Court Opinion

ID: 2963629
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:13:15.763304+00
Date Added: 2024-06-11T15:01:29.726113
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                                     
                                 ____________________

        No. 94-2233

                           INDIAN MOTOCYCLE ASSOCIATES III
                                 LIMITED PARTNERSHIP,

                                      Appellant,

                                          v.

                        MASSACHUSETTS HOUSING FINANCE AGENCY,

                                      Appellee,

                                                     
                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                 [Hon. Frank H. Freedman, Senior U.S. District Judge]
                                          __________________________

                                                     
                                 ____________________

                               Torruella, Chief Judge,
                                          ___________

                            Cyr and Stahl, Circuit Judges.
                                           ______________

                                                     
                                 ____________________

             Paul  R.  Salvage, with  whom Susan  Luttrell  Burns and  Bacon &
             _________________             ______________________      _______
        Wilson, P.C. were on brief for appellant.
        ____________
             Kevin C. Maynard, with whom Mark D. Cress and Bulkley, Richardson
             ________________            _____________     ___________________
        and Gelinas were on brief for appellee.
        ___________

                                                     
                                 ____________________

                                   October 2, 1995
                                                     
                                 ____________________

                    CYR, Circuit  Judge.   Indian Motocycle  Associates III
                    CYR, Circuit  Judge.
                         ______________

          Limited Partnership, a chapter 7  debtor, appeals from a district

          court  order  reversing  a  bankruptcy   court  decision  denying

          appellee Massachusetts Housing  Finance Agency's ("MHFA")  motion

          to compel the chapter 7 debtor to restore diverted cash collater-

          al to the  chapter 7 estate.  We vacate  the district court order

          and remand to the bankruptcy court for further proceedings.

                                          I
                                          I

                                      BACKGROUND
                                      BACKGROUND
                                      __________

          A.   The Regulatory Agreement
          A.   The Regulatory Agreement
               ________________________

                    In   1987,  MHFA  loaned  Indian  Motocycle  Associates

          Limited Partnership ("Indian Motocycle")  $8.6 million to develop

          low-income  housing  in Springfield,  Massachusetts [hereinafter:

          "the  Project"].   Under  a  program authorized  by  the National

          Housing  Act  ("NHA"), 12  U.S.C.     1701,  1709, 1715k  et seq.
                                                                    __ ____

          (1994);  24 C.F.R   250.1 (1994), the United States Department of

          Housing and  Urban Development ("HUD") coinsured the non-recourse

          mortgage  loan.1  In order to qualify for HUD coinsurance, Indian

          Motocycle  signed  a  "Regulatory Agreement,"  obligating  it  to

          comply with pertinent HUD  regulations and conditions whereby the

          individual  Indian Motocycle partners  assumed personal liability

          "for funds or property of the Project which come into their hands

          and which they are  not entitled to retain;  and . . .  for their

                              
          ____________________

               1NHA coinsurance  permits the  private lender to  assign its
          note  and mortgage to HUD if unable to collect from the borrower.
          See 12 U.S.C.   1710.
          ___

                                          2

          own acts and  deeds or acts and deeds  of their authorized agents

          that are in violation  of the provisions of this Agreement."  The

          Regulatory Agreement is incorporated into the mortgage by express

          reference.

                    In addition to conveying a  first mortgage on all  real

          property belonging to the  Project, Indian Motocycle assigned all

          its  Project leases, rents, profits  and income to  MHFA "for the

          purpose of discharging the [note]."   See Mortgage   4; 12 U.S.C.
                                                ___

            1715k(d)(2)(A).   MHFA in  turn authorized Indian  Motocycle to

          collect and apply Project rents to enumerated purposes, including

          loan repayments and "reasonable  expenses necessary to the opera-

          tion and  maintenance of the  Project."   Regulatory Agreement   

          3(b). Indian Motocycle's right to collect Project rents terminat-

          ed upon default.  See Mortgage   4.  In the event the debtor were
                            ___

          to breach the Regulatory Agreement, MHFA or HUD would be entitled

          to seek specific performance,  injunctive relief, or the appoint-

          ment of a receiver for the Project.  See  Regulatory Agreement   
                                               ___

          17-18. The  mortgage and Regulatory Agreement  were duly recorded

          by MHFA. 

                    In 1989,  Indian  Motocycle transferred  its  ownership

          interest  in  the  Project  to Indian  Motocycle  Associates  III

          Limited Partnership, which assumed the MHFA note and mortgage; in

          August 1992,  it  defaulted.   MHFA promptly  tendered notice  of

          default  but took no immediate steps to acquire possession of the

          Project (as by foreclosure) or the rents (as  by appointment of a

          receiver).   Meanwhile, Indian Motocycle  Associates III  Limited

                                          3

          Partnership had withdrawn  $65,000 from the  rents on deposit  in

          the  Project  operating  accounts,  with which,  inter  alia,  it
                                                           _____  ____

          retained  counsel  in  contemplation  of the  commencement  of  a

          voluntary chapter 11 proceeding ($35,000 retainer) and an accoun-

          tant  (Coopers & Lybrand) to  prepare a prepetition  audit of the

          Project  ($20,000).2    On  December 15,  1992,  following  these

          disbursements, Indian Motocycle  Associates III Limited  Partner-

          ship (hereinafter:   "debtor") filed its chapter 11  petition and

          continued  to operate  the Project  as a  debtor in  possession.3

          Pursuant to  the Regulatory  Agreement,  MHFA filed  a motion  to

          compel the  debtor "to restore  [the $65,000 in  cash collateral]

          improperly diverted from the [chapter 11] estate in  violation of

          Title II of the [NHA]."4  

          B.   The Bankruptcy Court Decision
          B.   The Bankruptcy Court Decision
               _____________________________

                    The  bankruptcy  court   ruled  that  the  unauthorized

          prepetition transfer of MHFA cash collateral to retain chapter 11

                              
          ____________________

               2An additional $5,000 was used  to retain counsel to prepare
          and  file a proof of claim in  behalf of Indian Motocycle Associ-
                                     __  ______
          ates  III Limited  Partnership in  an unrelated  bankruptcy case.
          Another $5,000 was transferred to a business owned by a principal
          of  the debtor's  managing  general partner,  for  a purpose  not
          disclosed in the appellate record.  See infra notes 18 & 20.
                                              ___ _____

               3The  chapter  11 proceeding  has  since  been converted  to
          chapter 7,  see Bankruptcy Code    1112, 11 U.S.C.    1112, and a
                      ___
          chapter 7 trustee has been appointed, id.   702.
                                                ___

               4At the same time, MHFA sought to sequester all postpetition
          rents.   Thereafter, on June 23, 1993,  prior to denying the MHFA
          motion to  compel, the bankruptcy  court granted an  interim MHFA
          motion for relief from the automatic stay.  See Bankruptcy Code  
                                                      ___
          362(d), 11 U.S.C.    362(d).   MHFA represents that it  has since
          foreclosed  upon all  collateral except  the  monies at  issue on
          appeal.

