528 B.R. 784
Bankr. E.D. Cal.2015Background
- Debtor Peter Zubenko owned 22 Seacrest Court, Sacramento; defaulted on a deed of trust secured by the property.
- Trustee’s sale occurred prepetition (successful bid by Herbert U.S. Real Estate on Nov. 24, 2014); Herbert received an unrecorded trustee’s deed on Dec. 2, 2014.
- Debtor filed Chapter 13 on Dec. 5, 2014 (eleven days after the sale; three days after Herbert received the deed).
- Herbert delayed recording the trustee’s deed because of the automatic stay and now seeks relief to record the deed and pursue possession.
- Trustee/debtor argue Civil Code § 2924h(c) and related authority give the debtor a superior interest because the deed was not recorded within 15 days; Herbert argues the prepetition sale vested it with the equitable interest and recorded notices of default/sale put the trustee on constructive notice.
- The court found the recorded notice of default and notice of sale (within months of petition) charged the trustee with inquiry/constructive notice, defeating § 544(a)(3) strong-arm avoidance and rendering the estate’s legal title valueless; the court granted relief from stay under § 362(d)(1).
Issues
| Issue | Herbert's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether stay should be terminated so Herbert can record a prepetition trustee’s deed and seek possession | Foreclosure sale was completed prepetition; Herbert holds equitable interest; estate only has bare legal title of no value | Because Herbert did not record the deed within 15 days (Cal. Civ. Code § 2924h(c)), debtor holds superior interest; postpetition recordation barred by stay | Stay terminated under § 362(d)(1); Herbert may record deed and pursue possession |
| Whether trustee can avoid Herbert’s unrecorded interest under § 544(a)(3) | Recorded notice of default and notice of sale gave constructive/inquiry notice; trustee not a bona fide purchaser | Trustee (via debtor) could invoke § 544(a)(3) to avoid unrecorded interest because deed unrecorded within 15 days | Trustee lacks bona fide purchaser status due to constructive notice; cannot avoid Herbert’s interest |
| Effect of Cal. Civ. Code § 2924h(c) when trustee’s deed unrecorded and bankruptcy intervenes | Prepetition sale is effective; recording delay does not defeat purchaser if trustee had no constructive notice | Failure to record within 15 days defeats relation back; debtor relies on Garner to claim superior interest | Court follows BAP guidance and Weisman: constructive notice can defeat trustee; § 2924h(c) recording window is important but here constructive notice controls |
| Relevance of cases holding remote notices insufficient to charge trustee | Herbert: notices here were recent (within months), close to sale; thus not stale and require inquiry | Debtor relies on cases where notices were remote in time and found insufficient (Walker, Williams) | Court distinguishes Walker/Williams (not recent; pre-Weisman) and finds notices here sufficient to charge trustee |
Key Cases Cited
- Walker v. California Mortgage Service, 861 F.2d 597 (9th Cir. 1988) (discusses when recorded notice of default may not charge a trustee with constructive notice)
- Weisman v. United States Trustee (In re Weisman), 5 F.3d 417 (9th Cir. 1993) (constructive/inquiry notice can defeat trustee’s § 544(a)(3) strong-arm avoiding power)
- Probasco v. Eads (In re Probasco), 839 F.2d 1352 (9th Cir. 1988) (recognizes limits of trustee’s strong-arm status where state-law notice doctrines apply)