In Re Judith Lynne Madrid, Debtor. Judith Lynne Madrid v. Lawyers Title Insurance Corp., and Donald Turney

The sole question before us is whether the nonjudicial foreclosure sale of appellant’s home may be set aside under 11 U.S.C. § 548 (a) of the Bankruptcy Code. The bankruptcy court, 10 B.R. 796 , set aside the sale, finding that a “transfer” occurred at the foreclosure and that less than reasonably equivalent value was paid to the debt- or. The Bankruptcy Appellate Panel, 21 B.R. 424 , reversed, holding that reasonably equivalent value is paid as a matter of law when there is a regularly conducted foreclosure sale.

We agree that the foreclosure sale cannot be set aside, but do not base our holding on the question of reasonably equivalent value. We hold that the sale must be upheld because the transfer of the home occurred at the time of perfection of the trust deed, not upon foreclosure.

BACKGROUND

In September, 1979, Judith Madrid purchased a home near Lake Tahoe, Nevada for $290,000. Madrid made a $125,000 down payment and executed a one-year note, secured by a first deed of trust on the residence, for the balance of $165,000. The $125,000 down payment was financed through Del Mar Commerce Company and secured by a second deed of trust on the same property. Appellee, Lawyers…

concurring:

I agree with the majority that the nonjudicial foreclosure sale of Madrid’s home was not a voidable transfer, but our reasons for the result differ. Madrid seeks to set aside the sale as a fraudulent conveyance under 11 U.S.C. § 548 . Section 548 forbids two kinds of fraudulent transfers, those with intent to defraud and those where no intent need be shown because the inadequacy of consideration leads to an irrebutable presumption of fraud. Madrid proceeds under the second theory, contained in the following portions of § 548:

The problem with Madrid’s argument is that she did not transfer the property. After she defaulted, the foreclosure proceeded without her participation or consent. I recognize that the definition of “transfer” at 11 U.S.C. § 101 (41) (West Supp.1983) includes “involuntary” transfers, but § 548 permits the trustee to set aside a transfer “if the debtor ... received less than a reasonably equivalent value” (emphasis added). This language contemplates that the debtor was the seller or otherwise participated in the transaction.

The power to set aside transfers for less than “reasonably equivalent value” is an outgrowth of the prohibition against…

725 F.2d 1197 10 Collier Bankr.Cas.2d 347 , 11 Bankr.Ct.Dec. 945 , Bankr. L. Rep. P 69,758 In re Judith Lynne MADRID, Debtor. Judith Lynne MADRID, Appellant, v. LAWYERS TITLE INSURANCE CORP., and Donald Turney, Appellees. No. 82-4433. United States Court of Appeals, Ninth Circuit. Argued and Submitted Feb. 18, 1983. Decided Feb. 13, 1984. Victor Perri, Vernon E. Leverty, Alan R. Smith, Miller & Daar, Reno, Nev., for appellant. Timothy J. Henderson, Henderson, Nelson & Moschetti, Reno, Nev., for appellees. Leon L. Vickman, Encino, Cal., for Mortgage Brokers Institute. Peter G. Clark, Oakland, Cal., for Richard O. Burke. Noel W. Nellis, Morrison & Foerster, San Francisco, Cal., for American College of Real Estate Lawyers. Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit. Before GOODWIN, TANG and FARRIS, Circuit Judges. TANG, Circuit Judge: 1 The sole question before us is whether the nonjudicial foreclosure sale of appellant's home may be set aside under 11 U.S.C. Sec. 548 (a) of the Bankruptcy Code. The bankruptcy court, 10 B.R. 796 , set aside the sale, finding that a "transfer" occurred at the foreclosure and that less than reasonably…