                                          4

          counsel violated the  Regulatory Agreement.   In re Indian  Moto-
                                                        ___________________

          cycle Assocs. III Ltd. Partnership,  161 B.R. 865, 867-68 (Bankr.
          __________________________________

          D.  Mass. 1994).5   The  court nonetheless  denied the  motion to

          compel the debtor  to restore  the $65,000 to  MHFA, noting  that

          Regulatory Agreement violations by the debtor were  "irrelevant,"

          given  that the motion to compel purported to assert MHFA's legal

          rights against the debtor  only and that no  adversary proceeding

          had  yet been  commenced against  the debtor's  general partners,

          attorneys or accountants, the transferees  in possession.  Id. at
                                                                     ___

          868.

                    During  the  bankruptcy  court  proceedings,  MHFA  had

          relied on case  law to  the effect that  a debtor's  unauthorized

          prepetition  disbursement of  rents securing an  NHA-insured loan

          warrants  postpetition relief  compelling the  debtor  and/or its

          attorneys to restore the  encumbered funds to the debtor  estate.

          Id.  The bankruptcy  court reasoned, however, that  the requested
          ___

          relief would undermine the Bankruptcy Code distribution scheme by

          entitling  $65,000 of  the HUD/MHFA  unsecured claim  against the

          chapter 11 estate to "super priority" status.  

                    On intermediate appeal, the district court reversed and

          remanded to the bankruptcy court for entry of an order compelling

          the  "[d]ebtor to  restore  the distributions  diverted from  the

                              
          ____________________

               5The  bankruptcy court  traced the  source of  the contested
          monies directly to Project rents, as distinguished from individu-
          al partner advances as suggested by the debtor.  Id.  at 867.  On
                                                           ___
          the  other hand,  the court  mistakenly characterized  the entire
          $65,000 distribution as a  retainer fee for legal services.   Id.
                                                                        ___
          at 865; see infra note 6.
                  ___ _____

                                          5

          estate."   Massachusetts  Hous. Fin.  Agency v.  Indian Motocycle
                     _________________________________     ________________

          Assocs. III Ltd. Partnership (In  re Indian Motocycle Assocs. III
          ____________________________  ___________________________________

          Ltd.  Partnership), 174 B.R. 351, 357-58  (D. Mass. 1994) (citing
          _________________

          Bankruptcy  Code    105(a), 11  U.S.C.    105(a)  (empowering the

          court to "issue any order, process, or judgment that is necessary

          or appropriate to carry out the provisions of this title")).

                                          II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                    The debtor contends that the bankruptcy court correctly

          determined  that  it lacked  authority  under  Bankruptcy Code   

          105(a) to order a chapter 11 debtor    even one who concedes that

          it improperly  diverted a  secured creditor's  collateral shortly

          before filing its chapter 11 petition     to return the collater-

          al (or its  monetary equivalent) to  the chapter 11 estate.   The

          debtor argues  that it no  longer retained a  property "interest"

          in, or control over, the diverted collateral on the date it filed

          its chapter  11 petition  and, accordingly, the  collateral never

          became property of the chapter 11 estate  amenable to administra-

          tion.  See Bankruptcy Code   541(a)(1), (6),  11 U.S.C.   541(a)-
                 ___

          (1), (6) (providing  that estate  is comprised of  "all legal  or

          equitable interests of the debtor in property as of the commence-
                                                        __ __ ___ _________

          ment of the case," including "rents . . . from [real] property of
          ____ __ ___ ____

          the  estate") (emphasis  added).  Further,  the debtor  says, its

          diversion of the  encumbered rents  did not alter  the amount  of
                                                                 ______

          MHFA's  claim  against  the  debtor estate,  which  remained  the

          balance outstanding  on the  note at the  date of the  chapter 11

                                          6

          petition.   Finally, the debtor argues that  the bankruptcy court

          correctly  declined to  follow  those courts  which have  ordered

          chapter  11 debtors in possession to restore to the debtor estate

          diverted  NHA-encumbered rents, see  infra Section  II.A.2, since
                                          ___  _____

          those cases did not  involve a non-federal agency like  MHFA, nor

          did  those courts  cite  to legislative  history indicating  that

          Congress intended that NHA  policy override the debtor protection

          policy  underlying the  Bankruptcy Code,  including the  right to

          utilize  monies in  the debtor's  possession to  fund prepetition

          retainers of chapter 11 counsel.  

          A.   Injunctive Relief
          A.   Injunctive Relief
               _________________

                    We  review challenged  rulings of  law by  the district

          court  de novo and contested  findings of fact  by the bankruptcy
                 __ ____

          court for  clear error.  See  In re Laroche, 969  F.3d 1299, 1301
                                   ___  _____________

          (1st Cir.  1992).6   A bankruptcy  court's  decision granting  or

          denying injunctive relief pursuant to Bankruptcy Code   105(a) is

          reviewed only for abuse  of discretion.  See, e.g.,  Western Auto
                                                   ___  ____   ____________
                              
          ____________________

               6On appeal,  neither party  challenges the  bankruptcy court
          findings  that (1) the entire $65,000 was disbursed as a retainer
          for legal  services, and (2) the entire disbursement breached the
          Regulatory  Agreement.   Although this  first finding  is not  an
          accurate  reflection of the record  evidence, cf. supra  note 2 &
                                                        ___ _____
          accompanying text; note 5,  it does not infect the  legal conclu-
          sions  reached  by the  bankruptcy  court,  nor  our decision  on
          appeal.  Nor  need we  address the bankruptcy  court ruling  that
          these  disbursements, as  a  matter of  law,  did not  constitute
          _____
          "reasonable expenses  necessary to the operation  and maintenance
          of the Project."  In  re Indian Motocycle Assocs. III  Ltd. Part-
                            _______________________________________________
          nership, 161 B.R. at 868 (citing United States v. Frank, 587 F.2d
          _______                          _____________    _____
          924 (8th Cir.  1978) (legal fees not  "reasonable expenses" under
          HUD regulatory  agreement)).   Similarly, we decline  to consider
          whether  the prepetition  disbursements  for accounting  services
          violated  the Regulatory  Agreement,  since the  bankruptcy court
          made no relevant findings.  

                                          7

          Supply  Co. v. Savage  Arms, Inc. (In  re Savage Arms,  Inc.), 43
          ___________    __________________  _________________________

          F.3d  714,  719 n.8  (1st Cir.  1994).   "Four  principal factors

          govern the appropriateness  of permanent  injunctive relief:  (1)

          whether the plaintiff  has prevailed on  the merits; (2)  whether

          the plaintiff  will suffer irreparable  injury absent  injunctive

          relief;  (3) whether the harm to the plaintiff outweighs any harm

          threatened by the injunction; and (4) whether the public interest

          will be adversely affected by the  injunction."  Id.  The present
                                                           __

          appeal implicates only the first two factors.

