Daily Development for Thursday, September 2,
Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
Thanks to Jack Murray at First American for
putting DIRT on to this case. The report is the editor's.
BANKRUPTCY; AVOIDANCE; MORTGAGES;
ASSIGNMENTS: Mortgagor/debtor's trustee cannot avoid the lien of a mortgage on
Debtor's property on the basis that the mortgage has been assigned and the
assignment not recorded, even where state law requires recordation of the
assignment in order for it to be valid against competing interests, as transfer
of the mortgage is not a "transfer of the property" within the meaning
of the "strong arm" provisions, Section 544 of the Bankruptcy Code.
In re Halabi, 1999 WL 635513 (11th Cir.
The mortgage itself was properly recorded
according to Florida law. Later, mortgagee transferred the mortgage and note to
Assignee One, which promptly recorded the assignment. Soon thereafter, Assignee
One assigned note and mortgage to Assignee Two. Then mortgagor filed for
bankruptcy. Then Assignee Two recorded the assignment. Later Assignee Two
transferred the note and mortgage to Assignee Three, as to which there is no
recorded assignment document.
Florida law (relatively unusual in this
regard) provides that:
assignment of a mortgage upon reala property or of any interest therein, shall
be good or effectual in law or equity against creditors or subsequent
purchasers, for a valuable consideration and without notice, unless the
assignment is contained in a documents whihch, in its title, indicates an
assignment of a mortgage and is recorded according to law."
Another provision of Florida law, however,
a secured party assigns a perfected security interest, no filing under this
chapter is required in order to continue the perfected status of the security
interest against creditors of and transferres from the original debtor."
The Debtor's trustee argued that the mortgage
assignment was not perfected as required by Florida law, and therefore could be
avoided. The District Court held, and the Eleventh Circuit affirmed, that indeed
the perfection of the mortgage itself was the only relevant issue as pertaining
to the bankruptcy of the mortgage debtor. The transfer of the mortgage was not a
"transfer of the Debtor's property" and therefore was not subject to
avoidance if unperfected.
Comment 1: Not only is the case correct, but
it is correct even if the second Florida statute, cited above, had not been in
effect. Although the statute appears to have been drafted precisely to address
the question of whether an unrecorded assignment gives the mortgage debtor an
opportunity to use the strong arm power, the fact is that even without the
statute the court's analysis still holds. The mortgage is not the property of
the Debtor. Only the security affected by the mortgage is the Debtor's property,
and the transfer of that property into the mortgage was perfected by recording
of the mortgage.
Comment 2: This case ties nicely into a
discussion of a few weeks ago in which Dale Whitman and I responded to a
question from a DIRTer on this very point. Fortunately for us, the case is
consistent with our advice.
in the Daily Development section generally are extracted from the Quarterly
Report on Developments in Real Estate Law, published by the ABA Section on Real
Property, Probate & Trust Law. Subscriptions to the Quarterly Report are
available to Section members only. The cost is nominal. For the last six years,
these Reports have been collated, updated, indexed and bound into an Annual
Survey of Developments in Real Estate Law, volumes 16, published by the ABA
Press. The Annual Survey volumes are available for sale to the public. For the
Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or firstname.lastname@example.org
reported here and in the ABA publications are for general information purposes
only and should not be relied upon in the course of representation or in the
forming of decisions in legal matters. The same is true of all commentary
provided by contributors to the DIRT list. Accuracy of data and opinions
expressed are the sole responsibility of the DIRT editor and are in no sense the
publication of the ABA .
DIRT has a WebPage at: http://cctr.umkc.edu/dept/dirt>http://www.umkc.edu/dirt/