the property for sale and to find the third party purchasers. Accordingly, because any services the Debtor may have performed were de minimus, the Court held that the exception in Section 541(a)(6), did not apply. The Court further held that the sale proceeds constituted property of the estate at the moment of the sale, and, therefore, the entire amount of the proceeds should be returned to the estate, including the amount the Debtor paid to the third party negotiators.

Judge(s):

HULL, JORDAN, and EDMONDSON, Circuit Judges

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