## Facts

- On June 4, Baird and Lisa Ann Wohlfeil refinanced their real property with a loan from Quicken Loans, Inc., intending to grant Quicken a mortgage securing the debt.
- On June 18, the Wohlfeils filed a Chapter 7 bankruptcy petition.
- The Wohlfeils listed the Quicken loan in their bankruptcy schedules and statement of financial affairs.
- On June 24, after the bankruptcy filing, Quicken recorded its mortgage in the real-property records.
- Gene Kohut, the Chapter 7 trustee, filed an adversary proceeding against Quicken seeking to avoid Quicken’s postpetition recording of the mortgage.
- The trustee relied on his Bankruptcy Code avoidance powers, including his status as a hypothetical bona fide purchaser of real property as of the petition date.
- Quicken argued that the trustee could not claim bona fide purchaser status because the debtors’ bankruptcy filings disclosed the Quicken loan and therefore supplied notice of Quicken’s mortgage.
- The trustee moved for partial summary judgment.

## Issues

1. Whether a Chapter 7 trustee’s rights as a hypothetical bona fide purchaser under 11 U.S.C. § 544(a)(3) are defeated by notice said to arise solely from the debtor’s bankruptcy schedules and statement of financial affairs.
2. Whether a lender’s postpetition recording of a mortgage (unrecorded as of the petition date) is avoidable as an unauthorized postpetition transfer under 11 U.S.C. § 549.
3. Whether any avoided mortgage lien is preserved for the benefit of the bankruptcy estate under 11 U.S.C. § 551.

## Decision

- The court granted the trustee’s motion for partial summary judgment.
- The court held that the trustee’s § 544(a)(3) bona fide purchaser status was not defeated by disclosures in the debtors’ schedules and statement of financial affairs.
- The court held that Quicken’s postpetition recording of the mortgage was an unauthorized postpetition transfer that the trustee could avoid.
- The court held that the avoided mortgage interest was preserved for the estate.

## Legal Principles

- Under 11 U.S.C. § 544(a)(3), as of the commencement of the case and without regard to the trustee’s actual knowledge, the trustee has the rights and powers of a hypothetical bona fide purchaser of the debtor’s real property.
- Whether a hypothetical bona fide purchaser would take subject to an interest turns on applicable state notice and recording law, including what would be found in the ordinary chain of title in the land records.
- Bankruptcy schedules and statements of financial affairs are not instruments recorded in the real-property recording system and, standing alone, do not supply the kind of notice that defeats a trustee’s § 544(a)(3) rights.
- A postpetition act that perfects or fixes an interest in estate property, without statutory or court authorization, may be avoided as a postpetition transfer under 11 U.S.C. § 549.
- Under 11 U.S.C. § 551, any transfer or lien avoided by the trustee is preserved for the estate, preventing junior interests from improving their position due to the avoidance.

## Conclusion

Because Quicken did not record its mortgage until after the Chapter 7 petition was filed, the trustee, treated as a hypothetical bona fide purchaser as of the petition date, was not charged with notice based only on the debtors’ bankruptcy disclosures; the court therefore allowed the trustee to avoid the postpetition mortgage recording and preserve the avoided lien for the estate.


Kohut v. Quicken Loans, Inc. (In re Wohlfeil), 322 B.R. 302 (2005)