Skip to main content



In Re Eight Bulls, LP

439 B.R. 370 (D. N.J. 2010)

BANKRUPTCY; DEEDS — Since a bankruptcy’s trustee’s status as a bona fide purchaser whose interest is perfected as of the filing date of the bankruptcy petition, the trustee has a superior interest in the properties to persons whose deeds are recorded after the bankruptcy filing or who hold unrecorded deeds.

A limited partnership owned three lots of real property. They were subject to sale for unpaid taxes pursuant to a state court order. The debtor filed a bankruptcy petition and obtained the benefit of an automatic stay of the state court action. In the bankruptcy filing, the debtor claimed ownership of all three lots. Nearly a year after the filing, the bankruptcy trustee made a motion to sell the three lots. The debtor’s sole surviving partner and his wife challenged the trustee’s power to sell the properties. They claimed that they owned the properties even though the properties were listed in the bankruptcy petition as owned by the debtor.

In support of their position, the partner produced a recorded deed dated nearly three years earlier. The deed, however, was recorded nearly one year after the bankruptcy filing. He also produced an unrecorded deed that preceded the bankruptcy filing. It conveyed the third lot to his wife. In further support of their position, the partner and his wife pointed to a state court litigation regarding an easement dispute in which the court, in its list of undisputed facts, noted that the properties were owned by them and not by the partnership.

The trustee moved for summary judgment and the Bankruptcy Court granted it. Pursuant to the Bankruptcy Code, 11 U.S.C. 544(a)(3), a bankruptcy trustee is permitted to void any transfer of a debtor’s property that would be voidable by a bona fide purchaser of real property. Pursuant to New Jersey’s race-notice recording statute, a bona fide purchaser without notice has a superior interest to a holder of an unrecorded deed as long as the bona fide purchaser perfected its interest before the unrecorded deed holder did. However, pursuant to the bankruptcy code, a bankruptcy trustee does not have to have knowledge in order to void a transfer. So, whether the trustee had actual knowledge of an unrecorded deed was immaterial. The bankruptcy code treats the trustee as if it had no knowledge. The trustee maintains the status of a bona fide purchaser without notice which is perfected as of the filing date of the bankruptcy petition. Therefore, the only question is that of perfection. If the trustee perfects its interest in the property before the unrecorded deed holder did, then the trustee can void that transfer. Since the trustee’s status as a bona fide purchaser whose interest is perfected as of the filing date of the bankruptcy petition, the trustee had a superior interest in the properties that trumped the partner’s interest (whose deed was recorded nearly a year after the bankruptcy filing) and that of his wife (whose deed was unrecorded).

The Court also rejected the partner and his wife’s other arguments that since a state court found them to be owners of the property, the bankruptcy court was bound by that determination under the Rooker-Feldman doctrine. In doing so, the Court noted that the doctrine only applies to state court losers complaining of injuries suffered in state court judgments that were decided before a United States District Court proceedings commenced. In this case, the bankruptcy trustee was not a state court loser because he was not involved in the title dispute and therefore the doctrine did not bar the trustee from claiming its interest in the properties.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com