Tag Archives: eviction

Court denies lender’s motion to dismiss Section 547 preference action seeking to avoid valid foreclosure sale

  • Reed Smith LLP
  • Ann E. Pille
  • USA
  • ·         December 19 2011
  • Whittle Development, Inc. v. Branch Banking & Trust Co. et al. (In re Whittle Development Inc.) 2011 WL 3268398 (Bankr. N.D. Tex., July 27, 2011)      


The lender foreclosed on the borrower’s property after the borrower defaulted on its loan obligations. At the foreclosure sale, the property was sold to a subsidiary of the lender for less than the outstanding loan balance. Within one month following the foreclosure sale, the borrower filed for chapter 11 bankruptcy, and the lender filed a deficiency claim for the difference between the loan balance due and the amount of the credit bid at the foreclosure sale. Despite the fact that the foreclosure sale was operated in accordance with state law, the borrower argued that the value of the property exceeded the pre-foreclosure loan balance, and that the foreclosure sale was avoidable as a preferential transfer. The lender filed a motion to dismiss the preference claim, and the Bankruptcy Court denied the motion.


Whittle Development, Inc. was a real estate developer in Dallas, Texas. Whittle and the lender entered into a loan agreement secured by real property. After Whittle defaulted on its obligations, the lender notified Whittle of its intent to foreclose upon the property securing the note. A sale was held in conformity with all relevant state requirements, and the property was sold to a subsidiary of the lender for $1.2 million. Within a month, Whittle filed for bankruptcy, and the lender filed a deficiency claim for the roughly $1 million that remained due and owing following the foreclosure sale.

The debtor argued that there was no deficiency claim, contending that the property was worth $3.3 million. As such, the debtor contended that the lender received more than it would have under a chapter 7 liquidation, rendering the foreclosure avoidable as a preferential transfer under section 547 of the Bankruptcy Code. The debtor filed an adversary action, and the lender filed a motion to dismiss.  


Under section 547 of the Bankruptcy Code, a transfer can only be avoided if the creditor received more than it would receive in a chapter 7 case. The lender argued that this requirement could not be met as a matter of law, because the Supreme Court’s decision in BFP v. Resolution Trust Corp. 511 U.S. 531 (1994), held that a non-collusive foreclosure sale conducted in accordance with state law was not avoidable because, as a matter of law, it provided “reasonably equivalent value” for the property transferred. The debtor countered that, if it could prove the property’s fair market value was $3.3 million, the lender did indeed receive more through foreclosure than it would have in a chapter 7 liquidation (i.e., both the property and a $1 million deficiency claim on a $2.2 million debt). Further, the debtor argued that BFP did not control the outcome of this case, because BFP dealt with a constructively fraudulent transfer under section 548, and that section’s requirement of “reasonably equivalent value” is distinguishable from section 547, which requires only that the creditor receive more than it would have under chapter 7 without regard to equivalent value. The debtor’s position was that the amounts bid at a foreclosure are not per se equal to the fair market value of the property. As such, it is possible that a creditor might receive more through a pre-petition foreclosure sale than it might have obtained in hypothetical chapter 7 liquidation. If true, the prong of section 547 at issue would be satisfied, and the transfer would be avoidable.

In declining to dismiss the preference claim, the court held that applying the BFP reasoning to a case involving section 547 was “misplaced.” In BFP, the Supreme Court analyzed what, as a matter of law, was meant by “reasonably equivalent value” under section 548. Section 547, however, does not require that value be reasonably equivalent; it requires only that a creditor receive an amount in excess of a hypothetical recovery. The court concluded that BFP was not controlling, and that the debtor’s complaint was sufficient to state a claim against the lender.  


Mere compliance with state law is insufficient to shield a foreclosure sale, and the benefits received therefrom, from a preference action. Secured lenders that wish to credit bid at a foreclosure sale need to be cognizant that a low-ball offer may subject them to liability if their borrower files for bankruptcy protection within 90 days after the foreclosure sale.


Charles Wayne Cox – Oregon State Director for the National Homeowners Cooperative
Email: mailto:Charles@BayLiving.com
Websites: http://www.NHCwest.com; www.BayLiving.com; and www.ForensicLoanAnalyst.com
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax



Posted on December 30, 2011 by Neil Garfield


Between TARP (only $700 Billion) and the FED bailouts ($16 TRILLION) the Banks have already received from all of us enough money to pay off every mortgage, credit card, student loan, auto loan and every other kind of debt allegedly owed to them. And yet, we are told we still owe them the money. If we owe anyone, it is the Federal government and the General Accounting Office should figure out who we pay and how much. It certainly does not seem right that we should pay the $16 TRILLION all over again when the banks have already received the money.

