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