                    1.   Injury
                    1.   Injury
                         ______

                    Although  the bankruptcy court  ruled that the debtor's

          prepetition  transfer of  MHFA's  cash collateral  constituted  a

          conversion, it concluded  that injunctive relief  was unwarranted

          since the amount owed MHFA by the chapter  11 estate remained the

          same.   To the extent this ruling suggests that MHFA sustained no

          cognizable injury, we  disagree.   Since there  is no  indication

          that  MHFA's claim was over-secured, the conversion by the debtor

          of the  $65,000 cash collateral  reduced MHFA's secured  claim by

          that amount, leaving  MHFA with an  unsecured claim for  $65,000.

          See Bankruptcy  Code   506(a), (b), 11  U.S.C.   506(a), (b); see
          ___                                                           ___

          also id.    541(a)(6) ("Such estate is comprised of  . . . [p]ro-
          ____ ___

          ceeds, product, offspring,  rents, or profits of or from property
                                      _____

          of the estate [viz., the Project]") (emphasis added).  

                    The advantage to holding a secured claim to these rents

          in the chapter 11 proceeding is not to  be underestimated.  Since

          the rents  constituted "cash collateral" securing  the MHFA note,

                                          8

          id.   363(a)  ("cash collateral"  includes "cash .  . .  whenever
          ___

          acquired in which the  estate and an entity other than the estate

          have an interest and  includes . . . rents  . . . ."); cf.  id.  
                                                                 ___  ___

          552(b) (governing enforceability of prepetition security interest

          against  postpetition  rents),  the  rents could  not  have  been

          expended or transferred without MHFA consent, id.   363(c)(2)(A),
                                                        ___

          and  bankruptcy  court  authorization  conditioned  on  "adequate
          ___

          protection" for  MHFA's security  interest, id.     363(c)(2)(B),
                                                      ___

          361, 363(e).  Thus, restoration  of the converted cash collateral

          to  the chapter 11 estate would have represented neither an empty

          judicial exercise,  nor a windfall  or "super priority"  to MHFA,

          but  appropriate  recognition  of  the  valuable  legal advantage

          enjoyed by the holder of a secured claim in a bankruptcy proceed-

          ing. 

                    Nevertheless,  we do  not  think  the bankruptcy  court

          ruling  should  be interpreted  simply  as  a determination  that

          secured  NHA  lenders  in  these  circumstances  neither  sustain

          cognizable  injury nor  have  any recourse  for recovering  their

          collateral, but  rather as a determination  that MHFA prematurely
                                                                ___________

          sought extraordinary injunctive relief against the wrong party   
                                                             _____ _____

          the  chapter 11  debtor     without  first attempting  to exhaust

          other available remedies against nondebtors.  

               2.  "Irreparability" of Injury; Adequacy of Remedy at Law
               2.  "Irreparability" of Injury; Adequacy of Remedy at Law
                    ____________________________________________________

                    Every  court  which  has  considered the  question  has

          determined that the NHA  empowers HUD to enforce  its prepetition

          rights under  a Regulatory Agreement  notwithstanding the initia-

                                          9

          tion of a  chapter 11 proceeding by or  against the NHA borrower.

          See, e.g., In re  EES Lambert Assocs., 43  B.R. 689, 691  (Bankr.
          ___  ____  __________________________

          N.D. Ill.  1984),  aff'd, 63  B.R. 174  (N.D. Ill.  1986); In  re
                             _____                                   ______

          Marion Carefree Ltd. Partnership, No. 93-33011, 1994 Bankr. LEXIS
          ________________________________

          398, at  *8-9 (Bankr. N.D. Ohio  Mar. 17, 1994); In  re Tampa Bay
                                                           ________________

          Briarwood Assocs., Ltd., 118  B.R. 126, 128-29 (Bankr. M.D.  Fla.
          _______________________

          1990); In  re Garden Manor Assocs., 70 B.R. 477, 486 (Bankr. N.D.
                 ___________________________

          Cal. 1987);   In re TWO-KMF Dev. Assoc., 63 B.R. 149, 151 (Bankr.
                        _________________________

          N.D. Ill. 1985);   In re  Hil'Crest Apartments, 50 B.R.  610, 613
                             ___________________________

          (Bankr.  N.D.  Ill. 1985).    Three principal  grounds  appear to

          support postpetition enforcement of the NHA  lender's prepetition

          contract  remedies notwithstanding  the fact  that the  debtor no

          longer has possession of, or access to, the precise collateral it

          diverted prior to the petition.  

                    First,  the  debtor's  own  partners  are  the  parties

          principally  benefited by  the prepetition  diversion of  the HUD

          collateral     most notably in  this case the  fees for retaining

          professional assistance  in  fending off  any  MHFA  foreclosure,

          thereby  safeguarding  their personal  financial  investments7 at

          the  expense  of low-income  Project  residents     the  intended
                              
          ____________________

               7The NHA allows HUD to coinsure non-recourse mortgages under
          which the partners are relieved from individual liability for the
          partnership obligation  under the note.   But the  NHA conditions
          that relief on the partners' agreement to assume personal liabil-
          ity "for funds or property  of the Project which come  into their
          hands and which they  are not entitled to retain;  and . . .  for
          their own  acts and deeds or  acts and deeds of  their authorized
          agents that are  in violation  of the provisions  of this  Agree-
          ment."  See In re Hil'crest Apartments, 50 B.R. at  612-13 (part-
                  ___ __________________________
          ners relieved of personal  liability on partnership obligation in
          return for their agreement to restrictions on transfer of rents).

                                          10

          principal beneficiaries of  the NHA.  See In  re Garden Manor, 70
                                                ___ ___________________

          B.R. at  485; In re Hil'crest  Apartments, 50 B.R. at  612; In re
                        ___________________________                   _____

          EES Lambert, 43 B.R. at 690.  But for the unauthorized diversion,
          ___________

          the  rents  normally would  have  been  applied, as  appropriate,

          toward Project maintenance.   See In re Garden Manor,  70 B.R. at
                                        ___ __________________

          483,  485 (regulatory  agreement is  not an  "executory contract"

          subject to rejection by debtor) (citing Bankruptcy Code   365).

                    Second,  the  assignment-of-rents   provision  in   the

          Regulatory  Agreement  is not  merely a  term  in a  private loan

          agreement, but a  contractual precondition  to coinsurance  which

          Congress expected HUD to enforce in the  public interest.  See 12
                                           __ ___  ______ ________   ___

          U.S.C.    1709, 1715k, 1715v(c)(4) (listing numerous restrictions

          on  NHA mortgagors).   Permitting  partnership debtors,  or their

          individual  partners, to divert  public funds with  any degree of

          impunity threatens significant depletion  of the treasury, see In
                                                                     ___ __

          re  Garden Manor, 70 B.R. at 483, and ultimately undercuts public
          ________________

          confidence  in  the efficacy  of  federal  housing, lending,  and

          insurance  programs,  thereby  subverting   Congress's  announced

          intention to promote private construction of low-income  housing.