Now add approximately $15 TRILLION that was made in “trading” some of which was booked as principal so it didn’t count as taxable profits, and you may get what I am saying here. If you add all the debt of all Americans to all the banks that received the bailout money, they have already been paid twice over, at a minimum. We are still told that we should pay on those paid debts — payable to the Banks. For those of you counting, that would be the THIRD time the debt is paid. I say they have already been paid. I say the money should go to the Federal government.

What would happen? Well, the government could figure out if any of that money truly should go to the banks and then give them their fair share if there is any fair share. The rest clears up the deficit and provides enough stimulus dollars to shock our recumbent economy into renewed life. Once a full and fair accounting is done, the investors who lost money could be repaid with interest up to the point that the borrowers have borrowed money. The Banks will scream at that because the amount of borrowed money does not equal the total owed to the investors. The amount borrowed is far less than the amount loaned, because the banks siphoned off some 30%of the investors’ money in “fees” and “trading profits.”

The money that was NOT loaned to borrowers is not the borrowers’ problem. The Banks need to take care of that with the money they stuffed into off-shore accounts. The money that has been paid to the investors is also not a problem anymore to the borrowers because the creditor has already been paid — directly or indirectly. That leaves some sort of balance owed by borrowers, which by quick estimates would be around 1/3-1/2 of the amount they borrowed. THAT would reduce the amount due on each debt to a manageable and payable size. Allowing for a fair interest rate of around 3% would clear the decks immediately and boost consumer wealth and confidence sufficient for decades to come.

None of this will happen of course unless there is a paradigm shift from doing what is best for the Banks to doing what is best for the country. It just so happens that it also shifts back to the rule of law. Anyone who has borrowed $100 from Joe, which was paid off by his Aunt Sally knows that if he pays anyone it is going to be Aunt Sally. You are not going to pay Joe AGAIN on the same debt. Or are you?

So there is the question: after all the money we gave to the Banks, why would we pay them again on the same debts that they SAID they lost so much money on? Are we going to give them the whole $16 TRILLION AGAIN? When will people stop beating themselves up about a debt they owe and start questioning why they are paying the same debt multiple times? Why is there a difference between paying the debt as a taxpayer and paying the debt as a borrower? Isn’t it immoral to collect on the same debt multiple times? Isn’t that the true moral question?

Call to Action From National Ass’n Independent Land Title Agents (NAILTA)

Posted by Beth Findsen:

I think that anybody familiar with the title issues facing this country following the foreclosure crisis could agree that we need to continue to foster the independent title business, if we ever want certainty in land sales again. Or should we just keep rewarding cronyism and monopolies by the banks/title companies? It’s all so very cozy, especially when you add the politicians to the mix. It’s just one big, happy family, kind of like La Familia or the cartels.

Dear Beth K.,

RESPRO and those who support the proliferation of anti-competitive affiliated businesses in the settlement services industry are at it again.

Legislation which would exempt controlled business arrangements from certain provisions in the Dodd-Frank Act regarding Qualified Residential Mortgages may be considered in Congress before the end of the year, according to an article in the Source of Title.

Legislation providing relief to affiliated businesses from regulation that counts fees paid to affiliated businesses toward a 3% cap on closing fees on Qualified Residential Mortgages could be considered by the House Financial Services Committee as soon as the week of December 19th. If not taken up then, the legislation would likely be considered in January or February, when Congress reconvenes.

If successful, a CBA exemption to Dodd-Frank would allow bank-owned and real estate firm-owned title companies to play under a different set of rules than all other settlement service providers, including independent land title agents like you who depend upon a fair market to do business. RESPRO and the Realty Alliance, along with the bank and realtor lobbies, are pushing hard to obtain this exemption and pushing harder to take away more of your market. Having this exemption allows referral sources to streamline a large percentage of their mortgage business to captive providers leaving independent title agents and their colleagues on the outside looking in.

In order to stop them, we need your help! We need each of you to contact the members of the House Financial Services Committee, by phone and email, and tell them you are from NAILTA and a small business owner and you do not support exempting affiliate settlement service providers from Dodd-Frank’s 3% cap on QRM.

For those who want to spread the word on Twitter, the HFSC Twitter site is located at @FinancialCmte. Tweet at them as many times as possible!

On behalf of the NAILTA Board, we appreciate your attention and support to these important issues and encourage you to stay involved!



Rob Holman & John Novarina


NAILTA Policy and Legal Affairs Committee

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