Whitney et al v. Newman

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN RE: DOROTHY WHITNEY 	:
MICHAEL NEWMAN 	:
Appellant 	:
v. 	: 	Civil Action No. DKC 2007-2279
DOROTHY WHITNEY, ET AL. 	:
Appellee 	:
MEMORANDUM OPINION
Presently 	pending 	and 	ready 	for 	resolution 	is 	Appellant
Michael Newman’s appeal from the Order of United States Bankruptcy
Judge Thomas J. Catliota avoiding transfer of Appellees’ property.
Oral 	argument 	is 	deemed 	unnecessary 	because 	the 	facts 	and 	legal
arguments 	are 	adequately 	presented 	in 	the 	briefs 	and 	record, 	and
the 	decisional 	process 	would 	not 	be 	significantly 	aided 	by 	oral
argument. 	See Fed.R.Bankr.P. 8012. 	For the reasons that follow,
the 	court 	will 	affirm 	the 	bankruptcy 	court’s 	judgment 	avoiding
transfer of the Property.
I. 	Background
The following facts are undisputed. 	Prior to March 2, 2005,
Dorothy 	and 	James 	Whitney 	owned 	the 	property 	located 	at 	13504
Leesburg 	Place, 	Upper 	Marlboro, 	Maryland 	(the 	“Property”). 	The
Property has been and remains the Whitney’s residence for all times
relevant to this matter. 	In late 2004, the Whitneys fell behind in
their 	monthly 	mortgage 	payments 	and 	a 	foreclosure 	sale 	was
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scheduled 	for 	March 	2, 	2005. 	The 	Whitneys 	needed 	$11,174.58 	to
cure 	the 	defaults 	on 	the 	first 	deed 	of 	trust 	and 	reinstate 	the
mortgage. 	At 	the 	time, 	the 	Property 	had 	a 	fair 	market 	value 	of
$250,000. 	Seeking 	to 	stop 	the 	foreclosure 	sale, 	the 	Whitneys
contacted Providence Mortgage, through which they came into contact
with Appellant Michael Newman.
On 	the 	eve 	of 	the 	foreclosure 	sale, 	Appellant 	came 	to 	the
Property to meet the Whitneys for the first time. 	After discussing
the 	impending 	foreclosure 	sale, 	Appellant 	presented 	the 	Whitneys
with 	unsigned 	copies 	of 	the 	following 	documents: 	(1) 	a 	quitclaim
deed reflecting that the Whitneys would quitclaim the Property to
Appellant 	for 	$32,000; 	(2) 	a 	quitclaim 	bill 	of 	sale 	to 	the 	same
effect; and (3) a promissory note for $32,000. 	Mrs. Whitney asked
Appellant 	why 	the 	promissory 	note 	was 	for 	$32,000 	when 	the
approximate 	debt 	was 	$11,000. 	Appellant 	explained 	that 	the
additional money covered his fee for undertaking the transaction.
Appellant 	left 	the 	unsigned 	documents 	with 	the 	Whitneys 	and 	the
parties 	agreed 	that 	if 	the 	Whitneys 	chose 	to 	enter 	into 	the
transaction, the parties would execute the documents the following
morning 	prior 	to 	the 	10:00 	A.M. 	foreclosure 	sale. 	Later 	in 	the
evening of March 1, Mrs. Whitney contacted Appellant to inform him
that the Whitneys intended to enter into the deal.
The 	next 	morning, 	the 	Whitneys 	met 	Appellant 	at 	the 	Circuit
Court 	for 	Prince 	George’s 	County 	and 	executed 	the 	deed, 	bill 	of
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sale, and promissory note. 	Specifically, the parties signed (1) a
deed 	conveying 	the 	Property 	to 	the 	Defendant 	and 	reciting
consideration for the conveyance in the amount of $157,000; (2) a
promissory note from the Whitneys payable to the order of Appellant
for 	$32,000; 	(3) 	a 	quitclaim 	deed 	quitclaiming 	the 	Whitneys’
interest 	in 	the 	Property 	to 	Appellant 	and 	reciting 	consideration
for the conveyance in the amount of $32,000; (4) a quitclaim bill
of sale conveying to Appellant the rights, title and interest held
by 	the 	Whitneys 	subject 	to 	prior 	liens 	and 	encumbrances. 	The
Property was encumbered by liens totaling $190,000. 	Appellant then
delivered 	$11,174.58 	to 	the 	law 	firm 	conducting 	the 	foreclosure
sale and the sale was cancelled.
