Opinion ID: 1840147
Heading Depth: 3
Heading Rank: 2

Heading: Reasonably equivalent value

Text: The trustee asserts that the cancellation of the contract for deed is avoidable as fraudulent within the Act because the Debtor, Butler, did not receive reasonably equivalent value in exchange for the transfer. The Act provides an exception with respect to reasonably equivalent value  if the debtor's interest in property is transferred via a regularly conducted, noncollusive foreclosure sale on default of a mortgage, deed of trust or security agreement, the requirement of reasonably equivalent value has been satisfied. See Minn.Stat. § 513.43(b). But the Act does not similarly expressly except the cancellation of a contract for deed as conclusively providing reasonably equivalent value. The vendors argue that when done in conformity with the statutory process, the cancellation of a contract for deed is so similar to a mortgage foreclosure that the statutory exception for mortgage foreclosures should apply to regularly conducted, noncollusive statutory cancellations of contracts for deed. The vendors note that the Fraudulent Transfer Act does not specifically state that tax forfeiture sales are exempt from the reasonably equivalent value requirement, yet tax foreclosures have not been considered fraudulent transfers even though they yield less than reasonably equivalent value. See, e.g., Lord v. Neumann, 179 B.R. 429 (Bankr. E.D.Pa.1995). The vendors ask us to apply the reasoning of BFP to noncollusive statutory cancellation of contracts for deed and determine that the Fraudulent Transfer Act does not apply to them. The trustee does not challenge the validity of the cancellation of the contract for deed, but rather challenges the vendors' receipt of a $1.2 million windfall  the difference in the amount of the loan outstanding and the amount that the trustee claims is the fair market value of the property. The trustee believes that this amounts to a fraudulent transfer primarily because other creditors are denied access to the excess value of the property over and above the amount of the debt. The trustee argues that the language of the Fraudulent Transfer Act does not include an explicit exception from the reasonably equivalent value requirement for contract for deed cancellations, as it does for mortgage foreclosures, and asks the court to decline to read words into the statute. The trustee asserts that contract for deed cancellations are unlike mortgage foreclosures because no sale takes place in a contract cancellation. A major difference between contract cancellations and mortgage or tax foreclosure sales is the requirement of public notice and the opportunity to bid competitively for a property. There is, as the trustee points out, no sale in a contract for deed cancellation. We agree with the Oregon bankruptcy court in In re Vermillion that, while no actual sale has taken place, the vendee is afforded a number of other procedural protections in the statutory cancellation of a contract for deed. The vendee has notice that the cancellation process has been initiated, the vendee then has the opportunity to cure the default, and the vendee may, during the notice period, seek competitive bids and sell the property. Minnesota's statute requires the vendor to adhere to strict notice requirements. While the processes for mortgage foreclosure and cancellation of contract for deed are not identical, they provide similar protections for the vendee and the mortgagee. The trustee next maintains that creditors must be protected from the loss of value which occurs with a cancellation, and asserts that creditors have such protection in a forced sale context. The trustee cites Berge v. Sweet (In re Berge), 33 B.R. 642 (Bankr. W.D.Wis.1983), as setting aside a Wisconsin judgment of strict foreclosure primarily because the procedural protections for creditors were insufficient where there was no sale. While the court did note in In re Berge that the interest of the creditors was not protected, the case was actually a straight-forward application of the Durrett 70% rule, setting aside a transfer because it yielded less than 70% of the property's fair market value. Id. at 649-50. The Durrett reasoning has been explicitly rejected by the Supreme Court in BFP. 511 U.S. at ___, 114 S.Ct. at 1764. We see no reason why the creditors should be afforded greater protection than the vendee. Minnesota's legislature has given due regard to the rights of both vendors and vendees in upholding the utility of contracts for deed and in enacting statutes governing contracts for deed and their cancellation. Moreover, a vendee may undertake an action in unjust enrichment if there has been wrongful conduct on the part of the vendor; the vendee has an opportunity to sell the property prior to cancellation to protect his interest; and the vendee may attack any irregularity in the cancellation process. Minnesota's statutory cancellation procedure provides the vendee the protections of notice, opportunity to cure, and the condition that the vendor strictly adhere to statutory requirements. As long as these statutory requirements are met, notwithstanding the absence of a public sale as required in a mortgage foreclosure, a regularly conducted, noncollusive cancellation of a contract for deed meets the reasonably equivalent value standard of the Fraudulent Transfer Act. We therefore conclude that the Minnesota Fraudulent Transfer Act, Minn. Stat. §§ 513.41-.51, does not apply to regularly conducted, noncollusive statutory cancellations of contracts for deed pursuant to Minn.Stat. § 559.21. The certified question is answered in the negative.