          Id.
          ___

                    Third, these cases point out that there is  no inherent

          inconsistency between the  policies of the NHA and the Bankruptcy

          Code,  in that the  partnership debtor, and  its individual part-

          ners, remain free to  retain chapter 11 counsel provided  they do

          not fund their retainers  with the NHA lender's  cash collateral.

                                          11

          Id.  at 482, 486; In re TWO-KMF,  63 B.R. at 151; In re Hil'crest
          ___               _____________                   _______________

          Apartments, 50 B.R. at 612.
          __________

                    Notwithstanding the  strong judicial support  for these

          general policy considerations, however,  we are given great pause

          at  the prospect  of  fashioning extraordinary  injunctive relief

          absent  either demonstrated compliance with the explicit require-
                  ______

          ments  of the enabling provision  in the Bankruptcy  Code, see 11
                                                                     ___

          U.S.C.    105(a), or some clear  indication in the NHA  that Con-
                            __

          gress envisioned  such an accommodation  between the NHA  and the

          Bankruptcy Code.  Thus, we think it is not enough simply to point

          to the importance of  safeguarding the integrity of the  NHA loan

          program, where neither the  NHA, the Regulatory Agreement entered

          into pursuant to the  NHA, nor the Bankruptcy Code itself so much

          as  intimates that a  bankruptcy court  may fashion  the extraor-

          dinary "reimbursement" relief sought by MHFA.  

                    No matter how compelling  the public policy reasons for

          formulating such extraordinary relief, it must be recognized that

          the right and remedy  are judge-made.  Bankruptcy courts  must be
                                    __________

          especially cautious about embarking  upon a lawmaking exercise in

          circumstances  where the  injured party has  neither demonstrated

          that it has exhausted,  nor even pursued, efficacious alternative
                                           _______

          forms of  relief  which,  if available,  might  well  preclude  a

          finding that  the  relief sought  from  the bankruptcy  court  is

          either "necessary or appropriate  to carry out the provisions  of

          [the  Bankruptcy Code]."  Bankruptcy  Code   105(a),  11 U.S.C.  

          105(a).   See generally Lopez  v. Garriga, 917  F.2d 63, 68  (1st
                    ___ _________ _____     _______

                                          12

          Cir. 1990) (noting that injunction-seeker must first show that he

          has  "no adequate  remedy  at law");  see  also Baker  v.  United
                                                ___  ____ _____      ______

          States, 27 F.2d 863,  875 (1st Cir. 1928) ("Where  courts intrude
          ______

          into  their decree their opinions  on questions of public policy,

          they in  effect constitute  the judicial tribunals  as law-making

          bodies in usurpation of  the powers of the Legislature.")  (cita-

          tion  omitted).8   We  therefore  decline to  endorse  the MHFA's

          request for extraordinary injunctive relief under Bankruptcy Code

             105(a), absent  any showing  or appearance  that it  is either

          "necessary  or appropriate  to carry out  the provisions"  of the

          Bankruptcy  Code.   See  Bankruptcy Code     105(a), 11  U.S.C.  
                              ___

          105(a).

          B.   Alternative Remedies
          B.   Alternative Remedies
               ____________________

                    MHFA  has not  demonstrated  that it  is without  other

          viable remedies against the debtor's general partners, chapter 11

          counsel, and/or  its accounting firm, for  restoring the diverted

          collateral or its equivalent.
                              
          ____________________

               8Of course,  federal  courts may  be expected  to engage  in
          lawmaking  where Congress  "ambiguously  addresses" an  issue  in
          general  terms, but  deliberately  leaves "an  interstice" to  be
          filled  by  the courts  in conformity  with  the purposes  of the
          statute.  See Conille  v. Secretary of Hous. and  Urban Dev., 840
                    ___ _______     __________________________________
          F.2d 105, 110  n.6 (1st Cir. 1988).  This  principle is of little
          utility  in the instant case, however, for two principal reasons.
          First, there is no apparent interstice in the NHA, which express-
          ly prescribes severe criminal penalties for violating HUD Regula-
          tory  Agreements, see 12  U.S.C.    1715z(19) ($250,000  fine, 5-
                            ___
          years' imprisonment), thereby  providing a powerful  deterrent to
          unauthorized prepetition diversions of HUD collateral by debtors.
          Second,  the "reimbursement"  remedy requested  by MHFA  not only
          necessitates  a  judicial assessment  of NHA  policy, but  of any
          conflicting Bankruptcy Code policy.  We do not regard this  as an
          appropriate invitation to engage in judicial lawmaking, except as
          a last resort. 

                                          13

               1.   The General Partners
               1.   The General Partners
                    ____________________

                    Whether or not it perfected its lien in the prepetition

          rents, see infra Section  II.B.2, MHFA could have sued  the debt-
                 ___ _____

          or's general partners  for the value  of the diverted  collateral

          (or, at the  very least, for any deficiency between  the value of

          its  collateral and any amount  recovered by MHFA  on its $65,000

          unsecured  claim  against the  chapter 11  estate), based  on the

          Regulatory  Agreement  provision  that  expressly  obligates  the

          partners  "for funds or property  of the Project  which come into

          their hands and  which they are not entitled to retain; and . . .

          for their  own acts and deeds  or acts and deeds  of their autho-

          rized  agents that  are in  violation of  the provisions  of this

          Agreement."  See, e.g.,  Austin v. UNARCO Indus., Inc.,  705 F.2d
                       ___  ____   ______    ___________________

          1, 4 (1st Cir.) (automatic stay normally does not foreclose suits

          against  general partners  of bankrupt  partnership), cert.  dis-
                                                                _____  ____

          missed,  463 U.S. 1247 (1983); see also supra  notes 4 & 7.  MHFA
          ______                         ___ ____ _____

          has not alleged, nor does the appellate record disclose, that the

          general partners are insolvent.

