Wasserman v. Capazzi (In Re Day)
443 B.R. 338
Bankr. D.N.J.2011Background
- Trustee seeks to avoid Capazzi and HSBC’s interests in Closter property under 11 U.S.C. §544(a)(3) as a hypothetical BFP.
- HSBC asserts an equitable lien/subrogation interest arising from funds used to payoff a preexisting Countrywide mortgage.
- Capazzi contends debtor Day held only bare legal title and that a postpetition constructive trust should relate back to prepetition date.
- New Jersey recording and Statute of Frauds principles (N.J.S.A. 46:22-1; 25:1-14) are central to whether HSBC’s unrecorded mortgage can trump a BFP.
- Bridge (Third Circuit) controls the analysis, holding state law governs the scope of §544(a)(3) and that a BFP defeats unrecorded liens in New Jersey.
- Court grants summary judgment for the trustee, rejecting HSBC’s equitable lien/constructive trust theory and upholding BFP priority under Bridge and NJ law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HSBC’s equitable lien defeats the trustee’s BFP priority. | HSBC as lienholder asserts subrogation priority over BFP. | Trustee as BFP should prevail; equitable lien is subordinate. | HSBC’s equitable lien cannot trump the trustee’s BFP. |
| Whether Day’s title was bare legal title subject to a constructive trust for Durie. | Capazzi claims constructive trust retroactive to prepetition. | Constructive trust valid to defeat BFP; Day held Day title for Durie. | Constructive trust not recognized; Day’s title not defeated by Capazzi. |
| Interaction of §541(d) exclusion with §544(a)(3) BFP status. | §541(d) excludes certain interests, potentially trumping §544(a)(3). | §544(a)(3) governs against latent equities; §541(d) not controlling here. | §541(d) does not defeat trustee’s BFP rights under §544(a)(3). |
| Effect of recording statutes on unrecorded HSBC mortgage. | Unrecorded mortgage should be void against BFP under §46:22-1. | Recording acts save equities; Patella/constructive trust may prevail. | NJ recording statute supports BFP; unrecorded mortgage void over HSBC claim. |
| Applicability of New Jersey Statute of Frauds to parol constructive trust claims. | Parol constructive trust claims valid despite Statute of Frauds. | 25:1-14 bars unwritten real estate interests against BFP without notice. | Statute of Frauds bars Capazzi’s constructive trust claim. |
Key Cases Cited
- Bridge, 18 F.3d 195 (3d Cir. 1994), 18 F.3d 195 (3d Cir. 1994) (controls; BFP defeats unrecorded liens in NJ; state law governs avoidance scope)
- Belisle v. Plunkett, 877 F.2d 512 (7th Cir. 1989), 877 F.2d 512 (7th Cir. 1989) (reconciles §541(d) with §544(a) via local law; BFP priority analysis)
- Quality Holstein Leasing, 752 F.2d 1009 (5th Cir. 1985), 752 F.2d 1009 (5th Cir. 1985) (dictum on §541(d) vs §544 precedence; personal property context)
- Universal Bonding Ins. Co. v. Gittens and Sprinkle Ent., Inc., 960 F.2d 366 (3d Cir. 1992), 960 F.2d 366 (3d Cir. 1992) (discusses §541(d) interaction; no direct §544(a)(3) ruling here)
- Columbia Gas Sys., Inc. v. Dept. of Energy, 997 F.2d 1039 (3d Cir. 1993), 997 F.2d 1039 (3d Cir. 1993) (tariff/trust funds context; §§541(d) considerations)