Oliver, Trustee v. Moore

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
CATHY LYNN HENRIES
Debtor
CHAPTER 7
CASE NUMBER: 08-08631-8-RDD
GEORGE M. OLIVER, TRUSTEE
Plaintiff
v.
JEFFREY ALLEN MOORE
Defendant
ADVERSARY PROCEEDING
NUMBER: 11-00003-8-RDD
ORDER
Pending before the Court is the complaint filed by George Mason Oliver, the Chapter 7
Trustee (the “Trustee”) on January 7, 2011 initiating the Adversary Proceeding against Jeffery Allen
Moore (the “Defendant”). The Court conducted the trial of the adversary proceeding on May 17,
2012 in Wilson, North Carolina.
SO ORDERED.
SIGNED this 25 day of June, 2012.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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JURISDICTION
Subject matter jurisdiction and jurisdiction over the parties exists pursuant to 28 U.S.C. §§
151, 157, and 1334, and the General Order of Reference of the United States District Court for the
Eastern District of North Carolina dated August 3, 1984.
This matter is a core proceeding as set forth in Section 157(b)(2) of Title 28 of the United
States Code.
FACTUAL HISTORY
Cathy Lynn Henries (the “Debtor”) filed a voluntary petition for relief under Chapter 13 of
the United States Bankruptcy Code (the “Code”) on December 3, 2008. The Defendant is the former
spouse of the Debtor. The Debtor and the Defendant owned, as tenants by the entirety, a parcel of
real property located at 196 Moore Lane, Marshallberg, North Carolina (the “Property”). The
Property was conveyed to the Debtor and the Defendant as husband and wife on June 14, 1999, by
North Carolina General Warranty Deed and was recorded with the Carteret County, North Carolina
Register of Deeds at Book 859, Page 23. This conveyance created a tenancy by the entirety between
the Debtor and the Defendant.
On April 29, 2005, the Debtor and the Defendant entered into a separation agreement. The
separation agreement required the Debtor to deed her interest in the Property to the Defendant by
quitclaim deed (the “Quitclaim Deed”). The separation agreement provides that the Debtor will
quitclaim her interests in the Property and the Defendant will “indemnify and hold Wife harmless”
from the mortgage on the Property held by Washington Mutual with a payoff amount of $126,159.15
as of April 29, 2005. In addition to taking primary responsibility for the mortgage on the Property,
the separation agreement provides the Debtor and the Defendant will share joint custody of a minor
child born into the marriage with the child’s primary placement being with the Defendant.
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Furthermore, under the separation agreement, the Defendant indemnified the Debtor of additional
debts in excess of $26,000.00 while the Debtor indemnified the Defendant of debts in excess of
$46,000.00.
On April 29, 2005, the Debtor and the Defendant met at a Cooperative Bank in Beaufort,
North Carolina. There, the Debtor executed two copies of the separation agreement and Quitclaim
Deed in the presence of a notary public and the Defendant. Both the Debtor and the Defendant left
the bank with an executed copy of the Quitclaim Deed, which purported to transfer any interest the
Debtor had in the Property to the Defendant. From here it becomes unclear whether the Defendant1
retained possession of the Quitclaim Deed. However, the Defendant has made all the mortgage
payments on the Property and has paid for all improvements to the Property since April 29, 2005,
pursuant to the separation agreement and the Quitclaim Deed. On July 11, 2006, a Divorce2
Judgment was entered in Craven County dissolving the marriage between the Debtor and the
Defendant.
Both the Debtor and the Defendant testified it was their intent for the Property to remain in
possession of the Defendant so that their minor son could inherit the Property. The Debtor and the
Defendant purchased the Property from the Defendant’s father after they were married. The two
placed a double-wide mobile home on the Property and lived there with their son and the Debtor’s
The Quitclaim Deed provided that the Property “shall be absolutely dissolved and1
terminated and any interest that [the Debtor] may have in and to the aforesaid land and property,
be extinguished and that title to the same shall vest absolutely, solely, and in fee simple to [the
Defendant] . . . free and discharged of any claim . . .” The Quitclaim Deed further provided that
the Defendant “assumes and shall pay on a timely basis any and all debts secured” by the
Property.
