## Facts

- Danny K. Horn, Sr. owned real property located at 8916 State Route 60, McConnelsville, Ohio (the Property).
- In September 2017, Danny conveyed the Property to his son and daughter-in-law, Jeffrey A. Horn and Dena A. Horn (the debtors), so they could use it as collateral for a loan.
- About a year later, as the debtors prepared to file bankruptcy, they executed a deed dated September 11, 2018 transferring the Property back to Danny (the Transfer).
- Danny took steps aimed at completing recording, including addressing back taxes and obtaining required county endorsements, but he did not actually record the deed before the bankruptcy filing.
- The debtors filed a Chapter 7 petition on November 30, 2018 (the petition date).
- As of the petition date, the deed conveying the Property back to Danny was not recorded in the county land records.
- Danny recorded the deed in February 2019, more than three months after the bankruptcy filing.
- Clyde Hardesty, the Chapter 7 trustee, filed an adversary proceeding and moved for summary judgment against Danny, seeking to avoid Danny’s unrecorded interest under 11 U.S.C. § 544(a)(3) and administer the Property for the benefit of unsecured creditors.
- The parties did not dispute the material facts relevant to the recording timeline.

## Issues

1. Whether a Chapter 7 trustee may use 11 U.S.C. § 544(a)(3) to avoid a prepetition transfer of Ohio real property when the transferee’s deed was unrecorded on the petition date.
2. Whether, under Ohio recording law, the trustee as a hypothetical bona fide purchaser without notice would take priority over an unrecorded deed.
3. Whether the transferee’s postpetition recording efforts and equitable arguments can defeat the trustee’s § 544(a)(3) rights fixed as of the petition date.

## Decision

- The court granted the trustee’s motion for summary judgment against Danny K. Horn, Sr.
- The court held that § 544(a)(3) gives the trustee the status and rights of a hypothetical bona fide purchaser of the Property as of the petition date, without regard to any actual knowledge.
- Applying Ohio recording law, the court concluded that an unrecorded deed is not effective against a bona fide purchaser for value without notice; therefore, the trustee’s hypothetical purchaser rights were superior to Danny’s unrecorded interest.
- The court determined that Danny’s postpetition recording in February 2019 could not defeat the trustee’s rights because the trustee’s status is measured at the commencement of the case.
- The court rejected Danny’s fairness-based arguments and his asserted efforts to complete recording as not creating a legal defense to avoidance under § 544(a)(3).
- As a result, the trustee could avoid Danny’s unrecorded interest and treat the Property as part of the bankruptcy estate for administration.

## Legal Principles

- 11 U.S.C. § 544(a)(3) grants a bankruptcy trustee, as of the petition date, the rights and powers of a hypothetical bona fide purchaser of the debtor’s real property.
- The trustee’s rights under § 544(a)(3) are determined as of the petition date and are not defeated by later events such as postpetition recording.
- State law governs what a bona fide purchaser would take; in Ohio, an unrecorded conveyance may be valid between the parties but is ineffective against a subsequent bona fide purchaser for value without notice who records.
- If a hypothetical bona fide purchaser under Ohio law would take free of an unrecorded deed, the trustee may avoid that unrecorded interest under § 544(a)(3).
- Equitable considerations and subjective intent do not override the statutory priority given to a trustee’s § 544(a)(3) purchaser status when the public record does not provide notice sufficient to defeat bona fide purchaser rights.
- Where the material facts about execution and recording are not disputed, the application of § 544(a)(3) and the state recording statute may be resolved on summary judgment.

## Conclusion

The bankruptcy court held that because Danny Horn Sr.’s deed was not recorded as of the debtors’ Chapter 7 petition date, the trustee could act as a hypothetical bona fide purchaser under § 544(a)(3) and avoid Danny’s unrecorded interest under Ohio recording law, despite Danny’s later recording and equitable objections, allowing the Property to be administered for unsecured creditors.


In re Horn, 606 B.R. 747 (2019)