595 B.R. 616
Bankr. D.P.R.2018Background
- Debtors purchased a lot (Deed 97) and executed a mortgage in favor of Scotiabank (Deed 315) on Nov. 16, 2007; both deeds were presented for recordation on June 7, 2012 and remained pending in the Puerto Rico Property Registry at filing.
- Trustee filed an adversary proceeding seeking to avoid Banco Popular’s claimed secured interest under 11 U.S.C. § 544(a)(3), alleging the mortgage was not properly constituted because required prior segregation (Deed 56) had been defect-noticed and lapsed.
- Registrar issued a notice of defects as to Segregation Deed No. 56 (related to the tract from which the debtors’ lot was segregated); Trustee says defects were not timely corrected, extinguishing the presentation entry.
- Banco Popular (assignee of Scotiabank) contends the defects were corrected (citing a corrective Deed 13) and that its mortgage deed remains pending recordation with retroactive effect to its presentation date, preserving a prepetition lien.
- The dispute centers on whether under Puerto Rico registry law a mortgage was ever constituted against the specific segregated lot such that the trustee may avoid the lien as a bona fide purchaser under § 544(a)(3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Banco Popular’s mortgage a perfected, constitutionally valid lien under Puerto Rico law at petition? | Trustee: No — the prior segregation deed (Deed 56) had an uncorrected defect and lapsed, so the mortgage could not attach to a nonexistent segregated parcel. | Banco Popular: Yes — mortgage deed and purchase deed were presented and remain pending recordation; any defects were cured (Deed 13) and recordation relates back to presentation. | Held: Dismissed Trustee’s complaint — pleadings do not plausibly show the lien was invalid; deeds remain pending recordation and Trustee failed to provide facts showing lapse/extinguishment. |
| Can Trustee avoid the alleged lien under § 544(a)(3)? | Trustee: Yes — if the lien was not constituted/perfected prepetition, Trustee stands in the position of a bona fide purchaser who can avoid the interest. | Banco Popular: No — mortgage was presented before bankruptcy and would relate back, so § 544(a)(3) avoidance is not supported. | Held: Court found Trustee’s allegations insufficient to infer entitlement to avoidance; dismissal granted. |
| Does § 546(b)/§ 362(b)(3) permit postpetition actions to perfect that would overcome Trustee’s claim? | Trustee: Even if attempted postpetition, perfection under those exceptions is not available because Registry appeared to show lapse at case commencement. | Banco Popular: § 546(b)(1) allows correcting defects within statutory periods and such perfection would be effective against the trustee. | Held: Court did not resolve the substantive reach of these provisions here; rejected Trustee’s factual premise that the registry showed lapse. |
| Is In re Mujica controlling to bar Banco Popular’s secured status? | Trustee: Relies on Mujica to argue similar facts support invalidation of the creditor’s lien. | Banco Popular: Distinguishes Mujica — here assignee status and record evidence differ and Trustee presented no documents showing lapse or failed assignment. | Held: Mujica distinguished; court found Mujica’s facts unlike this case and Trustee’s complaint lacks support to apply Mujica. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must permit reasonable inference of liability)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Soto-Ríos v. Banco Popular de Puerto Rico, 662 F.3d 112 (1st Cir. 2011) (Puerto Rico law: recording is constitutive for mortgages)
- Travelers Casualty & Surety Co. v. Pacific Gas & Elec. Co., 549 U.S. 443 (2007) (property rights in bankruptcy are defined by state law)
- Butner v. United States, 440 U.S. 48 (1979) (state law determines property rights in bankruptcy)
- In re Mujica, 492 B.R. 355 (D.P.R. 2013) (discussed and distinguished regarding defects in registry presentation and perfection of lien)