A Second Look: United States Bankruptcy Court for the District of New Jersey Clarifies Beginning of Lookback Periods for Real Estate Avoidance Measures | Patterson Belknap Webb & Tyler LLP

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Debtors and trustees seeking to avoid the difficulties of a foreclosure often attempt to use sections 547 and 548 of the Bankruptcy Code.[1] According to the old article, a debtor can avoid any transfer of an interest in an asset “at the latest 90 days before the date of filing of the request”. When there is an allegation of fraudulent transfer, this last article provides: “The trustee may avoid any transfer[encourusparledébiteurquiontétéfaitsouencourusauplustarddeuxansavantladatedudépôtdelarequête

Étant donné que ces périodes rétrospectives prolongent la période pendant laquelle un débiteur peut éviter certains transferts, la détermination du seuil du début de la période applicable est cruciale pour évaluer si ces dispositions sont à la disposition du débiteur. Une récente procédure contradictoire devant le tribunal des faillites des États-Unis pour le district du New Jersey, Cedrick Goodman c. MTAG en tant que dépositaire d’Alterna Funding I, LLC, et al. Av. Pro. N° : 20-01162[2], provides important guidance applicable when a lender files a lis pendens[3] years before the debtor declares bankruptcy.

The debtor filed for Chapter 13 on January 15, 2020. Approximately two months later, the debtor initiated adversarial proceedings to avoid the transfer of real estate located in New Brunswick, New Jersey (“Property”) resulting from ” a final foreclosure judgment rendered on December 27, 2019, and to give back the title to the debtor. After a previous unsuccessful attempt, the debtor’s lender filed a second motion to dismiss the adversarial proceedings on February 23, 2021. The lender’s main argument was based on the date of registration of the underlying. lis pendens, September 17, 2015. The lender argued that because the lis pendens was registered more than four years before the final foreclosure judgment was rendered, the debtor was foreclosed from asserting a claim under section 547 or section 548 of the Code.

In its opposition to the lender’s petition, the debtor argued that the transfer should be avoided because the foreclosure became effective from the date of the judgment in 2019 and not when the lis pendens has been registered. The Court noted that the debtor had not presented case law in support of this position. But the debtor argued that two recent and landmark cases should not be decisive because they were decided after the debtor filed for bankruptcy.

The Court was not persuaded by this argument:

The lis pendens was registered on September 17, 2015, and for purposes of analysis under the Bankruptcy Code, this date is considered to be the date of preparation, or the date of transfer. The debtor filed for bankruptcy on January 15, 2020. The transfer date is clearly outside the respective 90-day or two-year look-back periods prior to the filing date of the petition. As such, the transfer cannot be avoided under § 547 or § 548 of the Bankruptcy Code.

Therefore, this case provides an important reminder to lenders as to the importance of timely filing a lis pendens from the start of a foreclosure action. As this case shows, foreclosure actions in judicial foreclosure states such as New Jersey can take several years. By quickly depositing a lis pendens After the onset of a foreclosure, a lender protects its interest in the property, among other things, by setting the clock on when cancellation actions would be available to debtors in a future bankruptcy case.


[1] See also Article 544 (a) (3) of the Bankruptcy Code, which offers another possibility for a trustee to avoid certain transfers of immovable property in accordance with the applicable state law: “The trustee must have, from the start of the matter, and without regard to the knowledge of the trustee or any creditor, the rights and powers of the debtor, or may avoid any transfer of ownership of the debtor or any obligation entered into by the debtor which is voidable by … a buyer of good faith of real estate, other than movable property, of the debtor, against which the applicable law allows the realization of this transfer, who obtains the status of purchaser in good faith and has completed this transfer at the time of the introduction of the deal, whether or not such a purchaser exists. “

[2] The underlying case from which the adversarial proceedings arose is entitled In re Cedrick Goodman, Case No .: 20-10683.

[3] A lis pendens is an official notice to the public of a lawsuit involving a claim affecting real property. A lis pendens informs a potential buyer of real estate of an ongoing litigation which scrambles the title to the property in question and informs a potential buyer that they will purchase the property that is the subject of the pending litigation.



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