The 	parties 	believed 	they 	had 	entered 	into 	a 	financing
transaction rather than a sale. 	The parties thought that Appellant
was 	lending 	the 	Whitneys 	funds 	so 	they 	could 	get 	their 	financial
affairs 	in 	order 	and 	eventually 	refinance 	the 	home 	and 	repay
Appellant. 	There 	was 	no 	due 	date 	on 	the 	promissory 	note 	and 	the
Whitneys 	expected 	to 	repay 	the 	Appellant 	when 	they 	completed 	the
refinance transaction.
After March 2, 2005, the Whitneys continued to reside at the
Property 	and 	in 	May 	2005, 	they 	resumed 	making 	monthly 	mortgage
payments. 	As part of the March 2 transaction, Appellant had paid
the 	April 	2005 	mortgage 	payment. 	In 	November 	2005, 	the 	Whitneys
began 	the 	process 	of 	refinancing 	the 	Property. 	They 	had 	been
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unable to refinance earlier than November and had not yet made any
payments 	to 	Appellant 	on 	the 	promissory 	note. 	The 	Whitneys 	were
unable 	to 	complete 	the 	refinancing 	transaction 	because 	Appellant
had recorded the deed in his name on November 4, 2005. 	Appellant
had 	not 	contacted 	the 	Whitneys 	since 	mid-March 	and 	gave 	them 	no
notice 	that 	he 	was 	planning 	to 	record 	the 	deed. 	By 	November 	5,
2005, 	the 	fair 	market 	value 	of 	the 	Property 	had 	increased 	to
$315,000.
Although 	the 	Whitneys 	paid 	their 	mortgage 	since 	May 	2005,
Appellant had made other payments on the Property, including: (1)
$1,501.11, the April 2005 payment on first deed of trust loan; (2)
$1,602.00 payment to homeowner’s association; (3) $1,395.00 payment
of property taxes; (4) $3,700.00 recording and filing fee; and (5)
$426.40 	payment 	of 	water 	and 	sewage 	bill. 	On 	November 	5, 	2005,
Appellant initiated a landlord/tenant action to have the Whitneys
evicted from the Property.
The 	Whitneys 	were 	insolvent 	for 	all 	times 	relevant 	to 	this
proceeding. 	They 	filed 	a 	voluntary 	petition 	for 	relief 	under
Chapter 	13 	of 	the 	Bankruptcy 	Code 	on 	July 	27, 	2006. 	Thereafter,
Appellee 	Timothy 	P. 	Branigan 	was 	appointed 	as 	the 	Chapter 	13
Trustee.
On 	August 	10, 	2006, 	Appellees 	filed 	a 	complaint 	seeking 	to
avoid 	the 	transfer 	of 	the 	Property 	as 	a 	fraudulent 	conveyance
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1 	Appellees also sought to avoid the transfer under 11 U.S.C.
§ 544 and M D. CODE ANN ., C OM . L AW , §§ 15-204, 15-207. 	Judge Catliota
found 	that 	the 	transfer 	was 	fraudulent 	under 	11 	U.S.C. 	§ 	548 	and
did not address the other grounds. 	(See App. 79, n.1). 	Appellees
also brought a common law fraud claim based on Appellant’s alleged
misrepresentations, which Judge Catliota rejected. 	The common law
fraud issue has not been raised on appeal.
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pursuant to 11 U.S.C. § 548(a)(1)(B). 1 	A hearing was held on May
30, 2007 and the parties submitted post-trial briefs. 	On July 31,
2007, Judge Catliota issued a Memorandum Opinion and Order in which
he entered judgment against Appellant avoiding the transfer of the
Property, finding that (1) the date of the transfer was November 4,
2005; 	and 	(2) 	the 	Whitneys 	did 	not 	receive 	reasonably 	equivalent
value for the transfer. 	The issue Appellant presented for review
in 	this 	appeal 	is: 	“Did 	the 	Bankruptcy 	Court 	err 	in 	its
interpretation and application of 11 U.S. Code, § 548 of the United
States Bankruptcy Code.”