               2.   Chapter 11 Counsel  
               2.   Chapter 11 Counsel  
                    __________________

                    a)   Perfection of MHFA Lien
                    a)   Perfection of MHFA Lien
                         _______________________

                    In order  to obtain  any meaningful relief  against the

          debtor  or the  transferees of  the $65,000  in other  venues, of

          course, MHFA would have  to demonstrate that it held  a perfected

          lien or  security interest in  the diverted rents;  otherwise, as

          property  of the chapter 11 estate, see Bankruptcy Code   541(a)-
                                              ___

          (6),  any unperfected  lien  on the  rents  would be  subject  to

                                          14

          avoidance  by the  debtor in possession  pursuant to  its "strong

          arm" powers.  See  id.    544(a) ("strong arm  powers"), 1107(a);
                        ___  ___

          see generally  In  re Ryan,  851 F.2d  502, 512  (1st Cir.  1988)
          ___ _________  ___________

          (trustee); In re  Wabash Valley  Power Ass'n, 114  B.R. 613,  617
                     _________________________________

          (S.D. Ind. 1990) (debtor in possession).  And once its unperfect-

          ed lien was  voided under  Bankruptcy Code    544(a), MHFA  would

          have had  no right to control  the disposition of  any portion of

          the $65,000  in cash  collateral which remained  property of  the

          chapter 7  estate, cf.  Bankruptcy Code    363(a),  (c)(2), (e),9
                             ___

          nor any right of recourse to lien foreclosure proceedings outside

          the bankruptcy court against third party transferees who acquired

          title to the  rents prior  to the debtor's  chapter 11  petition,

          cf.,  e.g., In  re McBee,  714 F.2d  1316, 1326  (5th  Cir. 1983)
          ___   ____  ____________

          (perfected  security  interest  in  collateral   continues  after

          collateral is  conveyed).  Nevertheless,  we agree with  the dis-

          trict  court that the MHFA  security interest in  these rents had

          been perfected before the chapter 11 petition was filed.   See In
                                                                     ___ __

          re Indian  Motocycle Assocs.  III Ltd.  Partnership, 174  B.R. at
          ___________________________________________________

          356.

                              
          ____________________

               9Following appointment  of the chapter 7  trustee, see supra
                                                                  ___ _____
          note 3, all avoidance powers  resided exclusively in the trustee,
          not in  the debtor.  See  Bankruptcy Code   1107(a),  11 U.S.C.  
                               ___
          1107(a).  We  assume arguendo  that the chapter  7 trustee  would
                               ________
          attempt to avoid MHFA's lien in order that the net proceeds could
          be  applied to  claims  against the  estate,  including any  MHFA
          claim.  For present purposes, however, we confine ourselves to an
          assessment  of the debtor's avoidance  powers at the  time of the
          bankruptcy  court ruling; that is, during the chapter 11 proceed-
          ing. 

                                          15

                    Although  the  prepetition  perfection  of  a  security

          interest  in property  of the  estate normally  is determined  in

          reference  to applicable state law, see  Butner v. United States,
                                   _____ ___  ___  ______    _____________

          440 U.S. 48, 55 (1979), it is now well settled  that the require-

          ments  for perfecting  a  federal agency's  security interest  in

          property  securing  federally-insured  loans      a  subject  not

          addressed by  the NHA    is controlled by federal common law, see
                                                                        ___

          United States v. Kimbell  Foods, Inc., 440 U.S. 715,  726 (1979);
          _____________    ____________________

          Butner, 440 U.S. at  55 (noting that state law  governing perfec-
          ______

          tion of security interests  applies "unless some federal interest

          requires a  different result");10 United States  v. Landmark Park
                                            _____________     _____________

          & Assocs., 795 F.2d  683, 685-86 (8th Cir. 1986)  (rents); United
          _________                                                  ______

          States v. Floral Park  Dev. Co., 619 F.  Supp. 144, 147-48  (S.D.
          ______    _____________________

          Ohio  1985) (rents); United States v. Borden Fin. Corp., 164 B.R.
                               _____________    _________________

          260, 264 (E.D. La.  1994) (rents); cf. Graham v.  Security Sav. &
                                             ___ ______     _______________

          Loan,  125 F.R.D. 687, 692 (N.D. Ind. 1989) (federal law controls
          ____

          government's rights in litigation involving  federally guaranteed

          student loans), aff'd sub nom.  Veal v. First Am. Sav.  Bank, 914
                          _____ ___ ____  ____    ____________________

          F.2d 909 (7th Cir. 1990); cf.  also Conille v. Secretary of Hous.
                                    ___  ____ _______    __________________

          and  Urban  Dev., 840  F.2d 105,  109  (1st Cir.  1988) (applying
          ________________

          federal common law to litigation involving scope of HUD's obliga-

                              
          ____________________

               10Butner,  a Bankruptcy Act  case, remains  viable precedent
                 ______
          under the Bankruptcy Code.   See Wolters Village Ltd.  v. Village
                                       ___ ____________________     _______
          Properties,  Ltd. (In re Village Properties, Ltd.), 723 F.2d 441,
          _________________  ______________________________
          443 (5th Cir.), cert. denied, 466 U.S. 974 (1984).
                          _____ ______

                                          16

          tions as NHA landlord, after finding NHA left this issue for  the

          courts).11   Under established federal common  law, HUD's securi-

          ty  interest  in post-default  NHA  rents  normally is  perfected

          simply by recording  a HUD mortgage  containing an assignment  of
                    _________

          rents, which places third parties on notice of the HUD lien.  See
                                                                        ___

          Landmark  Park &  Assocs., 795  F.2d at  685-86 (noting  need for
          _________________________

          uniform federal rule in  face of discordant state  rules relating

          to perfection  of security  interests in rents);  In re  Westwood
                                                            _______________

          Plaza Apartments, Ltd., 154 B.R. 916, 920 (Bankr. E.D. Tex. 1993)
          ______________________

          (same);  cf. In re Executive  House Assocs., 99  B.R. 266, 275-76
                   ___ ______________________________

          (Bankr. E.D. Pa. 1989) (adopting Landmark Park "perfection" rule,
                                           _____________

          but  noting that other required  means of perfection  may be pre-

          scribed in  security agreement;  e.g., an express  declaration of

          default).   Of course,  in our case the  debtor concedes that the

          HUD mortgage and Regulatory  Agreement were duly recorded in  the

          appropriate  registry of deeds, and that it had received a notice

          of default under the note before disbursing the $65,000.12 
                              
          ____________________

               11Like  the  district  court,  we see  no  policy  basis for
          distinguishing  the instant  case  simply because  MHFA, a  state
          agency, rather than HUD, is the party presently seeking return of
          the  collateral.   Under the  NHA coinsurance  regime, MHFA  will
          assign the note to  HUD in return for payment  of any unrecovered
          deficiency.  See 12 U.S.C.   1710; see also supra note 1.  In all
                       ___                   ___ ____ _____
          events, given  our  determination, infra,  that  MHFA's  security
                                             _____
          interest was perfected under  both federal and Massachusetts law,
                                        ____         ___
          the distinction is inconsequential.  See Conille, 840 F.2d at 110
                                               ___ _______
          (no need to adopt federal common law where there is "no 'signifi-
          cant conflict between some federal policy or interest and the use
          of state law'") (citation omitted).

