Case Name: In re Warne EHRING, Debtor. Warne EHRING, Appellant, v. WESTERN COMMUNITY MONEYCENTER, a corporation, and Franklin Tom, Commissioner of Corporations, State of California, as Liquidator of Western Community Moneycenter, Appellees
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1988-09-22
Citations: 91 B.R. 897
Docket Number: BAP No. CC-86-1170-MeMoJ
Parties: In re Warne EHRING, Debtor. Warne EHRING, Appellant, v. WESTERN COMMUNITY MONEYCENTER, a corporation, and Franklin Tom, Commissioner of Corporations, State of California, as Liquidator of Western Community Moneycenter, Appellees.
Judges: Before MEYERS, MOOREMAN and JONES, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 91
Pages: 897–904

Head Matter:
In re Warne EHRING, Debtor. Warne EHRING, Appellant, v. WESTERN COMMUNITY MONEYCENTER, a corporation, and Franklin Tom, Commissioner of Corporations, State of California, as Liquidator of Western Community Moneycenter, Appellees.
BAP No. CC-86-1170-MeMoJ.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Argued and Submitted July 22, 1987.
Decided Sept. 22, 1988.
Earle Hagen, Hagen & Hagen, Encino, Cal., for appellant.
Lawrence M. Jacobsen, Jeffer, Mangels & Butler, Los Angeles, Cal., for appellees.
Before MEYERS, MOOREMAN and JONES, Bankruptcy Judges.

Opinion:
OPINION
MEYERS, Bankruptcy Judge:
I
This case involves a pre-petition foreclosure sale of the Debtor's real property. The Debtor brought a preference action under Section 547 of the Bankruptcy Code ("Code"), alleging that the transfer of the property occurred within 90 days of bankruptcy. The Bankruptcy Court found there was no preference and the Debtor now appeals. The issue presented is whether the transfer occurred when the creditor perfected its security interest or at the time of the foreclosure sale. Because we find that the transfer occurred at the time the security interest was perfected, we AFFIRM.
II
BACKGROUND
On March 2, 1983, the Debtor borrowed $145,000 from Coast Home Loans in exchange for a promissory note secured by a second deed of trust. The next day, Coast Home Loans assigned its trust deed to Western Community Moneycenter ("Western"). Western recorded its deed of trust on March 15, 1983.
The Debtor defaulted on his note payments, causing Western to foreclose on the property. Western held a valid foreclosure sale on February 22, 1985 and purchased the property for $199,746.41, the amount of the indebtedness, which was secured by a deed of trust in the second position. This transaction was recorded on March 21, 1985.
On April 18, 1985, Western resold the subject property to Gary Miller and Margaret Reid Miller for $390,000, which was the approximate total fair market value of the property, with escrow closing in July 1985.
On May 21, 1985, less than 90 days after the initial foreclosure sale, the Debtor filed a bankruptcy petition under Chapter 11. He thereafter commenced an action against Western under Section 547 of the Code, claiming that the foreclosure sale and the subsequent resale to the Millers constituted a voidable preference. In his complaint the Debtor prayed for $110,000, which represented the amount that the sales price to the Millers exceeded the sums owed on the first and second deeds of trust. The Bankruptcy Court granted summary judgment for Western finding no preference in either the foreclosure sale or the resale.
Ill
DISCUSSION
Section 547 of the Code authorizes the bankruptcy trustee to avoid certain "preferential transfers" by the debtor to creditors within a fixed period prior to the filing of the petition. 11 U.S.C. § 547. The purpose of this section is to discourage creditors from "racing to the courthouse to dismember the debtor during his slide into bankruptcy" and "to facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor." Matter of Vance, 721 F.2d 259, 260 (9th Cir.1983). In addition, the provision is intended to discourage the imposition of secret liens upon the debtor's collateral which are not perfected until just before the debtor files for bankruptcy, as other creditors might extend credit on the assumption that the collateral was free and clear. In re Gulino, 779 F.2d 546, 549 (9th Cir.1985).
In order to establish a voidable preference, the trustee must prove seven elements set out in 11 U.S.C. § 547(b). There must be: (1) a transfer; (2) of the debtor's property; (3) to or for the benefit of a creditor; (4) for or on account of an antecedent debt; (5) made while the debtor was insolvent; (6) within 90 days before the original filing of the petition; (7) which enables the creditor to receive more than he would receive under a Chapter 7 liquidation. In re Gulino, supra, 779 F.2d at 549.
The present case involves a dispute over the date of the transfer. If the transfer of property occurred when Western perfected its security interest under state law, then it clearly would fall outside the preference period. On the other hand, a transfer occurring at the time of the foreclosure sale would fall within the preference period.