II. 	Standard of Review
On appeal from the bankruptcy court, the district court acts
as an appellate court and reviews the bankruptcy court’s findings
of fact for clear error and conclusions of law de novo. 	See In re
Johnson, 	960 	F.2d 	396, 	399 	(4 th 	Cir. 	1992); 	In 	re 	Bryson 	Props.,
XVIII, 961 F.2d 496, 499 (4 th Cir. 1992).
III. Analysis
Section 548(a)(1)(B) of the Bankruptcy Code provides:
(a)(1) 	The 	trustee 	may 	avoid 	any 	transfer
(including any transfer to or for the benefit
of an insider under an employment contract) of
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an interest of the debtor in property, or any
obligation (including any obligation to or for
the benefit of an insider under an employment
contract) 	incurred 	by 	the 	debtor, 	that 	was
made 	or 	incurred 	on 	or 	within 	2 	years 	before
the date of the filing of the petition, if the
debtor voluntarily or involuntarily–
* * * *
(B)(i) 	received 	less 	than 	a 	reasonably
equivalent 	value 	in 	exchange 	for 	such
transfer or obligation; and
(ii)(I) 	was 	insolvent 	on 	the 	date 	that 	such
transfer 	was 	made 	or 	such 	obligation 	was
incurred, 	or 	became 	insolvent 	as 	a 	result 	of
such transfer or obligation[.]
The parties stipulated that the Whitneys were insolvent during the
relevant 	period. 	The 	disputed 	issues 	are 	when 	the 	transfer
occurred and whether the Whitneys received less than a reasonably
equivalent value in exchange for the transfer.
The 	bankruptcy 	court 	first 	tried 	to 	determine 	whether 	the
transfer 	should 	be 	treated 	as 	a 	sale 	or 	loan 	transaction. 	The
court 	found, 	however, 	that 	it 	“need 	not, 	and 	cannot, 	determine
whether the transaction was a sale or a loan. 	The documentation is
simply incomprehensible on this point.” 	(Bankr. Paper 68, 7). 	The
court 	went 	on 	to 	conclude 	that 	the 	Whitneys 	did 	not 	receive
reasonably equivalent value for the transfer regardless of whether
the transaction was considered a sale or a loan.
Like 	the 	bankruptcy 	court, 	this 	court 	finds 	that 	the 	facts
presented below are insufficient to determine with any definiteness
whether 	the 	transaction 	was 	a 	sale 	or 	a 	loan. 	As 	noted 	by 	the
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2 	Although 	the 	quitclaim 	deed, 	the 	quitclaim 	bill 	of 	sale,
and the promissory note were submitted as evidence at the hearing
below, the parties have not included the documents as part of the
record 	on 	appeal. 	(See 	App. 	33-35, 	identifying 	the 	documents 	as
exhibits 	8, 	9, 	and 	10, 	respectively). 	Appellant 	designated 	the
deed as part of the record and the court agrees that it is absolute
on 	its 	face. 	(Bankr. 	Paper 	33, 	Ex. 	6). 	The 	bankruptcy 	court
docket does not show the other exhibits to be part of that record,
so the court is unable to direct the record to be supplemented.
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bankruptcy court, the nature of the transaction is a mixed question
of 	law 	and 	fact. 	The 	court 	will 	review 	the 	bankruptcy 	court’s
determination 	“under 	a 	hybrid 	standard, 	applying 	to 	the 	factual
portion of each inquiry the same standard applied to questions of
pure fact and examining de novo the legal conclusions derived from
those facts.” In re Three Flint Hill Ltd. P’ship, 213 B.R. 292, 298
(D.Md. 	1997) 	(quoting 	Gilbane 	Bldg. 	Co. 	v. 	Fed. 	Reserve 	Bank 	of
Richmond, 80 F.3d 895, 905 (4 th Cir. 1996)).
