Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Co.Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Co.
Craig A. Christensen of Lindquist & Vennum, P.L.L.P., Denver, CO, for Defendants-Appellees.
Before KELLY, LUCERO, and MATHESON, Circuit Judges.
KELLY, Circuit Judge.
Plaintiff-Appellant Ute Mesa Lot 1, LLC, (“Ute Mesa“) appeals from a bankruptcy court order denying it relief under
Background
Ute Mesa is a real estate developer in Colorado. In October 2007, it received a $12 million loan from Defendant-Appellee United Western Bank (“Bank“)1 to finance the construction of a single family home on property it owned in Aspen (“property“). To secure the loan, the Bank prepared a deed of trust incorrectly identifying Ute Mesa‘s sole member (Leathem Stern) as the owner rather than Ute Mesa. Because the grantor under the deed of trust was not the owner of the property, the deed of trust was ineffective in giving the Bank а lien on the property.
On May 19, 2010, the Bank filed suit in Colorado state court seeking reformation of the deed of trust and a declaration that it had a first priority lien on the property. Two days later, the Bank filed a notice of lis pendens in the Pitkin County real propеrty records.
On August 13, 2010, Ute Mesa petitioned for Chapter 11 bankruptcy relief. Ute Mesa continues as debtor in possession of the property. In April 2011, Ute Mesa filed an adversary proceeding against the Bank seeking to avoid the lis pendens as a preferentiаl transfer. The bankruptcy court granted the Bank‘s motion to dismiss, and the federal district court affirmed.
Relying upon the bankruptcy court‘s analysis, the district court recognized that a “lis pendens does not create a lien, retain title as a security interest, or foreclose on a debtor‘s equity of redemption.” Ute Mesa Lot 1, LLC v. First Citizens Bank (In re Ute Mesa), No. 11-cv-01786, 2012 WL 1015757, at *3 (D. Colo. Mar. 23, 2012) (internal quotation omitted). It agreed with the bankruptcy court that, “since a lis pendens only serves the limited purpose of notice, the filing of a lis pendens is not a transfer disposing of or parting with an interest in the property within the meaning of
Discussion
We review the bankruptcy court‘s decision de novo, as it involves only legal questions. Valley Bank & Trust Co. v. Spectrum Scan, LLC (In re Tracy Broad. Corp.), 696 F.3d 1051, 1053 (10th Cir. 2012).
Ute Mesa argues that the bankruptcy and district courts erred by beginning and ending their analyses with
The Bank argues that the first and only step of the analysis is to determine whether an underlying property interest exists
I. Transfer of an Interest in Property
Under
each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with—
(i) property; or
(ii) an interest in property.
A. Colorado Lis Pendens
In Colorado, a party may record a notice of lis pendens agаinst real property after initiating an action “wherein relief is claimed affecting the title to real property.”
Colorado cases applying the doctrine of lis pendens make clear that a “lis pendens does not constitute a lien against real property.” Hewitt v. Rice, 154 P.3d 408, 412 (Colo. 2007). A judgment lien does not arise against real property until a “transcript of the judgment” is recorded.
Ute Mesa argues that the bankruptcy and district courts erred by narrowing their аnalyses to these statements of Colorado law. We disagree. While federal law answers “[w]hat constitutes a transfer” for purposes of
B. The Bundle of Rights
Ute Mesa argues that, although the lis pendens did not transfеr its property per se, the lis pendens did transfer one of its discrete interests in the property—its right to convey fee simple title free of the interests of the Bank. Aplt. Supp. Br. 2. Because the lis pendens rendered the property unmarketable and subject to the Bank‘s claims, Ute Mesa contends that its rights were diminished upon the recording of the lis pendens, thus reducing the value of the property to the detriment of its creditors. Id. at 9–10. The Bank, on the other hand, argues that the lis pendens only affects the rights of potential purchasers vis-a-vis the Bank, leaving Ute Mesa‘s interests unaffected. Aplee. Supp. Br. 4.
Not only is a disposition of the debtor‘s “property” a transfer, a disposition of any of the debtor‘s separate “interests in property” is likewise a transfer under the Bankruptcy Code.
In fact, the Colorado Supreme Court has addressed this very argument. In Hammersley, the property owner sought to have a notice of lis pendens vacated on the grounds that “the notice of lis pendens [would] cloud his title and [would] imрair its marketability.” 610 P.2d at 96 n. 2. The Colorado Supreme Court flatly rejected that assertion by stating that a lis pendens “harm[s] no legitimate interest of the owner.” Id. at 96. While the marketability of title was tarnished, the court noted, “[t]his means only that a subsequent purchaser will be bound by the outcome of the litigation and that purchase may be discouraged until that outcome is certain.” Id. at 96 n. 2.
Here, Ute Mesa may find it difficult to locate a purchaser willing to buy the property at full price, pending the resolution of the Bank‘s claims. However, this does not detract from the fact that the lis pendens itself “harm[s] no legitimate interest of the owner,” Ute Mesa. Id. at 96. Though the right to convey property may have been devalued, it has not been “disposed of” or “parted with” so to qualify as a “transfer” under the Bankruptcy Code. Contrary to Ute Mеsa‘s argument, a “diminished” interest does not equate to a
II. Perfection vs. Transfer of an Interest in Property
Ute Mesa challenges reliance on Colorado law and argues that
Section 547(e)(1)(A) of the Bankruptcy Code provides that:
a transfer of real property . . . is perfected when a bona fide purchaser of such property from the debtor . . . cannot acquire an interest that is superior to the interest of the transferee . . . .
Additionally,
a transfer is made . . . at the time such transfer is perfected, if such transfer is perfected after [30 days after such transfer takes effect] . . . .
Ute Mesa‘s reliance on
Ute Mesa relies on a Ninth Circuit case, Hurst Concrete Prods., Inc. v. Lane (In re Lane), 980 F.2d 601 (9th Cir. 1992), to argue that “perfection” of an interest equates to “transfer” of an interest under
Other decisions support the conclusion that “perfection” and “transfer” are distinct inquiries for preferential transfer purposеs. Perfection is a “preliminary determination” that must be made to “establish[] the date on which a transfer was made,” Grover v. Gulino (In re Gulino), 779 F.2d 546, 549 (9th Cir. 1985); it does
The filing of [a] lis pendens cannot be characterized as a transfer of the debtor‘s property nor can it be characterized as a transfer on account of an antecedent debt. To argue otherwise confuses avoidance of a transfer of an interest in the debtor‘s property with avoidance of an act that perfects, as against potential bona fide purchasers, a claim of ownership. Section 547 permits avoidance of the former not the latter.
34 B.R. 755, 757 (9th Cir. BAP 1983). The Ninth Circuit did not disturb this limited holding—that perfection is not itself a transfer—in In re Lane. Simply put,
Ute Mesa raises an additional argument that, even though the Bank had not recorded a judgment before Ute Mesa filed its bankruptcy petition, any eventual judgment is itself a present transfer because it would necessarily “relate back” to the filing of the lis pendens. Aplt. Br. 10-11. However, Ute Mesa did not raise this argument in its complaint, response to the Bank‘s motion to dismiss, or opening brief in the district court. We will not permit Ute Mesa to raise it for the first time here. Katz v. Gerardi, 655 F.3d 1212, 1217 n. 3 (10th Cir. 2011).
AFFIRMED.