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April 18, 2008

Real estate avoidance actions: what are the hot areas in 2008?

~ written by William Todd Drown

Judge Henry Dickinson from the United States Bankruptcy Court for the Western District of Kentucky has said that a bankruptcy trustee is the “lowest of creatures in the law of personal property” and “ranks just above the thief.” This quote aptly describes how some feel about the unfairness created by the so-called strong arm powers of bankruptcy trustees under 11 U.S.C. 544.
For the unwary bankruptcy practitioner, the application of the strong arm powers can mean the loss of a client’s home, car, and other valuable property. For the drafter of security agreements, the successful application of 544 and avoidance of a security interest is certain malpractice. For lenders, an avoidance action can create a loss of secured status and significantly reduced investment returns.

With the Ohio General Assembly poised to raise the exemptions under Ohio Revised Code 2329.66, bankruptcy trustees will increasingly look to make ever more complicated arguments under 544 to avoid secured interests. In so doing, the trustees can create a significant return for unsecured creditors and healthy compensation for the trustee. In the last few years, trustees have successfully brought actions to avoid mortgages with faulty notary jurats, legal descriptions, and mortgages containing statements such as “signing to solely release dower” when, in fact, the individual intended to mortgage his or her interest in the real estate and was a fee simple owner.

Among other things, trustees are also on the lookout for faulty deeds, deeds conveying to unincorporated entities, instruments signed by a power-of-attorney wherein the power-of-attorney is not filed ahead of the instrument as required by Ohio Revised Code 1337.04, inadvertently released mortgages, and re-filed documents where something is added to the original without re-execution of the original document.

William Todd Drown, who in 2005 was appointed Chapter 7 Bankruptcy Trustee for the United States Bankruptcy Court, Southern District of Ohio, Eastern Division at Columbus and is currently a partner in the law firm of Folland & Drown, with offices in Mount Vernon, Coshocton, and Johnstown, will address the topic “Avoidance Actions – What Are the Hot Areas in 2008” on Thursday, May 1 during the Bankruptcy Law Institute. Mr. Drown is also owner of Fidelity Title & Closing Services Agency, Inc. with office across the state which closes approximately 1200 real estate transactions yearly.

If you practice in or around insolvency issues, you will want to attend the Bankruptcy Law Institute on Thursday, May 1 and Friday, May 2. Attendance on both days will include 12.25 CLE hours with professionalism and substance abuse required credits. Click here to register online, or telephone 221.4112 to reserve your space for event # 3602. Register for both days: member, $295 prepaid/$305 day of; non-member, $345 prepaid/$355 day of; paralegal, $195 prepaid/$205 day of. Or you may register for Thursday or Friday only at the following rate: member, $195 prepaid/$205 day of; non-member, $225 prepaid/$235 day of; paralegal, $125 prepaid/$135 day of. Lunch is on your own for both days.