The evidence shows the Defendant has made approximately $40,000.00 in mortgage2
payments since January 2009 and that he has also paid $8,492.73 to Cooperative Bank on a home
equity loan since January 2009.
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two additional children. When the couple separated, they agreed it was best for their son to remain
in the home on the Property in the primary custody of the Defendant. In an effort to remain as
amicable as possible, the Debtor took her personal possessions but left the couple’s remaining
personal property in the home. The Property is located in rural Carteret County on a street where
several members of the Defendant’s extended family live, including his parents and siblings.
Upon filing the bankruptcy petition, the Debtor attempted to disclose her previous interest
in the Property and indicate that she no longer held any interest in the Property through her
schedules. In her original Schedule A, filed on December 3, 2008, the Debtor describes her interest
in the Property as “house and land owned by [Debtor’s] ex-husband.” Schedule A states the current
value of Debtor’s interest in the property is $264,606.00. Schedule D lists Washington Mutual as
having a first mortgage on the Property with a payoff of $118,460.00 and Cooperative S&L as
having a second mortgage on the Property with a payoff of $23,188.97, leaving a substantial amount
of equity of $122,957.03. On March 26, 2009, Schedule A was amended to show that “at the time3
of filing [Debtor] owns no real estate; her interest in the real property was transferred to her former
husband as part of a marital settlement.” Amended Schedule A states the current value of Debtor’s4
interest in the property is $0.00.
The meeting of creditors, as required by 11 U.S.C. § 341, was held on January 8, 2009. At
the Section 341 meeting, the Chapter 13 Trustee examined the Debtor under oath. The Chapter 13
Trustee questioned the Debtor about the Property and requested that she provide him additional
The Debtor’s bankruptcy attorney testified that the information was included in the3
Debtor’s schedules because the Debtor was still liable on the debt to Washington Mutual, but the
Debtor did not own the collateral securing the debt.
After the Section 341 meeting, held on January 8, 2009, the Debtor amended Schedule A4
to further clarify she had no interest in the Property.
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information regarding her interest in the Property after the 341 meeting. On January 9, 2009, the5
day following the Section 341 meeting of creditors, the Quitclaim Deed was filed and recorded with
the Carteret County Register of Deeds at Book 1294, Page 449. Prior to the day after the 341
meeting the Quitclaim Deed had never been recorded. Neither the Debtor nor the Defendant are
aware who recorded the Quitclaim Deed or in whose possession the Quitclaim Deed was in prior to
recording. The Defendant testified he received a copy of the recorded Quitclaim Deed in the mail
but was unaware of who caused the deed to be recorded. The Defendant was unable to locate the
executed Quitclaim Deed he received on April 29, 2005. The Minutes of the 341 Meeting and6
Motion for Confirmation of Plan (the “Minutes”) was filed on April 8, 2009. No objection to the
Minutes were filed and an order confirming the plan was entered on May 5, 2009.7
On July 6, 2010, the case was converted to one under Chapter 7 of the Code and George M.
Oliver was duly appointed as the Chapter 7 Trustee (the “Trustee”). The Trustee recorded the Notice
of Bankruptcy Filing and Bankruptcy Estate (“Notice of Bankruptcy Filing”) in the Carteret County
Register of Deeds on November 15, 2010, Book 1358, Page 352. The Trustee initiated this
The Chapter 13 Trustee testified that upon receiving additional documentation from the5
Debtor, he was satisfied that the Property had been transferred on April 29, 2005 and thus had
not become property of the estate. Accordingly, the Chapter 13 Trustee filed the Minutes of the
341 Meeting and Motion for Confirmation of Plan indicating the intent to abandon any interest in
the collateral on April 8, 2009.
The Defendant said he believed the Quitclaim Deed might be located in a storage shed6
outside of his home, which received damage from a recent hurricane, but he had not seen the
deed in some time.