               12We note that the debtor's opening  appellate brief did not
          challenge  the  district  court  ruling that  the  MHFA  security
          interest in rents had  been perfected.  Issues presented  for the
          first  time in  a reply  brief normally  are deemed waived.   See
                                                                        ___

                                          17

                    Moreover, even if  it were to  be assumed that  federal

          common  law does  not govern  the perfection  of MHFA's  security

          interest, see supra note  11, the same result would  obtain under
                    ___ _____

          Massachusetts law.13   In Prudential  Ins. Co. of  Am. v.  Boston
                                    ____________________________     ______

          Harbor Marina Co.,  159 B.R.  616 (D. Mass.  1993), the  district
          _________________

          court  held that  a  Massachusetts mortgagee  which recorded  its

          assignment of rents in the registry of deeds as an adjunct to its

          mortgage, "perfected" its lien  in the rents so as  to constitute

          the rents "cash  collateral" under Bankruptcy Code    363(a), and

          that there was no need for the creditor to take possession of the

          real property (e.g., as by foreclosure) or the rents (e.g., as by

                              
          ____________________

          Clarke v. Kentucky Fried Chicken, 57 F.3d 21, 27 (1st Cir. 1995).
          ______    ______________________
          There is  no basis for  relief from  waiver in the  instant case.
          Even  in its reply  brief, the  debtor chose  not to  discuss the
          implications of Kimbell or  Butner on the choice-of-law question;
                          _______     ______
          instead  simply stating  its  conclusion  that Massachusetts  law
          should be applied.  See Williams v. Poulos, 11 F.3d 271, 285 (1st
                              ___ ________    ______
          Cir.  1993) (issues  adverted to  in perfunctory  manner, without
          adequate argumentation, deemed waived).  

               13Although MHFA concedes  that it did  not file a  financing
          statement,  the  law  in  most  states, including  Massachusetts,
          classifies  an assignment of rents as an interest in real proper-
                                                               ____ _______
          ty.   Thus,  parties  with  security  interests in  future  rents
          __
          generated from  encumbered real property need not comply with the
          Uniform Commercial  Code.  See Mass.  Gen. L. Ann. ch.  106,   9-
                                     ___
          104(j) (excluding assignments of rent from Massachusetts U.C.C.);
          see  also, e.g., Commerce Bank  v. Mountain View  Village, 5 F.3d
          ___  ____  ____  _____________     ______________________
          34, 39 (3d Cir.  1993); J.H. Streiker & Co. v. SeSide  Co. (In re
                                  ___________________    ___________  _____
          SeSide Co.), 152 B.R. 878, 882 (E.D.  Pa. 1993); First Nat'l Bank
          __________                                       ________________
          v. United States (In re Dorsey), 155 B.R. 263, 267 (Bankr. D. Me.
             _____________  ____________
          1993);  see generally  Laurence D.  Cherkis, Collier  Real Estate
                  ___ _________                        ____________________
          Transactions and  the Bankruptcy Code   2.03[1],  at 2-65 (1992).
          _____________________________________
          Instead,  the  mortgage  and assignment  of  rents  need  only be
          recorded  in the appropriate registry  of deeds.   See Mass. Gen.
                                                             ___
          Laws Ann. ch. 183,    4 (providing that unrecorded  assignment of
          rents  is invalid against third parties,  except for persons with
          actual knowledge); see also  In re Cadwell's Corners Partnership,
                             ___ ____  ___________________________________
          174 B.R. 744, 754 (Bankr. N.D. Ill. 1994) (same).

                                          18

          appointment  of a receiver) prior to the filing of the bankruptcy

          petition.   Id. at 620-22 (recognizing  distinction between "per-
                      ___

          fection," which governs  secured creditor's rights against  third

          parties,  and "enforcement" of  liens, which  controls creditor's

          rights against its debtor;  rejecting theory that such "inchoate"

          or  unenforced security  interests are voidable  under Bankruptcy

          Code    544(a)); see also H.R.  Rep. No. 95-595,  95th Cong., 1st
                           ___ ____

          Sess. 312 (1978) ("[T]he definition of  'lien' is new and is very

          broad  . .  . [and]  [i]t includes  'inchoate lien[s]'").14   The

          Prudential court noted also that the "recordation" rule was  fast
          __________

          becoming  the  majority rule  among  the  states, thus  providing

          further  support  for  the  "uniform" federal  rule  of  decision

          adopted  in  Landmark.15   See Conille,  840  F.2d at  112-13 (in
                       ________      ___ _______

          fashioning appropriate federal rule of decision, court should not
                              
          ____________________

               14The "possession" theory rejected in Prudential, supra, had
                                                     __________  _____
          essentially  sounded the  knell  for most  security interests  in
          rents  in the bankruptcy context,  since the holder  of a secured
          claim is precluded  by the  automatic stay from  taking the  very
          steps required to reduce  rents to possession.  See,  e.g., Bank-
                                                          ___   ____
          ruptcy Code   362(a)(1), (a)(3), (a)(4). 

               15See  In re  Park at  Dash Point  L.P., 121  B.R. 850,  855
                 ___  ________________________________
          (Bankr.  W.D. Wash. 1990), aff'd, 152 B.R. 300 (W.D. Wash. 1991),
                                     _____
          aff'd, 985  F.2d 1008 (9th Cir. 1993);  In re Vienna Park Proper-
          _____                                   _________________________
          ties, 976 F.2d 106,  112-13 (2d Cir. 1992) (Virginia  law); In re
          ____                                                        _____
          SeSide Co., 152  B.R. at 884; In re Wiston XXIV Ltd. Partnership,
          __________                    __________________________________
          147 B.R. 575, 580-81  (D. Kan. 1992), appeal dismissed,  988 F.2d
                                                ______ _________
          1012  (10th Cir. 1993); Midlantic Nat'l Bank v. Sourlis, 141 B.R.
                                  ____________________    _______
          826, 832 (D.N.J. 1992); Creekstone  Apartments Assocs. v. RTC (In
                                  ______________________________    ___  __
          re Creekstone Apartments Assocs.), 165 B.R. 845, 851 (Bankr. M.D.
          ________________________________
          Tenn. 1993); SLC Ltd. V. v. Bradford Group West, Inc.  (In re SLC
                       __________     _________________________   _________
          Ltd. V),  152 B.R. 755, 760-62  (Bankr. D. Utah 1993);  In re KNM
          ______                                                  _________
          Roswell Ltd.  Partnership, 126  B.R. 548,  554 (Bankr.  N.D. Ill.
          _________________________
          1991); In re Rancourt, 123 B.R. 143, 147-48 (Bankr. D.N.H. 1991);
                 ______________
          In re Foxhill  Place Assoc., 119  B.R. 708, 711 (Bankr.  W.D. Mo.
          ___________________________
          1990); cf. Commerce Bank, 5 F.3d at 39 (recordation, coupled with
                 ___ _____________
          notice to tenants). 