Many 	of 	the 	facts 	suggest 	that 	the 	transaction 	was 	a 	sale.
The 	bankruptcy 	court 	found 	that 	the 	deed, 	the 	quitclaim 	deed 	and
the 	bill 	of 	sale 	reflected 	that 	the 	deal 	was 	absolute, 	and 	there
was 	no 	evidence 	indicating 	that 	the 	documents 	were 	given 	as
collateral security for a loan by Appellant to the Whitneys. 	The
parties 	have 	not 	challenged 	the 	bankruptcy 	court’s 	finding, 	and
without 	evidence 	to 	the 	contrary, 	the 	court 	cannot 	conclude 	the
finding 	was 	clearly 	erroneous. 2 	Further, 	Appellant 	did 	not 	act
like 	a 	lender 	after 	the 	transaction. 	He 	did 	not 	send 	a 	demand
letter 	or 	a 	notice 	of 	default, 	and 	he 	had 	no 	contact 	with 	the
Whitneys after mid-March.
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3 	See App. 25:4-11; 26:18-27:6; 51:11-21; 52:18-53:4; 63:20-
22; 64:4-11.
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Yet, 	in 	an 	act 	inconsistent 	with 	selling 	their 	home, 	the
Whitneys signed the promissory note. 	A promissory note suggests a
financing transaction, even though the bankruptcy court noted that
there was no interest rate specified and no schedule for repayment
or 	date 	on 	which 	the 	note 	would 	become 	due. 	Notably, 	at 	the
hearing 	below, 	Appellant 	and 	Mr. 	Whitney 	testified 	that 	they
thought 	they 	were 	entering 	into 	a 	financing 	transaction. 3 	In
subsequent briefs, Appellees characterize the transaction as a sale
and 	Appellant 	describes 	it 	as 	a 	sale 	of 	equity 	with 	an 	option 	to
repurchase. 	The bankruptcy court properly found that there was no
evidence 	to 	support 	Appellant’s 	contention 	that 	the 	deal 	was 	an
equity 	sale 	with 	an 	option 	to 	repurchase. 	(Bankr. 	Paper 	68, 	7
n.2). 	Appellant’s 	testimony 	directly 	undermines 	the 	equity 	sale
and 	option 	characterization. 	In 	response 	to 	why 	he 	waited 	eight
months to record the deed, Appellant stated,
I 	wanted 	to 	give 	them 	[the 	Whitneys] 	an
opportunity to refinance. 	When I got them to
sign a deed it was just security. 	I wasn’t --
when 	I 	went 	into 	the 	transaction, 	I 	didn’t
think I would have to ever record the deed. 	I
just 	got 	it 	just 	so 	they 	wouldn’t 	not 	pay 	me
back my money.
(App. 64:6-11). 	During his testimony, Appellant also agreed with
his 	counsel’s 	description 	of 	the 	transaction 	as 	a 	“bridge 	loan.”
(App. 	63:20-22). 	Appellant 	never 	alluded 	to 	the 	Whitneys
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“repurchasing” 	anything 	from 	him, 	rather 	he 	consistently 	stated
that 	he 	was 	loaning 	them 	funds 	so 	that 	they 	could 	refinance 	the
Property and repay him.
In 	light 	of 	the 	unusual 	facts 	of 	the 	transaction, 	it 	is
impossible 	to 	determine 	whether 	the 	transaction 	was 	a 	sale 	or 	a
loan. 	The court will address the presence of reasonably equivalent
value as the bankruptcy court did, by analyzing the transaction as
both a sale and as a loan.
A. 	The date of the transfer
Appellant insists that the transfer occurred on March 2, 2005,
the date on which the Whitneys signed the deed. 	Appellees counter
that the date of transfer was November 4, 2005, the date on which
Appellant 	recorded 	the 	deed. 	The 	transfer 	date 	may 	be 	material
because 	reasonably 	equivalent 	value 	is 	determined 	at 	the 	time 	of
transfer and here, the fair market value of the Property increased
from $250,000 in March to $315,000 in November. 	For the purpose of
determining 	the 	date 	of 	transfer, 	it 	is 	irrelevant 	whether 	the
transaction is characterized as a sale or a loan.