The Minutes provide as to “COOPERATIVE BANK, 2 MORTGAGE, THE DEBTOR7 ND
ABANDONS HIS INTEREST IN THE COLLATERAL. THE TRUSTEE WILL NOT PAY
THIS CLAIM UNLESS A DEFICIENCY CLAIM IS FILED.” (emphasis in original). The
Minutes further provide as to “WASHINGTON MUTUAL, 1 MORTGAGE, THE DEBTORST
ABANDONS HIS INTEREST IN THE COLLATERAL. THE TRUSTEE WILL NOT PAY
THIS CLAIM UNLESS A DEFICIENCY CLAIM IS FILED.” (emphasis in original).
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adversary proceeding against the Defendant on January 7, 2011. In his complaint, the Trustee seeks
to avoid the Quitclaim Deed pursuant to 11 U.S.C. § 549 on the grounds that the transfer occurred
after the commencement of the bankruptcy case and was not authorized under the Code or by the
Court. Specifically, the Trustee contends that although the Debtor executed the Quitclaim Deed on
April 29, 2005, it was not recorded until January 9, 2009, subsequent to the petition date in violation
of 11 U.S.C. § 549. The complaint requests that the avoided transfer be preserved for the benefit of
the estate.
The Defendant alleges two affirmative defenses. First, the Defendant contends the Trustee
has no authority to avoid the recordation of the Quitclaim Deed as a post-petition transfer pursuant
to § 549. The Defendant cites several cases that indicate North Carolina law provides the transfer
of a deed becomes effective as a transfer of title between the parties to the deed immediately upon
execution and delivery of the deed. Ballard v. Ballard, 230 N.C. 629, 55 S.E.2d 316 (1949); see also
In re Craddock, 403 B.R. 355 (Bankr. M.D.N.C. 2009) (holding once a grantor has given possession
of a deed to another, without condition for the benefit of the grantee, delivery is complete and the
grantor’s power of recall is forever gone). The Defendant asserts that the Debtor executed and
delivered the Quitclaim Deed to the Defendant on April 29, 2005, pre-petition, and the Property did
not become property of the bankruptcy estate upon the filing of the petition. Therefore, at the time
of the filing of the bankruptcy petition, the Debtor had no interest in the Property. As such, the
Defendant contends the Trustee has no authority under § 549 to avoid the Quitclaim Deed because
§ 549 only pertains to transfers of property of the estate post-petition.
Second, the Defendant argues the post-petition act of recordation of the Quitclaim Deed is
not a transfer as defined by the Code. The Defendant asserts that a transfer is defined as the creation
of a lien, retention of title as a security interest, foreclosure on a debtor’s equity of redemption, or
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another mode of disposing of property or an interest in property. 11 U.S.C. § 101(54). The
Defendant likens the recording of the Quitclaim Deed to the recording of a mortgage. The Defendant
states that the purpose of recording a mortgage is to give notice to third parties and the mortgage is
effective without recordation. As such, the Defendant asserts that the recording of the Quitclaim
Deed in January 2009 only served to place third parties on notice and was not a transfer of property
or an interest in property.
DISCUSSION
Section 549(a) of the Code allows the Trustee to avoid a transfer of property of the estate that
occurs after the commencement of the case or is not authorized under title 11 of the Code or by the
bankruptcy court. 11 U.S.C. § 549(a). A post-petition transfer of real estate made to a good faith
purchaser may only be avoided if proper notice of the petition is given before such a transfer is
perfected against a bona fide purchaser’s superior interest in title as provided in 11 U.S.C. § 549(c).
In re Konowitz, 905 F.2d 55, 56 (4th Cir. 1990) (holding a sale prior to the filing of a Chapter 13
petition was subject to avoidance since the sale was not perfected until after notice of the bankruptcy
was filed).
Section 549(c) provides the following exception to trustee’s avoidance powers:
The trustee may not avoid under subsection (a) of this section a transfer of an interest
in real property to a good faith purchaser without knowledge of the commencement
of the case and for present fair equivalent value unless a copy or notice of the petition
was filed, where a transfer of an interest in such real property maybe recorded to
perfect such transfer, before such transfer is so perfected that a bona fide purchaser
of such real property, against whom applicable law permits such transfer to be
perfected, could not acquire an interest that is superior to such interest of a good faith
purchaser.
