457 B.R. 748
8th Cir. BAP2011Background
- Debtor Mary Lumbar entered a 1994 contract for deed with her parents, for $150,000, with two balloon payments and monthly payments of $750.
- In 2000, the Welshes conveyed their seller’s interest to the Welsh Living Trust; deed recorded April 2000.
- The Lumbars defaulted on balloon payments; the Welshes began accepting $1,000 monthly payments in 2002 and did not act on the contract.
- May 1, 2006: Welshes served a notice of cancellation demanding $188,426.15; state-court injunction temporarily restraining cancellation.
- Settlement in November 2007: Daniel to pay $85,000; Mary quitclaims her interest to the Welshes; marital property to Mary per dissolution action.
- Mary executed the quitclaim November 16, 2007; she filed bankruptcy December 24, 2008; no exemption claimed; Trustee filed adversary proceeding June 2009.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §548(a)(1)(B) applies to transfers of exempt property. | Trustee asserts §548 applies despite exemption status. | Welshes argue Minnesota law bars fraud claims on exempt property. | Remanded; court rejects exemption bar to §548 analysis. |
| Whether Minnesota law governs the debtor’s interest and the transfer’s nature for §548. | Debtor’s interest defined by state law; transfer occurred within two years. | State law governs interest but §548 analysis is federal and separate. | State-law interest established; §548 analysis required; remand for elements. |
| Whether Debtor received less than reasonably equivalent value and insolvency status from the transfer. | Transfer likely lacked value; debtor insolvent or became so. | Not addressed; needs separate factual findings. | Remand for findings on value and solvency. |
Key Cases Cited
- In re Agnew, 818 F.2d 1284 (7th Cir. 1987) (apply state-law principles to fraudulent transfer requirements)
- Tavenner v. Smoot, 257 F.3d 401 (4th Cir. 2001) (majority reject no-harm/no-foul approach to fraudulent transfers)
- In re Noblit, 72 F.3d 758 (9th Cir. 1995) (no-harm approach rejected; exemptions and transfers evaluated)
- Lee Supply Corp. v. Agnew (In re Agnew), 818 F.2d 1284 (7th Cir. 1987) (discussion of state-law principles and fraud in bankruptcy)
- In re Popkin & Stern, 223 F.3d 764 (8th Cir. 2000) (reference supporting §544/§548 avoidance framework)
- Sisco v. Paulson, 232 Minn. 250 (1950) (exempt property typically not subject to fraudulent transfer)