Goldman v. Capital City Mortgage Corp. (In Re Nieves), 648 F.3d 232

Brian Goldman, trustee in Nieves Chapter 7, sought to avoid transfers of an 11.8 acre Maryland Property; initial and second transfers were avoided by consent orders.
CCM made a one-year, non-recourse loan to 1st Financial Mortgage Services, LLC for $155,000 secured by the Property, despite limited information about 1st Financial and its ownership/authority.
CCM relied on a certificate of good standing dated April 30, 2003, and did not obtain a current search of title or ownership records; 1st Financial’s deed lacked notarization and a proper signature for 1st Financial’s manager.
The Property originally belonged to the Debtor; two transfers preceding CCM’s loan (to Edgardo Nieves and then to 1st Financial) were fraudulent or voidable; SDAT records later showed 1st Financial was not a valid entity at the time of the transfers.
CCM did not review the Property title, did not view the 1st Financial deed, and did not perform a meaningful records search; evidence showed Nastasi’s confusion over the LLC’s name and questionable corporate status.
The bankruptcy court voided the third transfer to CCM; CCM appeals, arguing it acted in good faith and without knowledge of voidability under 11 U.S.C. § 550(b)(1).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Knowledge prong under § 550(b)(1)	Nieves contends CCM had actual knowledge of voidability facts.	CCM argues knowledge is limited to actual knowledge; inquiry notice not required.	Knowledge requires actual notice of voidability; no facts showed CCM knew.
Good faith standard for § 550(b)(1)	Courts should apply objective good faith standard, considering what transferee knew or should have known.	Mixon’s standard supports a more limited view; the knowledge prong suffices.	Court adopts an objective good-faith standard reflecting what transferee knew or should have known.
Relation between knowledge and good faith	Knowledge and good faith are interrelated but distinct; lack of knowledge defeats good faith if due diligence was expected.	Good faith can be undermined only by actual knowledge or willful ignorance.	Even without knowledge, CCM cannot take in good faith due to willful ignorance and failure to investigate.
Duty to investigate and routine practices	N/A	Hedging on traditional diligence standards is unnecessary; objective standards should suffice.	Courts may consider routine industry practices in determining objective good faith; CCM’s failure to perform standard checks undermines good faith.

Smith v. Mixon, 788 F.2d 229 (4th Cir. 1986) (knowledge is actual notice; not constructive notice)
In re Laines, 352 B.R. 397 (Bankr. E.D. Va. 2005) (objective good-faith standard; what transferee knew or should have known)
Brown v. Third Nat'l Bank (In re Sherman), 67 F.3d 1348 (8th Cir. 1995) (objective good faith standard in § 550(b)(1))
Hayes v. Palm Seedlings Partners (In re Agric. Research & Tech. Group, Inc.), 916 F.2d 528 (9th Cir. 1990) (good faith and knowledge standards in transfer avoidance)
Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir. 1988) (good faith and knowledge considerations in § 550 defenses)
Huffman v. Commerce Sec. Corp. (In re Harbour), 845 F.2d 1254 (4th Cir. 1988) (initial transferee may be immune if acting in good faith; Wilful ignorance defeats good faith)
Nordic Village, Inc. v. City, 915 F.2d 1049 (6th Cir. 1990) (knowledge standards for transfer avoidance; quotes Mixon)
Mixon, Smith v. Mixon, 788 F.2d 229 (4th Cir. 1986) (knowledge standard for § 550(b)(1) discussion cited by court)
In re Smoot, 265 B.R. 128 (Bankr. E.D. Va. 1999) (burden allocation to transferee in § 550 defense (addressed in context))