488 B.R. 58
Bankr. E.D.N.Y.2013Background
- Adversary proceeding by Richard Stern, Chapter 7 Trustee of Debra J. Asher's estate, against Deutsche Bank National Trust Co. and Homeward Residential, Inc. over the Option One Mortgage.
- Defendants seek summary judgment to dismiss the complaint.
- Issue centers on interpretation of 11 U.S.C. § 544(a)(3) and whether a trustee can be a BFP preempting state law.
- Option One Mortgage was recorded in Suffolk County prior to the Debtor’s filing, with no recorded satisfaction or cancellation prior to filing.
- New York law imputes constructive notice to purchasers; the court finds § 544(a)(3) does not create a federal BFP and must align with state law.
- The court concludes that a trustee cannot be a BFP under § 544(a)(3) where NYRPL § 291 precludes any hypothetical BFP due to constructive notice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 544(a)(3) preempts state BFP requirements | Stern asserts trustee becomes a BFP by federal law. | Defendants contend state law governs BFP status. | No; § 544(a)(3) does not create a federal BFP; state-law criteria apply. |
| Role of New York constructive notice under RPL § 291 | Constructive notice should not defeat trustee’s BFP powers. | NY RPL § 291 precludes BFP where notice is imputed. | Constructive notice under NY RPL § 291 defeats any BFP under § 544(a)(3). |
Key Cases Cited
- McCannon v. Marston, 679 F.2d 13 (3d Cir.1982) (defined knowledge in § 544(a)(3) context; preemption not implied by silence)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (preemption limits; state law governs property rights in bankruptcy context)
- In re Bridge, 18 F.3d 195 (3d Cir.1994) ( Third Circuit analysis on constructive notice and BFP under § 544(a)(3))
- Realty Portfolio v. Hamilton, 125 F.3d 292 (5th Cir.1997) (recognizes state-law elements in determining BFP status)