Section 548(d)(1) provides:
For 	the 	purposes 	of 	this 	section, 	a 	transfer
is 	made 	when 	such 	transfer 	is 	so 	perfected
that 	a 	bona 	fide 	purchaser 	from 	the 	debtor
against 	whom 	applicable 	law 	permits 	such
transfer 	to 	be 	perfected 	cannot 	acquire 	an
interest 	in 	the 	property 	transferred 	that 	is
superior 	to 	the 	interest 	in 	such 	property 	of
the transferee, but if such transfer is not so
perfected before the commencement of the case,
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4 	M D . C ODE A NN ., R EAL PROP ., § 3-203 provides,
Every recorded deed or other instrument takes
effect from its effective date as against the
grantee 	of 	any 	deed 	executed 	and 	delivered
subsequent 	to 	the 	effective 	date, 	unless 	the
grantee of the subsequent deed has:
(1) Accepted delivery of the deed or
other instrument:
(i) In good faith;
(ii) Without constructive
notice under § 3-202; and
(iii) 	For 	a 	good 	and
valuable 	consideration;
and
(2) Recorded the deed first.
5 	M D . C ODE A NN ., R EAL PROP ., § 3-201 provides,
The 	effective 	date 	of 	a 	deed 	is 	the 	date 	of
delivery, and the date of delivery is presumed
to be the date of the last acknowledgment, if
any, or the date stated on the deed, whichever
(continued...)
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such 	transfer 	is 	made 	immediately 	before 	the
date of the filing of the petition.
The Real Property title of the Maryland Code, § 3-203 dictates that
a transfer of real estate is perfected when the deed is recorded.
Merely 	executing 	the 	deed, 	as 	the 	Whitneys 	did 	on 	March 	2, 	would
not secure a superior interest in the Property because a subsequent
transferee 	could 	have 	recorded 	the 	deed 	before 	Appellant. 4
Appellant argues that § 548(d)(1) “is at odds with Maryland law as
it relates to this case.” 	(Paper 14, at 13). 	He does not specify
what Maryland law contradicts § 548(d)(1), but in the proceedings
below, he urged the bankruptcy court to rely on M D . CODE A NN ., REAL
PROP . § 3-201, which provides that the effective date of the deed
is the date is it delivered. 5 	In this case, the Whitneys delivered
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5(...continued)
is 	later. 	Every 	deed, 	when 	recorded, 	takes
effect from its effective date as against the
grantor, 	his 	personal 	representatives, 	every
purchaser 	with 	notice 	of 	the 	deed, 	and 	every
creditor 	of 	the 	grantor 	with 	or 	without
notice.
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the 	deed 	on 	March 	2. 	The 	effective 	date 	of 	the 	deed 	is 	not
necessarily 	the 	same 	as 	the 	date 	the 	transfer 	is 	perfected,
however. 	Under 	§ 	548, 	an 	effective 	date 	of 	an 	unrecorded 	deed
would be meaningless if a subsequent bona fide purchaser recorded
the deed first. 	Accordingly, the effective date is irrelevant when
determining 	whether 	a 	transfer 	should 	be 	avoided 	under 	§ 	548 	and
the date the transfer is perfected is the operative date. 	See In
re Jones, 209 B.R. 380, 385 (Bankr. E.D.Va. 1997)(explaining, “the
transfer took place on the date C & M recorded debtor’s deed since
this 	was 	the 	date 	under 	Virginia 	law 	that 	the 	conveyance 	became
effective 	as 	to 	bona 	fide 	purchasers. 	V A. 	CODE 	ANN . 	§ 	55-96”).
Therefore, 	§ 	548(d)(1) 	is 	not 	in 	conflict 	with 	Maryland 	law, 	it
simply requires reference to a statute other than the one Appellant
finds favorable to his case.
It is undisputed that Appellant recorded the deed on November
4, 2005. 	Accordingly, the court will affirm the bankruptcy court’s
conclusion that the date of transfer was November 4, 2005.