11 U.S.C. § 549(c).
Based on the evidence presented, the Court finds the Trustee may not avoid the Quitclaim
Deed pursuant to the the § 549(c) exception to subsection (a). Section 549(c) requires a finding of
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a good faith purchaser of real property who, without knowledge of the bankruptcy case, receives a
transfer of property for present fair equivalent value.
A purchaser is defined by the Code as a “transferee of a voluntary transfer.” 11 U.S.C. §
101(43). A transfer includes, among other things, “each mode, direct or indirect, absolute of
conditional, voluntary or involuntary, of disposing of or parting with– (i) property; or (ii) an interest
in property.” 11 U.S.C. § 101(54). The Debtor executed the Quitclaim Deed and delivered it to the
Defendant at their meeting at Cooperative Bank on April 29, 2005, effectively transferring her
interest in the Property. While the evidence shows confusion as to whose possession the Quitclaim8
Deed was in at the time it was recorded, it is undisputed that the Defendant left the Cooperative Bank
on April 29, 2005 with an executed copy of the the Quitclaim Deed. The Defendant accepted9
delivery of the Debtor’s interest in the Property pursuant to the terms of the valid separation
agreement with the Debtor. Furthermore, such transfer was made without the Defendant’s
knowledge of the commencement of the bankruptcy case as the Debtor did not file the bankruptcy
petition until some three and a half years after the Defendant received the executed Quitclaim Deed.
The Court notes that “under North Carolina law, an unrecorded, but written conveyance8
of land is valid as between the executing parties.” In re Carpenter, No. 09-03678-8-SWH, 2010
WL 785805, at *2 (Bankr. E.D.N.C. March 2, 2010) (citing Daniel v. Wray, 158 N.C. App. 161,
171-72, 580 S.E.2d 711, 719 (2003)). However, to be perfected as to third parties, the
conveyance must be recorded pursuant to N.C. Gen. Stat. § 47-18(a). Id. (citing Beasley v.
Wilson, 267 N.C. 95, 97, 147 S.E.2d 577, 579 (1966)).
Federal Rule of Bankruptcy Procedure 6001 provides “[a]ny entity asserting the validity9
of a transfer under § 549 of the Code shall have the burden of proof.” Fed. Rule Bankr. Pro.
6001. As the party asserting the April 29, 2005 transfer of the Quitclaim Deed from the Debtor
to the Defendant is valid, the burden of proof falls on the Defendant. The Court finds it is
undisputed that the Defendant left Cooperative Bank on April 25, 2009 with copy of the
Quitclaim Deed executed by the Debtor, thus evidencing the validity of the transfer.
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In keeping with other courts, the Court finds “[f]ederal appellate case law interpreting the
phrase ‘present fair equivalent value’ in § 549 is in short supply.” In re Phinney, 405 B.R. 170, 177
(E.D. Va. 2009). Much debate has arisen in what constitutes “present fair equivalent value” pursuant
to § 549(c). On the appellate level, courts have accepted that “present fair equivalent value” under
549(c) is akin to “reasonably equivalent value” under 11 U.S.C. § 548. See Id. (citing T.F. Stone
Co. v. Harper, 72 F.3d 466, 472 (5th Cir. 1995) (explaining in the context of a forced sale there is
no meaningful difference between “reasonable” and “present fair” equivalent value)). Courts
agreeing with this interpretation extend the Supreme Court’s holding in BFP v. Resolution Trust
Corp., 511 U.S. 531 (1994) to § 549(c) in cases involving forced sales of the real property. BFP
holds the phrase “reasonable equivalent value” in § 548 is not equal to fair market value and that the
winning bid at a foreclosure sale is the reasonably equivalent value of a property so long as the sale
complied with applicable state law. BFP v. Resolution Trust Corp., 511 U.S. 531, 545 (1994).
Other courts decline to extend BFP’s holding to § 549(c) and reason that “present fair equivalent
value” refers to purchasers who have paid a fair price, which includes an analysis of the value of any
liens on the real property. In re Phinney, 405 B.R. at 177 (citing Miller v. NLVK, LLC, 454 F.3d
899, 902 (8th Cir. 2006) (finding courts must analyze the actual amount paid, including surviving
liens on the property, to determine whether a purchaser paid “present fair equivalent value”)). As
the impact of a forced sale is not an issue presented before the Court in this case, the Court finds
whatever the exacting standards Congress intended to imply through use of the phrase “present fair
equivalent value,” such value should at a minimum constitute a fair exchange. See Id. (explaining
debtors who received at least 80% of their equity received a fair price or present fair equivalent value
as required by § 549(c)). Therefore, analysis of the “present fair equivalent value” received for the
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transfer of the Debtor’s interest in the Property shall include consideration of the facts and
circumstances related to the benefit the Debtor received for such transfer.