                                          19

          adopt forum state's law if it would frustrate NHA's purposes, but

          may consult  other states'  law as  a "source"  for the more  apt
                                              _

          federal common  law rule) (citing  Kimbell Foods, Inc.,  440 U.S.
                                             ___________________

          715  (1979)).16  Accordingly, we  conclude that the  MHFA lien on

          rents was fully perfected prior to the chapter 11 petition, hence

          not voidable under Bankruptcy Code   544(a).

                    b)   Law Firm
                    b)   Law Firm
                         ________

                    MHFA concedes that it  can proceed against the debtor's

          counsel in the bankruptcy  court only if the $35,000  in diverted

          cash collateral, intended  as a  prepetition "retainer,"  remains

          property of the estate, presumably as a  fund held "in trust" for

          the debtor.  MHFA  cites several so-called "collateral reimburse-

          ment"  decisions,  see  supra  Section II.A.2,  in  which  debtor
                             ___  _____                              ______

          counsel have been directed to surrender to  the bankruptcy estate
          _______

          monies  diverted to fund prepetition retainers.  See, e.g., In re
                                                           ___  ____  _____

          Westwood Plaza Apartments,  154 B.R.  at 923 n.11.   MHFA  itself
          _________________________

          intimated  at oral  argument that  it may  request the  chapter 7

          trustee to  recoup the  putative trust  monies from  counsel, see
                                                                        ___

          Bankruptcy Code    542, 11 U.S.C.    542, see also  In re Sinder,
                                                    ___ ____  ____________
                              
          ____________________

               16Though not  retroactively applicable to this  case, see In
                                                                     ___ __
          re Barkley 3A Investors, 175 B.R. 755, 758 (Bankr. D. Kan. 1994),
          _______________________
          the  Bankruptcy Reform  Act of  1994, Pub.  L. 103-394  (Oct. 22,
          1994),  further supports the trend.  Congress added a new subsec-
          tion dealing  separately with the question  whether a prepetition
          security interest in rents extends to postpetition  rents.  Under
          prior law, the bankruptcy court was required to look to "applica-
          ble nonbankruptcy  law," usually state law, see Bankruptcy Code  
                                                      ___
          552(b); the  amendment now  refers the  court exclusively  to the
          terms of the parties' "security agreement."  See id.   552(b)(2);
                                                       ___ ___
          In  re Barkley, 175 B.R. at 758 (noting that, henceforth, "courts
          ______________
          will  not look to state  law" to determine  security interests in
          rents).

                                          20

          102 B.R. 978, 982-83 (Bankr. S.D. Ohio 1989) (questioning whether

          parties other than trustee and debtor in possession have standing

          to  bring   542  action), or may  interpose objection  to any fee

          application submitted  by debtor  counsel, see Bankruptcy  Code  
                                                     ___

          330, 11 U.S.C.   330.17

                    The  question whether the $35,000 "retainer" is subject

          to  turnover cannot be resolved  on the present  record, since it

          may  ultimately  turn on  the  precise  terms  of any  "retainer"

          agreement between  the debtor and its counsel.   See, e.g., In re
                                                           ___  ____  _____

          McDonald  Bros. Constr.,  Inc., 114 B.R.  989, 1002  (Bankr. N.D.
          ______________________________

          Ill. 1990) (type of retainer is question of fact); see also In re
                                                             ___ ____ _____

          DLIC, Inc., 120  B.R. 348,  351 (Bankr. S.D.N.Y.  1990) (type  of
          __________

          retainer  depends on  intent  of parties).18   Certain  retainers

          simply  ensure  counsel's  availability to  represent  the client

          (whether  or  not  any legal  services  are  ever  performed), or

          constitute prepayment for  all future legal  services to be  per-

          formed (e.g.,  a  flat fee).    In these  circumstances,  counsel

          acquires full title to the  retainer fee on the date  of payment,
                                                   __ ___ ____  __ _______

          regardless  whether legal services are ever performed.  See In re
                                                                  ___ _____

          McDonald, 114 B.R.  at 997-98,  999-1000; see also  In re  Mondie
          ________                                  ___ ____  _____________

                              
          ____________________

               17For present purposes, we  assume arguendo that the chapter
                                                  ________
          7  trustee would be amenable  to MHFA's request  that the trustee
          prosecute a   542 turnover action against  the transferees, since
          the  commensurate  reduction  in  MHFA's  unsecured  claim  could
          increase  the recoveries  of other  holders of  unsecured claims.
          See supra note 9.
          ___ _____

               18The  same rationale would apply to  MHFA's recovery of the
          $5,000  which the debtor advanced to retain bankruptcy counsel in
          an unrelated bankruptcy case.  See supra note 2.
                                         ___ _____

                                          21

          Forge Co., 154  B.R. 232, 235  (Bankr. N.D. Ohio  1993).  Such  a
          _________

          retainer is precisely the same as the retainer fee paid Coopers &

          Lybrand;  it  never became  part of  the  property of  the debtor

          estate,  and is  subject  to turnover  only  if it  "exceeds  the

          reasonable  value of services  rendered."  See  Bankruptcy Code  
                                                     ___

          329(b);  In re McDonald, 114 B.R.  at 995-96, 1003 n.18; cf. also
                   ______________                                  __  ____

          Bankruptcy Code   548(a)(2), 11 U.S.C.    548(a)(2) (avoidance of

          prepetition  "fraudulent"  transfers  where   "insolvent"  debtor

          "received less than a reasonably equivalent value in exchange for

          transfer").19  

                    On the  other hand,  a "security"  retainer is  held by

          counsel to secure payment of anticipated legal services yet to be

          rendered.   Under the ethical  rules applicable in most jurisdic-

          tions, these monies remain property  of the client until  applied

          by  counsel in payment of legal services actually performed.  See
                                                                        ___

          In re McDonald,  114 B.R. at  999; see also  In re Saturley,  131
          ______________                     ___ ____  ______________

          B.R. 509,  515 (Bankr. D.  Me. 1991); In  re Lilliston,  127 B.R.
                                                ________________

          119, 120  (Bankr. D. Md.  1991) (portion of  prepetition retainer

          not  earned prior  to  petition is  property  of estate);  In  re
                                                                     ______

          Fitzsimmons Trucking, Inc., 124 B.R. 556, 558-59 (Bankr. D. Minn.
          __________________________

          1991) (same).    In  the  instant case,  the  debtor's  equitable

          "interest"  in any  unearned portion  of the  retainer, impressed
                              
          ____________________

               19Some courts have  held that debtor  counsel may use  these
          two  types of  retainers without  first filing a  fee application
          under Bankruptcy Code   330.  See, e.g., In re McDonald, 114 B.R.
                                        ___  ____  ______________
          at  1002.   In  all events,  these  retainers remain  subject  to
          scrutiny under Bankruptcy Code   329 (debtor counsel  must report
          all  payments received  for legal  services).   See also  Fed. R.
                                                          ___ ____
          Bankr. P. 2017. 