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B. 	Reasonably Equivalent Value
For 	the 	purpose 	of 	evaluating 	reasonably 	equivalent 	value
under 	§ 	548, 	value 	is 	defined 	as 	“property, 	or 	satisfaction 	or
securing 	of 	a 	present 	or 	antecedent 	debt 	of 	the 	debtor, 	but 	does
not include an unperformed promise to furnish support to the debtor
or to a relative of the debtor.” 	11 U.S.C. § 548(d)(2)(a). 	In the
Fourth Circuit, reasonably equivalent value determinations are made
on a case-by-case basis, considering such factors as the good faith
of the transferee, the difference between the amount paid and the
fair market value, and whether the transaction was “an arm’s length
transaction between a willing buyer and a willing seller.” 	In re
Morris 	Commc’ns 	N.C., 	Inc., 	914 	F.2d 	458, 	467 	(4 th 	Cir. 	1990)
(citations omitted); In re Brown, 126 B.R. 481, 484 (Bankr. D.Md.
1991). 	Reasonably equivalent value is not “wholly synonymous with
market 	value, 	even 	though 	market 	value 	is 	an 	extremely 	important
factor 	to 	be 	used 	in 	the 	Court’s 	assessment 	of 	reasonable
equivalence.” 	In 	re 	Morris, 	914 	F.2d 	at 	466. 	The 	Supreme 	Court
has 	explained 	that 	“reasonably 	equivalent” 	means 	“approximately
equivalent” or “roughly equivalent.” 	BFP v. Resolution Tr. Corp.,
511 	U.S. 	531, 	539 	n.4 	(1994). 	The 	court 	assesses 	reasonably
equivalent value at the time of transfer. 	While the determination
of 	reasonable 	equivalence 	is 	fact 	intensive, 	it 	is 	ultimately 	a
question of law reviewed de novo. 	In re Brown, 126 B.R. at 484.
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1. 	Transfer as a sale transaction
The bankruptcy court made the following factual calculations,
which are not clearly erroneous. 	Per the parties’ stipulations, as
of 	November 	4, 	2005, 	the 	fair 	market 	value 	of 	the 	Property 	was
$315,000 	and 	there 	was 	$190,000 	worth 	of 	deed 	of 	trust 	loans
secured 	by 	the 	Property, 	leaving 	the 	Whitneys 	with 	$125,000 	in
equity at the time of the transfer. 	Appellant did not assume the
existing loans, but rather took title subject to them. 	Therefore,
the 	amount 	Appellant 	received 	on 	the 	date 	of 	the 	transfer 	was
equity worth $125,000.
In 	return, 	from 	Appellant, 	the 	Whitneys 	received 	(1)
$11,174.58, the payment to reinstate the mortgage; (2) $1,501.11,
mortgage payment for April 2005; (3) $1,602, payment of homeowners’
association fees; (4) $1,395, payment for property taxes; and (5)
$426.40, payment for water and sewage. 	The bankruptcy court found,
and 	the 	court 	agrees, 	that 	items 	(2) 	through 	(5) 	were 	made 	after
the date of the initial transaction, but should be included in the
reasonably 	equivalent 	value 	analysis 	because 	those 	payments
benefitted 	the 	Whitneys, 	who 	were 	residents 	of 	the 	Property 	when
the payments were made.
The bankruptcy court declined to include in the value received
by 	the 	Whitneys 	Appellant’s 	$3,700 	recording 	fee, 	a 	hypothetical
cost 	of 	sale 	in 	the 	amount 	of 	a 	6% 	real 	estate 	broker’s 	fee, 	and
the 	value 	of 	the 	option 	to 	repurchase 	the 	property. 	The 	court
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properly reasoned that the recording fee should be excluded because
it 	did 	not 	benefit 	the 	Whitneys 	and 	therefore 	could 	not 	be
considered value to them.
Similarly, 	the 	hypothetical 	broker’s 	commission 	also 	was
excluded 	properly. 	Appellant 	argues 	that 	the 	fee 	is 	a 	cost 	the
Whitneys 	avoided 	by 	dealing 	with 	Appellant 	rather 	than 	with 	a
traditional broker. 	The bankruptcy court pointed out the obvious
flaw 	in 	this 	argument, 	which 	is 	that 	there 	is 	no 	evidence 	that
Appellant 	performed 	any 	of 	the 	tasks 	of 	a 	broker, 	including
marketing the Property to get the best sale price.
