Court Opinion

ID: 9706903
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:54:50.781578+00
Date Added: 2024-06-11T18:22:25.515933
License: Public Domain

VOLINN, Bankruptcy Judge,
dissenting.
As stated by the majority, the issue is whether or not a transfer of the debtor’s property, in the course of a deed of trust foreclosure sale, is the kind of transfer contemplated by 11 U.S.C. § 548, the fraudulent conveyance section of the Bankruptcy Code. The majority holds that such a transfer may be a fraudulent transfer and that the reasonably equivalent value test is satisfied if the property is sold at a regularly conducted public sale and there is no collusion or irregularity.
Two decisions of the Fifth Circuit Court of Appeals which involved similar facts and which held that the provisions of § 67 of the Bankruptcy Act, the predecessor of § 548, encompasses foreclosure sales, have aroused concerned comment. Durrett v. Washington Nat. Ins. Co., 621 F.2d 201 (5th Cir. 1980); Abramsom v. Lakewood Bank & Trust Co., 647 F.2d 547 (5th Cir. 1981). These cases are viewed as a new departure with a great potential for destabilizing long-established practice in the field of mortgage and deed of trust foreclosure.1 See Abramsom v. Lakewood Bank & Trust Co., at 549-50 (Clark, J., dissenting); In re Alsop, 14 B.R. 982, (Bktcy.Alaska, 1981). Conceptually, the logic of Durrett is sound. While there may be some initial confusion as to whether the original transfer, by way of security, or the subsequent transfer at a forced sale is the transfer which should be considered under § 548, it is clear that it is the second transfer which actually divested the debtor of all interest in the property. To the extent that there may be a question as to whether or not the transfer was forced or voluntary, the Code definition of “transfer” includes involuntary transfer. 11 U.S.C. § 101(40). The scope of this definition is at least as broad as its Act predecessor, 11 U.S.C. § 1(30) which was in effect when Durrett was decided. See, H.R. Rep. No. 595, 95th Cong., 1st Sess. (1977), p. 314, U.S.Code Cong. & Admin.News 1978, p. 5787. Thus, § 548, which states that a *428“trustee may avoid any transfer of an interest of the debtor” affects foreclosure sales which, albeit consented to, are in a real sense forced or involuntary.
The majority evidences great concern with an arbitrary figure as to what may be reasonably equivalent value. It states that Durrett has in effect imposed an upset price of 70% in deed of trust or mortgage foreclosure sales. Durrett need not be read as categorically setting such a figure. The case held that a sale for 57% of the value was not for a reasonable equivalent value. In any event, I believe that the concept of “reasonably equivalent value” as a test set for 11 U.S.C. § 548(a)(2) requires that the trial court examine the consideration received in such a sale in the factual context of a particular case.2
One cannot disregard the fact that a foreclosure sale is a forced sale and that the debtor contracted that such sale could occur in the event of default. Thus, there is a reasonable prospect that a sale under the circumstances of foreclosure could result in a price which would be less than one made under ideal circumstances involving a seller who does not have to sell and a buyer who does not have to buy. The reasonable value test of § 548, as stated, is to be applied in particular factual contexts. It is thus possible, considering all the circumstances involved, that the consideration received from a forced sale pursuant to statute may be afforded a presumption that it is of reasonably equivalent value.
The majority, however, endows the consideration received at a non-collusive regularly conducted non-judicial foreclosure sale, with a conclusive or irrebuttable presumption of reasonableness. Functionally, the only way to question a fraudulent transfer under § 548 is to examine the adequacy of the consideration. If one is precluded from testing the transaction on the basis of the fraudulent transfer criterion and is deflected to criteria relating to questioning the validity of a deed of trust foreclosure, that is, collusion or irregular conduct, then the majority’s logic in applying § 548 as a factor in its decision is illusory.
The Bankruptcy Code is a Federal Statute. Section 548 states a standard with respect to reviewing consideration in the event of a transfer of the debtor’s property. Section 548 transcends the dispute between this debtor and the secured creditor. It brings into focus the claims of the debtor’s other creditors that they have been deprived of recourse to an asset by an improvident sale. The majority would hold that despite widespread differences in law and practices relating to foreclosure, no bankruptcy court may entertain the factual issue of whether, under § 548, the consideration paid was the reasonably equivalent value. By concluding that a regularly conducted sale in the absence of collusion satisfies the “reasonably equivalent value” test, the majority has excised vital language from § 548 in order to create an exception to the statute where a forced sale of the debtor’s property is involved. There is nothing in the Code nor its legislative history to suggest that such an exception was intended.
In conclusion, I would hold that the price paid at a regularly conducted foreclosure sale should be given, at best, a strong presumption of adequacy. It should be remembered that the burden of proof in any event, is on the plaintiff to show that the consideration paid was inadequate. In this case the record shows that the Bankruptcy Judge heard the facts and gave the matter a good deal of thought.3 He concluded that *429a price of about 67% of the fair market value was not a reasonably equivalent value. This is a finding of fact which may be overturned only if it is clearly erroneous. Bankr.Rule 810. I am satisfied that his conclusion was reasonable and supported by the record. I would affirm.

. This is a policy issue, essentially. It may be that the problem should be dealt with legislatively. Insofar as it should be a matter of judicial concern, it is obvious that those who purchase at foreclosure sales do so to make a profit. From a certain point of view, the issue, insofar as it involves adequacy of price, gives consideration as to whether creditors of the debtor have suffered a loss by virtue of the purchaser getting too great a bargain. If this is found to be so, the purchaser loses what the court found to be an excessive profit. He is still entitled at least to a lien for what he invested. 11 U.S.C. § 548(c).

. The primary goal of the seller at a foreclosure sale is satisfaction of a debt. This goal is different than that of a seller trying for the highest possible price. Given this difference in motivation, and the same market circumstances, results could differ substantially. It is this difference which is the area of inquiry encompassed by the term “reasonably equivalent value”.

. In his Opinion and Decision the trial court, after some analysis concluded:
“Defendant Turney paid 64% to 67% of the market value of a very unique piece of residential property. At the time of the sale he was prepared to bid approximately $6,000 more. Immediately after the sale he insured the property for $325,000 as fire value ... a purchase price of $256,000 in this case is not *429the reasonably equivalent value of a market appraisal of $380,000 to 400,000.”