639 F.3d 530
8th Cir.2011Background
- Marcusens financed Glens' real estate projects, advancing funds for lots 22, 23, and 6.
- Glens produced promissory notes and mortgages, but did not record some mortgages favored by Marcusens.
- Glens later obtained bank financing, with Bank and Sunny Acres mortgages recorded and prioritized over Marcusens’ unrecorded interests.
- Glens did not disclose Marcusens’ unrecorded mortgages to the lenders, nor to the Marcusens themselves before later financing.
- Foreclosures and sales left Marcusens with diminished or no recovery on their $50,000 note for lot 6 and other investments.
- Marcusens sought to except their debt from discharge under § 523(a)(2)(A) and (a)(2)(B); BAP reversed the bankruptcy court on § 523(a)(2)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §523(a)(2)(A) requires obtaining money or property by fraud concurrent with misrepresentation. | Marcusens argue Glens obtained money/property via fraud at the time of securing later loans. | Glens contend no concurrent obtaining occurred; misrepresentations to banks, not Marcusens, and value loss followed from unrecorded mortgages. | Yes, requires concurrent obtaining of money/property. |
| Whether a reduction in value of the Marcusens' equity satisfies §523(a)(2)(A). | Any decrease in equity due to hidden mortgages constitutes fraud-based discharge exception. | Reduction in value is not 'money or property obtained' from Marcusens. | No; value reduction alone does not satisfy §523(a)(2)(A). |
| Whether omissions about unrecorded mortgages can be treated as obtaining money or property by fraud against Marcusens. | Glens’ omissions caused deterioration of Marcusens’ equity as a fraud consequence. | Omissions were not fraud directed at Marcusens at the time of the later mortgages. | Omissions did not constitute fraud against Marcusens under §523(a)(2)(A). |
Key Cases Cited
- Cap One Auto Fin. v. Osborn, 515 F.3d 817 (8th Cir. 2008) (standard for reviewing factual findings in dischargeability cases)
- In re Dougherty, 179 B.R. 316 (Bankr. M.D. Fla. 1995) (obtaining money requires direct transfer from creditor to debtor)
- Matter of Grubbs, 9 B.R. 499 (M.D. Ga. 1981) (money obtained concept tied to direct creditor-debtor transfer)
- DeBold v. Case, 452 F.3d 756 (8th Cir. 2006) (clear error standard for factual findings under appellate review)