The bankruptcy court also declined to include the price of the
“option 	to 	repurchase” 	the 	Property 	in 	the 	value 	received 	by 	the
Whitneys. 	The 	court 	made 	a 	factual 	finding 	that 	the 	transaction
did 	not 	include 	an 	option 	to 	repurchase. 	This 	finding 	was 	not
clearly 	erroneous, 	as 	there 	is 	no 	evidence 	on 	the 	record 	that 	an
option 	to 	repurchase 	was 	on 	the 	table. 	The 	bankruptcy 	court 	was
correct in excluding value for the option.
For the first time on appeal, Appellant insists that the court
add an amount to represent “the right of occupancy” he allowed the
Whitneys 	to 	enjoy 	from 	March 	2 	to 	the 	present. 	Presumably,
Appellant 	seeks 	to 	add 	the 	equivalent 	of 	a 	monthly 	rental 	fee 	to
the 	value 	received 	by 	the 	Whitneys. 	The 	court 	will 	not 	address
Appellant’s new argument, as “issues raised for the first time on
appeal generally will not be considered.” 	Muth v. United States,
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1 F.3d 246, 250 (4 th Cir. 1993). 	Even if the court were to consider
Appellant’s 	argument, 	Appellant 	would 	fail. 	The 	Whitneys 	were
paying their monthly mortgage during the period for which Appellant
seeks value added as imputed rent. 	It would be patently unfair to
attribute additional right of occupancy fees to the Whitneys where
Appellant was not even making mortgage payments.
The deed itself stated that the conveyance from the Whitneys
to 	Appellant 	was 	for 	consideration 	in 	the 	amount 	of 	$157,000.
(Bankr. 	Paper 	33, 	Ex. 	6). 	Appellant 	testified 	that 	the 	$157,000
represented 	the 	assessed 	value 	of 	the 	Property 	at 	the 	time 	he
prepared the Whitneys’ documents. 	(App. 63:14-17). 	The bankruptcy
court did not include this figure in its calculations, finding that
it 	had 	no 	“valid 	economic 	justification 	in 	the 	record.” 	(Bankr.
Paper 68, 7 n.3). 	The court agrees, as $157,000 was not the total
encumbrance 	on 	the 	Property, 	nor 	have 	the 	parties 	referenced 	the
sum in relation to payments or debts owed.
In 	sum, 	the 	total 	value 	received 	by 	the 	Whitneys 	from
Appellant was $16,099.09, as follows:
1 	$11,174.58 	To stop the foreclosure sale
2 	$1,501.11 	April 2005 mortgage
3 	$1,602.00 	Homeowners Association fee
4 	$1,395.00 	Property Taxes
5 	$426.40 	Water and Sewage Bill
$16,099.09
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The Whitneys received a mere 13% of the $125,000 value they gave to
Appellant. 	In his defense, Appellant urges the court not to base
its comparison on the fair market value of the equity. 	Appellant
insists that the conditions that create fair market value did not
exist 	in 	this 	transaction, 	as 	it 	was 	made 	hastily 	under 	the
pressure 	of 	an 	imminent 	foreclosure 	sale. 	He 	cites 	BFP 	v.
Resolution 	Trust 	Corp., 	which 	held 	that 	the 	value 	received 	at 	a
state-sponsored 	foreclosure 	sale 	conclusively 	establishes
reasonable 	equivalence, 	regardless 	of 	the 	property’s 	potentially
higher fair market value. 	511 U.S. at 545. 	Appellant acknowledges
that 	the 	present 	transaction 	was 	not 	a 	foreclosure 	sale 	with 	the
attendant 	safeguards, 	but 	he 	maintains 	that 	the 	transaction 	was
more 	like 	a 	foreclosure 	sale 	than 	an 	arm’s 	length 	transaction.
