Midlantic Nat'l Bank v. Bridge (In re Bridge) - 18 F.3d 195 (3d Cir. 1994)

Rule:

The trustee is a hypothetical bona fide purchaser that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case. 11 U.S.C.S. § 544(a)(3).

Facts:

Appellant bank made a mortgage loan to debtor and had agreed to refinance the loan and, at that time, secured another mortgage on the same property. However, the second mortgage was never recorded although the first mortgage was marked satisfied. After bankruptcy was filed, appellant argued that it retained an equitable lien on the property, and asserted that the doctrine of equitable subrogation operated to place it in like position as the first mortgage. The bankruptcy court and the district court rejected the claim of the appellant bank. The bank sought further review. 

Issue:

Under the circumstances, was the appellant bank entitled to prevail over the bankruptcy trustee? 

Answer:

No.

Conclusion:

On review, the court held that the trustee's "strong arm" powers under 11 U.S.C.S. § 544(a)(1)-(3) operated to avoid appellant's interest in the property. The court concluded that the rights of the trustee, as a hypothetical bona fide purchaser of real property for value without notice, prevailed over the rights of appellant, and equitable subrogation would not overcome the trustee's rights. The order that denied priority to appellant was accordingly affirmed.