Based on the evidence in the present case, the Court finds the transfer of the Property was
for present fair equivalent value. The Defendant indemnified the Debtor from the mortgage to
Washington Mutual, with a payoff amount of $126,159.15. Prior to entering into the separation
agreement, both the Debtor and the Defendant were liable on the mortgage to Washington Mutual.
The effect of the Defendant’s indemnification of the Debtor is akin to the buyout of the Debtor’s
interest in the Property as the Debtor was no longer required to contribute to the $126,159.15 balance
of the mortgage. The Defendant also assumed sole liability for additional debts in excess of10
$26,000.00. Further, the separation agreement provides that the Defendant became the primary
caretaker of the couple’s minor son, who resides on the Property with the Defendant. Finally, the
Defendant has made all mortgage payments and preformed all maintenance and improvements on
the Property since April 2005, further establishing the Defendant’s intent to indemnify the Debtor
pursuant to the separation agreement and the Quitclaim Deed. The Debtor testified he paid over
$40,000.00 on the first mortgage now held by JPMorgan Chase & Co. and $8,492.73 on a home
equity line since January 2009. As such, the Court finds the Debtor transferred her interest in the
Property for considerable fair value and meets the present fair equivalent value requirement of §
549(c).
The final element under § 549(c) requires that the trustee has not filed a copy or notice of the
bankruptcy petition “where a transfer of an interest in such real property may be recorded to perfect
As a tenant by entirety, prior to executing the Quitclaim Deed, the Debtor owned an10
undivided one-half interest in the Property. In exchange for the Debtor’s interest in the Property
the Defendant effectively assumed the entire balance of the mortgage, $126,159.15, and has in
fact continued to make payments.
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such transfer, before such transfer is so perfected . . . .” 11 U.S.C. § 549(c). The Court finds in North
Carolina, the register of deeds is the duly authorized agency to record and register conveyances of
an interest in real property. N.C. Gen. Stat. § 47-16.4 (2005). The transfer of the Quitclaim Deed
was recorded with the register of deeds in Carteret County, North Carolina on January 9, 2009, Book
1294, Page 449. The Court takes judicial notice that the Trustee, recorded the Notice of Bankruptcy
Filing with the register of deeds in Carteret County on November 15, 2010, Book 1358, Page 352.11
The Quitclaim Deed from the Debtor was perfected by recording with the the register of deeds
approximately one year and ten months prior to the Trustee’s recording of the Notice of Bankruptcy
Filing and Bankruptcy Estate. Therefore, notice of the petition was not filed before the “transfer of
an interest in . . . [the] real property . . . [was] recorded to perfect such transfer . . . .” 11 U.S.C. §
549(c). Accordingly, the filing of the Notice of Bankruptcy Filing on November 15, 2010 does not
preclude application of the exception to an avoidance of a post-petition transfer under § 549(c).
The Court finds the Defendant is a good faith purchaser who received a transfer of the
Debtor’s interest in the Property for present fair equivalent value pursuant to § 549(c). Further, the
Trustee failed to record the Notice of Bankruptcy Filing prior to the recording and perfection of the
Quitclaim Deed. Therefore, the Court holds the Trustee’s complaint to avoid the transfer of the
Property to the Defendant pursuant to § 549 is DISMISSED with prejudice. The Clerk of Court is
directed to enter judgment for the Defendant.
SO ORDERED.
END OF DOCUMENT
Federal Rule of Evidence 201(b) allows a court to take judicial notice of a fact not11
subject to reasonable dispute because it is: “(1) generally known within the trial court’s territogial
jurisdiction; or (2) can be accurately and readily determined from sources whose accruacy cannot
be reasonably questioned.” Fed. R. Evid. 201(b).
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