Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Company (In re Ute Mesa Lot 1, LLC)
- Summarized by Brendan Gage , Goulston & Storrs PC
- 9 years 6 months ago
- No. 12-1134 (10th Cir. Nov. 25, 2013)
- The filing of a notice of lis pendens against real property in Colorado is not a preferential “transfer of an interest in property” within the meaning of § 547(b). In affirming the bankruptcy court (“BC”) and the district court (“DC”), the Court of Appeals for the Tenth Circuit noted that the Bankruptcy Code does not define “property” or “an interest in property,” and courts must look to state property law. In Colorado, a lis pendens serves the limited purpose of providing notice to potential purchasers of a possible judgment affecting property; a lis pendens does not constitute a lien against real property. The Tenth Circuit recognized that a lis pendents does render title to real property “unmarketable” and effectively prevents transfer of the property until the litigation is resolved or the les pendens is expunged. However, the Court rejected the debtor’s argument that rendering title unmarketable equated to a “transfer” as defined by § 101(54)(D). That the debtor now had to inform prospective purchasers of the lis pendens before conveying its real property did not amount to a “transfer” of the property. Finally, the Court held that § 547(e)(1)(A) only determines when a transfer is perfected as opposed to defining when a transfer occurs as argued by the debtor.
- Procedural context:
- The debtor filed an adversary proceeding against a creditor-bank seeking to avoid a lis pendens as a preferential transfer under § 547. The BC granted the creditor’s motion to dismiss, and the DC affirmed. The debtor appealed.
- The debtor, a limited liability company, received a loan to finance a construction project on property owned by the debtor. To secure the loan, the bank prepared a deed of trust and improperly named the debtor’s sole member rather the debtor as the owner of the property. The bank commenced a suit in Colorado state court seeking reformation of the deed of trust and a declaration that it had a first priority lien on the property. Thereafter, the bank filed a notice of lis pendens in the real property records. The debtor then filed a Chapter 11 bankruptcy petition.
- Kelly, Lucero, and Matheson, Circuit Judges.
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