Generally, the Code defines "transfer" broadly under Section 101(50):
[Tjransfer means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption.
11 U.S.C. § 101(50) (emphasis added).
The definition of when a transfer occurs is set forth in Section 547(e)(2) which states:
For purposes of this section . a transfer is made
(A) At the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time; [or]
(B) At the time such transfer is perfected, if such transfer is perfected after such 10 days[.]
11 U.S.C. § 547(e)(2). Consequently, establishing the date on which a transfer was made requires a preliminary determination of when the transfer was perfected under state law. In re Gulino, supra, 779 F.2d at 549.
A. Applicability of Madrid
The Ninth Circuit has held that for purposes of Section 548, a transfer of real property occurs at the time the creditor's security interest is perfected, as opposed to the time of the subsequent foreclosure sale. In re Madrid, 725 F.2d 1197, 1200-01 (9th Cir.1984). Thus, where the perfection occurs more than one year prior to the date of bankruptcy, the transfer is not avoidable as a fraudulent conveyance under Section 548. 725 F.2d at 1201. The Court rejected an earlier contrary decision by the Fifth Circuit which ruled that the transfer occurs at the time of the foreclosure sale. See Durrett v. Washington Nat. Ins. Co., 621 F.2d 201, 204 (5th Cir.1980).
The issue presented before this Panel is whether Madrid's interpretation as to the time of the transfer applies to the present case. The Debtor first argues that because the present case falls under Section 547, Madrid should not apply.
We find the interpretation of when a transfer occurs in Madrid to be applicable to the present case. Although Madrid involved Section 548, the Code provisions regarding fraudulent transfers, and while this appeal involves allegedly voidable preferences under Section 547, both sections define the time of transfer in relation to when the transaction is perfected under state law against the interests of a bona fide purchaser. In addition, the Madrid court specifically stated that its holding was consistent with the treatment of similar transfers under Section 547. 725 F.2d at 1201 n. 2. The Panel is not free to disregard such a clear statement from the Ninth Circuit on this issue. See Zuniga v. United Can Co., 812 F.2d 443, 450 (9th Cir.1987); Hasbrouck v. Texaco, Inc., 663 F.2d 930, 933 (9th Cir.1981).
In the present case then, the transfer of the real property interest occurred when Western perfected its interest under state law. 725 F.2d at 1200-01. See also In re Cardinal Enters., 68 B.R. 460, 462 (9th Cir. BAP 1986), aff'd 844 F.2d 791 (9th Cir.1988) (Table). In California, perfection of a deed of trust occurs upon the rec-ordation of the document with the county recorder. Cal.Civ.Code § 1213. Since Western recorded its deed of trust and therefore perfected its interest in March 1983, the transfer should be deemed to have occurred at that date. This transfer clearly falls outside the 90-day preference period and so is not voidable under Section 547. See In re Lewis W. Shurtléff, Inc., 778 F.2d 1416, 1420 (9th Cir.1985).
B. The 1984 Amendments
The Debtor next claims that the 1984 Bankruptcy Amendments and Federal Judgeship Act ("1984 Amendments"), which expanded the definition of "transfer" in Section 101(50), intended to overrule Madrid in favor of the result reached in Durrett. The issue of whether Congress intended to overrule Madrid by these amendments has arisen with no clear answer. See In re Cardinal Enters., supra, 68 B.R. at 462.
The 1984 Amendments were originally drafted with three changes to the Code specifically aimed at resolving the Madrid/Durrett dispute. First, the definition of "transfer" in Section 101 was expanded expressly to include foreclosure of a debt- or's equity of redemption. 11 U.S.C. § 101(50). Second, Congress altered Section 548 so that both voluntary and involuntary transfers could qualify as fraudulent transfers. 11 U.S.C. § 548(a). Third, it was proposed that there be an irrebuttable presumption of "reasonably equivalent value" to any party who purchased mortgaged property at a regularly conducted non-collusive foreclosure sale for a price equal to the full amount of the mortgaged debt. See In re Verna, 58 B.R. 246, 250 (C.Cal.1986).
However, before these changes were enacted, there was a dispute in Congress over whether the Amendments should attempt to resolve the Madrid/Durrett issue. See In re Verna, supra, 58 B.R. at 250. Senators Dole and DeConcini inserted into the record a colloquy indicating that Congress did not intend to resolve the dispute over the two cases. 58 B.R. at 250. The final bill enacted the first two changes outlined above, but for some unannounced reason deleted the third provision. As a result, Congress' intent is not clear.
