Thank You For Submiting Feedback!
Although collusive foreclosure sales are likely subject to attack under 11 U.S.C.S. § 548(a)(1) of the Bankruptcy Act, which authorizes the trustee to avoid transfers made with actual intent to hinder, delay, or defraud creditors, that provision may not reach foreclosure sales that, while not intentionally fraudulent, nevertheless fail to comply with all governing state laws. Any irregularity in the conduct of the sale that would permit judicial invalidation of the sale under applicable state law deprives the sale price of its conclusive force under § 548(a)(2)(A), and the transfer may be avoided if the price received was not reasonably equivalent to the property's actual value at the time of the sale.
Petitioner BFP took title to a California home subject to, inter alia, a deed of trust in favor of Imperial Savings Association. After Imperial entered a notice of default because its loan was not being serviced, the home was purchased by respondent Osborne for $ 433,000 at a properly noticed foreclosure sale. BFP soon petitioned for bankruptcy and, acting as a debtor in possession, filed a complaint to set aside the sale to Osborne as a fraudulent transfer, claiming that the home was worth over $ 725,000 when sold and thus was not exchanged for a "reasonably equivalent value" under 11 U.S.C. § 548(a)(2). The Bankruptcy Court granted summary judgment to Imperial. The District Court affirmed the dismissal, and a bankruptcy appellate panel affirmed the judgment, holding that consideration received in a noncollusive and regularly conducted nonjudicial foreclosure sale establishes "reasonably equivalent value" as a matter of law. The Court of Appeals affirmed.
Was the consideration received from noncollusive real estate mortgage foreclosure sale conforming to applicable state law a "reasonably equivalent value" for property under Bankruptcy Code, 11 USCS 548(a)(2)?
The Supreme Court affirmed the decision. The Court held that the consideration received from the non-collusive real estate mortgage foreclosure sale conducted in conformance with applicable state law satisfied the requirement of § 548(a)(2) that transfers of property by insolvent debtors within one year prior to the filing of a bankruptcy petition be in exchange for a reasonably equivalent value.