Post-Petition Transferee : Good Faith and Value Defenses May Overcome Avoidance Action
By Robert C . Meyer , Esq . Robert C . Meyer , P . A . Miami , Florida
Convoluted facts can make obscure law . In the world of post-petition transfers , this is especially true . Recent whirlwind events in the foreclosure frenzy often created convoluted facts from which obscure decisions were made . In bankruptcy , where foreclosure sales may occur post-petition , things can become extremely awkward . When such circumstances arrive to the Bankruptcy Court , unpredictable results may ensue . Recipients of the property ’ s title are subject to actions from which liability can be substantial . 1 To avoid costly litigation culminating with large judgments , this article will review the concerns from which an easyto-use checklist will outline the items to review .
What is a Post-Petition Transfer ?
Transfer of property of the estate 2 after the petition date 3 is a postpetition transfer which becomes potentially avoidable by a panel trustee or debtor in possession . 3
What was Known by the Post- Petition Transferee ?
If the transferee knew about the bankruptcy before receiving the post-petition transfer , then the transferee ’ s defenses are limited . If the transferee was without actual knowledge , the transferee may proceed to raise the issues listed below . Unlike other areas of the law , ignorance can be bliss for a transferee who receives assets after the bankruptcy filing .
But , knowledge can be constructively imputed to someone truly unknowing . 4 As one Court stated , “ Purchasers here cannot find a safe harbor in this good faith exception because they had constructive knowledge of the bankruptcy proceeding through their title report .” 5 In short , all ignorance is not bliss .
What Should Have Been Known by the Transferee ?
Then there is the odd matter – the last clause of 11 U . S . C . § 549 6 may annul a defense via imputed knowledge or constructive knowledge 7 of the filing for something which arises after the sale but before the title of the property is transferred . Often , state court litigation exists and a Suggestion of Bankruptcy or Notice of Bankruptcy (“ Notice Document ”) is filed . The Notice Document may be totally unconnected to the foreclosure – the debtor could easily be subjected to other lawsuits in the same county in which the Notice Document is filed . Sometimes , the filing of the Notice Document may occur after the foreclosure sale – an event which often is scheduled the day after the petition and is the cause for the petition ’ s filing . But , title often is not delivered to the bidder at the foreclosure sale , but instead is conveyed after a period of time elapses after the auction . Therefore , even if the party purchases an asset at a foreclosure sale with no knowledge of the bankruptcy , the recording of the Notice Document may occur before title is delivered to the highest bidder ; and , such event could nullify the sale . Furthermore , not all Notice Documents are timely recorded . The major concern is that the Notice Document predate the transfer of the property ’ s title . If the Notice Document is delayed , the postpetition transferee may become a beneficiary of bureaucratic delay .
What was Paid by the Transferee ?
If the transferee knew nothing about the bankruptcy , all initially appears good to the transferee . If the transferee did not know about the bankruptcy and paid a fair price for the asset post-petition , there would most likely be immunity . And , this immunization is best applied if the property is not personal property .
When confronted with such
40 CONSUMER BANKRUPTCY JOURNAL Spring 2018 National Association of Consumer Bankruptcy Attorneys