No changes of law or policy are to be interpreted from changes of language in the revision of a statute unless the intent to make a change is clearly expressed. Muniz v. Hoffman, 422 U.S. 454, 472, 95 S.Ct. 2178, 2188, 45 L.Ed.2d 319 (1975); Tidewater Oil Co. v. United States, 409 U.S. 151, 162, 93 S.Ct. 408, 415, 34 L.Ed.2d 375 (1972). Only where the plain language of the amendment works a clear change in former law should new interpretations be given effect. United States v. California, 328 F.2d 729, 737 (9th Cir.1964).
Courts interpreting the 1984 Amendments with respect to Section 547 have reached mixed results. Some courts have found that the changes overrule Madrid and ratify the Durrett approach. In re Main, 75 B.R. 322, 325 (Ariz.1987); In re Pruitt, 72 B.R. 436, 442 (E.N.Y.1987); In re Verna, supra, 58 B.R. at 251. These courts reason that although Congress may not have intended this result, the legislation as enacted mandates such a reading. In re Verna, supra, 58 B.R. 251.
However, we agree with those courts which have found that Madrid is still valid law. See In re Winshall Settlor's Trust, 758 F.2d 1136, 1138-39 n. 3 (6th Cir.1985); Lower Downtown Assocs. v. Brazosbanc Sav. Ass., 52 B.R. 662, 665 (Colo.1985). On its face, the amendment to Section 101(50) does not clearly express an intent to overrule Madrid. Congress altered the definition of "transfer" found in Section 101(50) to specifically include the "foreclosure of the debtor's equity of redemption." However, we note that the Madrid court relied on Section 548(a) itself for its holding that the "transfer" in question occurs when the lien is perfected rather than when the foreclosure sale takes place. Matter of Winshall Settlor's Trust, supra, 758 F.2d at 1138-39. See also Comment, Avoidance of Foreclosure Sales As Fraudulent Transfers Under Section 548(a) of the Bankruptcy Code, 66 Neb.L.Rev. 384, 397, 399 (1987). In Madrid, the Ninth Circuit noted that their holding was in accord with cases decided under Section 547. 725 F.2d at 1201 n. 2. The 1984 Amendments did not change Sections 547 and 548 in any way which would undermine the Ninth Circuit's reliance on those sections concerning the time that transfers take place.
The Congress did amend Section 548(d) by adding the phrase "voluntarily or involuntarily." This change addressed only the concern of Judge Farris, who concurred in Madrid. We, therefore, conclude that the changes enacted by the 1984 Amendments do not weaken the interpretation of the Madrid court which regarded the rest of Section 548(d)(1) as determinative of when a transfer of a secured interest occurred. In re Winshall Settlor's Trust, supra, 758 F.2d at 1138-39 n. 3.
Referring then to the legislative history, we see that Congress was clearly aware of the Madrid/Durrett dichotomy. However, the enactment of only two of the three proposed amendments coupled with Congress' indecision and conflicting statements demonstrate that there was no clear-cut resolution on this issue. Absent a clear mandate from Congress via either the wording of the 1984 Amendments or the legislative record, courts within the Ninth Circuit are bound to continue to uphold the decision of Madrid regarding the time of transfer.
The Debtor claims that a finding of no preference results in a windfall for Western who resold the property to the Millers at its fair market value. This argument, which essentially challenges the adequacy of the foreclosure sale price, should properly be challenged under Section 548 as a fraudulent transfer. See e.g., In re Winshall Settlor's Trust, supra, 758 F.2d at 1137. Even assuming this argument was properly raised before this Panel, we find no windfall where the property is sold at the lien value in a non-collusive regularly held foreclosure sale. See In re Verna, supra, 58 B.R. at 252; Golden v. Tomiyasu, 387 P.2d 989, 995 (Nev.1963). Western should not be penalized for subsequently using the purchased property to its benefit and the resale of the property at its fair market value violates no Code purposes.
The Code contemplates that the determination of when a transfer occurs should depend at least in part on state law. See In re Gulino, supra 779 F.2d at 549-50; 4 Collier on Bankruptcy 11547.16[2] at 547-60. Yet if the Code is now read, as the Debtor suggests, so that a transfer occurs at the time of the foreclosure sale, then the state law regarding perfection of the security interest becomes irrelevant. Federal law, which states through Section 101(50) what a transfer is, will have displaced state law as to when the transfer takes place. The 1984 Amendments demonstrate no legislative intent to reduce the importance of state law in calculating the time of the transfer.
The transfer of the Debtor's property-occurred in March 1983 on the date Western perfected its security interest. As this falls outside the 90-day preference period, it is not voidable under Section 547.
AFFIRMED.
. This in essence would have adopted the Panel's position in the Madrid case. In re Madrid, 21 B.R. 424, 427 (9th Cir. BAP 1982).