Despite 	Appellant’s 	argument, 	fair 	market 	value 	is 	an 	“extremely
important” 	measure 	in 	the 	reasonably 	equivalent 	value 	analysis
outside of the forced-sale context. 	See In re Morris, 914 F.2d at
466. 	A comparison of the value received and the fair market value
of the equity is a proper and necessary part of the analysis. 	See
id.
As noted by Appellees, Appellant’s emphasis on the exigencies
of 	the 	March 	2 	deal 	is 	misplaced 	because 	the 	relevant 	date 	of
transfer 	is 	November 	4, 	at 	which 	time 	the 	parties 	were 	not
pressured 	by 	foreclosure. 	Even 	if 	the 	court 	were 	persuaded 	by
Appellant’s 	exigency 	argument, 	it 	would 	have 	no 	basis 	to 	reach 	a
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conclusion 	as 	to 	value, 	as 	Appellant 	never 	presented 	evidence 	of
the 	likely 	value 	the 	Property 	could 	fetch 	at 	a 	closed 	sale.
Moreover, 	as 	the 	bankruptcy 	court 	explained, 	the 	parties 	did 	not
reach 	an 	agreement 	on 	value 	that 	was 	grounded 	in 	any 	market
principles. 	Rather, 	neither 	party 	“understood 	nor 	intended 	that
the amount paid by the Defendant was an approximation for any type
of 	value 	of 	the 	Property, 	whether 	reasonably 	equivalent 	or 	fair
market.” 	(App. 92).
The Whitneys received an appallingly small percentage of the
value of the equity they sold Appellant. 	The value received by the
Whitneys was not reasonably, roughly, or approximately equivalent
to the value received by Appellant and therefore the transfer, if
viewed as a sale, is avoidable under § 548(a)(1)(B).
2. 	Transfer as a loan transaction
The 	transfer 	also 	is 	avoidable 	when 	analyzed 	as 	a 	loan
transaction. 	The bankruptcy court made the following calculations,
which are not clearly erroneous. 	The Whitneys signed a promissory
note 	for 	$32,000. 	Appellant 	advanced 	$11,174.58 	at 	the 	time 	the
parties 	executed 	the 	note. 	As 	outlined 	supra 	part 	III.B.1.,
Appellant 	subsequently 	paid 	$4,924.51 	in 	additional 	fees 	and 	a
mortgage 	payment. 	When 	he 	recorded 	the 	deed, 	he 	satisfied 	the
balance 	of 	the 	note, 	thus 	giving 	the 	Whitneys 	additional 	value.
See 11 U.S.C. § 548(d)(2)(A) (“‘value’ means . . . satisfaction .
. . of a present or antecedent debt of the debtor”). 	In the loan
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scenario, 	the 	bankruptcy 	court 	properly 	included 	the 	$3,700
recording 	fee 	as 	part 	of 	the 	calculation 	because 	the 	Whitneys
received value when the deed was recorded. 	See also In re Jones,
209 	B.R. 	at 	385 	(noting 	that 	the 	recording 	fee 	was 	“reasonably
foreseeable if C & M was required to enforce its rights against the
property.”). 	Therefore, 	the 	Appellant 	advanced 	and 	the 	Whitneys
received a total of $19,799.09. 	Even imputing a reasonable fee for
Appellant, once again the value he advanced is shockingly less than
the $125,000 given by the Whitneys.
Appellant’s 	good 	faith 	is 	seriously 	in 	doubt 	in 	this
transaction. 	As described by the bankruptcy court, Appellant did
not act as a reasonable lender by providing a demand or notice of
any 	kind 	to 	the 	Whitneys 	before 	recording 	the 	deed. 	Further, 	he
made no secret about the potentially exorbitant fee he reserved for
himself 	for 	undertaking 	the 	transaction. 	In 	light 	of 	the 	grave
disparity 	between 	values 	given 	and 	received, 	the 	transfer 	of 	the
Property 	is 	avoidable 	whether 	considered 	a 	sale 	or 	a 	loan
transaction.
VI. 	Conclusion
For the foregoing reasons, the court shall affirm the judgment
of the bankruptcy court avoiding the transfer of the Property from
the Whitneys to Appellant. 	A separate Order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
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