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Wells Fargo Home Mortgage, Inc. v. Lindquist

January 11, 2010

WELLS FARGO HOME MORTGAGE, INC., NOW KNOWN AS WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, APPELLANT,
v.
DWIGHT R.J. LINDQUIST, IN HIS CAPACITY AS CHAPTER 7 TRUSTEE OF THE BANKRUPTCY ESTATE OF DEAN HAROLD WESTLUND, APPELLEE.



Appeal from the United States District Court for the District of Minnesota.

The opinion of the court was delivered by: Gruender, Circuit Judge.

Submitted: October 22, 2009

Before RILEY, SMITH and GRUENDER, Circuit Judges.

On October 14, 2005, Dean Harold Westlund ("the debtor") filed a petition for Chapter 7 bankruptcy relief. Dwight R.J. Lindquist, the Chapter 7 trustee, filed suit against Wells Fargo Home Mortgage, Inc. under 11 U.S.C. § 547 to avoid the pre- petition transfer of a mortgage from the debtor to Wells Fargo. The bankruptcy court*fn1 granted summary judgment in favor of the trustee and ordered Wells Fargo to pay the bankruptcy estate $190,808.71. The district court*fn2 affirmed the bankruptcy court's decision, and Wells Fargo now appeals. For the following reasons, we affirm.

I. BACKGROUND

On May 16, 2003, Wells Fargo loaned the debtor $196,000. In return, the debtor executed a promissory note payable to Wells Fargo for the principal amount of the loan and granted Wells Fargo a mortgage on his home in Hennepin County, Minnesota. On October 14, 2005, the debtor filed a petition for Chapter 7 bankruptcy relief, claiming $400 in non-exempt assets, $6,600 in unsecured priority claims and $37,833 in unsecured nonpriority claims. Although Wells Fargo never recorded the mortgage, the debtor erroneously listed Wells Fargo as a secured creditor. On the date he filed for bankruptcy, the unpaid principal balance on the note was $190,808.71.

Soon after the debtor filed his bankruptcy petition, Wells Fargo sold a bundle of 334 mortgage loans to EMC Mortgage Corporation.*fn3 In this transaction, Wells Fargo "assigned, sold and transferred" its rights under the debtor's note and mortgage to EMC. The bankruptcy court granted the debtor a discharge on March 7, 2006, and closed the case on March 20, 2006. EMC recorded the mortgage on or about October 11, 2006. The trustee subsequently learned that Wells Fargo had not recorded the mortgage before the debtor filed his bankruptcy petition, meaning that Wells Fargo should have been listed as an unsecured creditor in the petition. At the trustee's request, the bankruptcy court reopened the case on January 29, 2007. See 11 U.S.C. § 350(b).

On April 17, 2007, the trustee filed a complaint against Wells Fargo in bankruptcy court, seeking to avoid the debtor's grant of the mortgage to Wells Fargo. The trustee argued that 11 U.S.C. § 547(e)(2)(C) deems the transfer of the mortgage to Wells Fargo to have occurred immediately before the debtor's October 14, 2005 bankruptcy filing because Wells Fargo did not perfect its security interest in the property by recording the mortgage before the debtor filed for bankruptcy. See 11 U.S.C. § 547(e)(1)(A); Minn. Stat. § 507.34. According to the trustee, the pre-petition transfer of the mortgage from the debtor to Wells Fargo should be avoided as a preference under 11 U.S.C. § 547(b). As a result, the trustee claimed that Wells Fargo should pay the value of the mortgage to the debtor's bankruptcy estate under 11 U.S.C. § 550(a). Alternatively, the trustee sought to avoid and recover Wells Fargo's interest in the mortgage under 11 U.S.C. §§ 544(a) and 550(a). The trustee moved for summary judgment, and Wells Fargo filed a cross-motion for summary judgment.

The bankruptcy court granted the trustee's motion for summary judgment. It held that the transfer of the mortgage occurred immediately before the debtor's October 14, 2005 bankruptcy filing by operation of § 547(e)(2)(C). The court therefore avoided the transfer of the mortgage to Wells Fargo as a preferential transfer under § 547(b) and ordered Wells Fargo to pay the debtor's bankruptcy estate $190,808.71. As a result, the bankruptcy court dismissed the trustee's § 544(a) claim as moot. The district court affirmed, and Wells Fargo now appeals.

II. DISCUSSION

"On appeal from a district court's review of a bankruptcy proceeding, we sit as a second court of review, reviewing the bankruptcy court's conclusions of law de novo and any factual findings for clear error." Henning v. Mainstreet Bank, 538 F.3d 975, 978 (8th Cir. 2008). "Summary judgment is appropriate when, viewing the record in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law." Id.

Wells Fargo argues that the bankruptcy court erred in avoiding the transfer under 11 U.S.C. § 547(b). In the alternative, Wells Fargo argues that the bankruptcy court erred in holding that the trustee could recover the value of the mortgage from Wells Fargo under 11 U.S.C. § 550(a) and in calculating the value of the mortgage to be $190,808.71.

"Under the Bankruptcy Code's preference avoidance section, 11 U.S.C. § 547, the trustee is permitted to recover, with certain exceptions, transfers of property made by the debtor within 90 days before the date the bankruptcy petition was filed." Barnhill v. Johnson, 503 U.S. 393, 394 (1992). "This rule 'is intended to discourage creditors from racing to dismember a debtor sliding into bankruptcy and to promote equality of distribution to creditors in bankruptcy.'" Lindquist v. Dorholt (In re Dorholt, Inc.), 224 F.3d 871, 873 (8th Cir. 2000) (quoting Jones Truck Lines, Inc. v. Cent. States, Se. & Sw. Areas Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323, 326 (8th Cir. 1997)).

"Title 11 U.S.C. § 547(b) requires that in order for a transfer to be subject to avoidance as a preference, (1) there must be a transfer of an interest of the debtor in property, (2) on account of an antecedent debt, (3) to or for the benefit of a creditor, (4) made while the debtor was insolvent, (5) within 90 days prior to the commencement of the bankruptcy case, (6) that left the creditor better off than it would have been if the transfer had not been made and the creditor asserted its claim in a Chapter 7 liquidation." Buckley v. Jeld-Wen, Inc. (In re Interior Wood Prods. Co.), 986 F.2d 228, 230 (8th Cir. 1993). The trustee must ...


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