                                          22

          with  MHFA's perfected  lien, would have  become property  of the

          estate  on the date the chapter 11  petition was filed, see Bank-
                                                                  ___

          ruptcy Code   541(a)(6), and presumably would remain subject to a

          turnover order in a  section 542 action brought by  the debtor in

          possession.  See In re McDonald, 114 B.R. at 1000 n.13 (citing In
                       ___ ______________                                __

          re Gerwer, 898 F.2d 730, 734 (9th Cir. 1990)).  
          _________

                    Of  course,  if  the  $35,000  transfer  constituted  a

          "security"  retainer, counsel would be required to file a section

          330 fee application  to withdraw  the retainer.   In re  Burnside
                                                            _______________

          Steel Foundry Co.,  90 B.R. 942, 945 n.1 (Bankr. N.D. Ill. 1988).
          _________________

          MHFA  could then  object  to debtor  counsel's  retention of  any

          portion of the retainer  not yet devoted to legal  services which

          were "actual [and] necessary," see Bankruptcy Code   330, and the
                                         ___

          bankruptcy court presumably could order debtor counsel to surren-

          der the unearned portion as "property of the estate."  See id.   
                                                                 ___ ___

          105(a); 363(e); see  also In  re Westwood  Plaza Apartments,  154
                          ___  ____ _________________________________

          B.R. at 923 n.11.  

                    We need not resolve the  precise contours of the poten-

          tial  bankruptcy court  remedies  available to  MHFA against  the

          debtor's law firm.   Rather, it was MHFA's burden  to demonstrate

          the unavailability  of any alternative remedy  for recovering its
              ______________  __ ___

          collateral.    See supra  Section II.A.2.    Even if  the $35,000
                         ___ _____

          retainer  is  not property  of the  chapter  7 estate,  hence not

          subject  to  chapter  7  administration, MHFA  has  suggested  no

          plausible basis for concluding  that it cannot trace  and recover

          the  diverted  collateral  in  a  nonbankruptcy  lawsuit directed

                                          23

          against the  debtor's chapter 11 counsel (which  is not protected

          by  the automatic stay, see  Bankruptcy Code    362) to foreclose
                                  ___

          upon  its prior  lien on the  rents.   On the other  hand, if the
                    _____  ____

          retainer  remains  property of  the  chapter 7  estate,  MHFA may

          pursue  its  bankruptcy  court  remedies  against  the  nondebtor
                                                                  _________

          chapter 11 counsel.

               3.   Accounting Firm  
               3.   Accounting Firm
                    _______________

                    At oral  argument, MHFA  conceded that the  debtor made

          its $25,000  prepetition payment to  Coopers & Lybrand  for audit

          services which  were completed prior to the  chapter 11 petition.
                                         _____ __

          See  supra Section  I.A.   Consequently, the  debtor retained  no
          ___  _____

          legal or equitable  "interest" in these monies as  of the date of

          the  chapter 11 petition; and no right  to, or interest in, these

          monies  ever became  property  of the  chapter  11 estate.    See
                                                                        ___

          Bankruptcy  Code   541(a)(6).  MHFA could point to no conceivable

          basis upon which  the bankruptcy  court, at this  point in  time,

          could  direct Coopers  &  Lybrand to  turn over  any part  of its

          $25,000 retainer  to the  chapter 7  estate.  See  id.    542, 11
                                                        ___  ___

          U.S.C.   542 (third  party, in possession of property  of estate,

          may be compelled  to turn it  over to trustee); United  States v.
                                                          ______________

          Whiting Pools, Inc., 462 U.S. 198 (1983) (even a secured party in
          ___________________

          possession of collateral constituting "property of the estate" is

          subject to   542  turnover order).  Moreover, MHFA  has suggested

          no other basis upon  which either the debtor in possession or the

          chapter 7 trustee could have avoided  the prepetition transfer to

          Coopers  & Lybrand.  See,  e.g., id.     544 (avoidance of unper-
                               ___   ____  ___

                                          24

          fected liens), 545 (avoidance of statutory liens), 547 (avoidance

          of   preferences),  548  (avoidance   of  fraudulent  transfers).

          Moreover, the  limitations period  for any such  avoidance action

          would  appear to  have lapsed.   See id.    546(a)(1)  (two years
                                           ___ ___

          after order for relief); compare also In re Ollada, 114 B.R. 654,
                                   ____________ ____________

          655 (Bankr. E.D. Mo.  1990) (  542 has no  comparable limitations

          period) with  In re De Berry,  59 B.R. 891,  898 (Bankr. E.D.N.Y.
                  ____  _____ ________

          1986)  (  542  turnover motion  must  be made  within "reasonable

          time").20  

                    In all events, MHFA  may have a direct cause  of action

          against Coopers & Lybrand  outside the bankruptcy court.   Cf. In
                                     _______ ___ __________ _____    ___ __

          re Indian Motocycle Assocs. III Ltd. Partnership, 161 B.R. at 868
          ________________________________________________

          ("[S]uch action  . . . would involve only rights among nondebtors

          in  a case  having no  prospects of  reorganization [and]  I have

          previously granted MHFA relief  from [the automatic] stay."); see
                                                                        ___

          generally  In re McBee, 714  F.2d at 1326  (noting that perfected
          _________  ___________

          security  interest  survives  conveyance  of  collateral).    The

          automatic stay afforded  no protection to Coopers  & Lybrand, see
                                                                        ___

          Bankruptcy Code   362, and MHFA may seek to execute its perfected

          lien directly.  At least this procedure would allay a troublesome

          aspect of the present case, in  that Coopers & Lybrand has  never

          received either notice  or a hearing on MHFA's allegedly superior

          claim to the $25,000.  
                              
          ____________________

               20The  same  rationale would  appear  to  preclude an  order
          compelling  turnover of the $5,000 payment the debtor made to the
          principal of its managing  general partner, which might otherwise
          have  been voidable as  a preferential transfer  to an "insider."
          See Bankruptcy Code   547; see also supra note 2. 
          ___                        ___ ____ _____

                                          25

                                         III
                                         III

                                      CONCLUSION
                                      CONCLUSION
                                      __________

                    For the foregoing reasons, we decline MHFA's invitation

          to fashion extraordinary judicial  relief under Bankruptcy Code  

          105(a), absent a showing that the judicial  lawmaking it inevita-

          bly entails is either "necessary or appropriate to carry out" any

          provision of the Bankruptcy  Code in the circumstances presented.

          Accordingly, we vacate the district court decision entitling MHFA

          to an  order directing the debtor  to turn over to  the chapter 7

          trustee the diverted MHFA cash collateral or its monetary equiva-

          lent.  MHFA  shall not  be entitled  to further  relief in  these

          chapter  7 proceedings, except on order  of the bankruptcy court,

          after appropriate notice and hearing.  

                    The  district court order  is vacated  and the  case is
                    The  district court order  is vacated  and the  case is
                    ___  ________ _____ _____  __ _______  ___ ___  ____ __

          remanded to the bankruptcy  court for further proceedings consis-
          remanded to the bankruptcy  court for further proceedings consis-
          ________ __ ___ __________  _____ ___ _______ ___________ _______

          tent with this opinion; costs to appellant.
          tent with this opinion; costs to appellant.
          ____ ____ ____ _______  _____ __ _________

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