MUSOLINO v. ORR
OPINION. Signed by Judge Freda L. Wolfson on 7/16/2014. (gxh)
*NOT FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
THOMAS J. ORR.
Case No. 14-514(FLW)
Bankr. Adv. Case No. 13-01685(KCF)
WOLFSON, United States District Judge:
Appellant Mary Musolino (“Appellant” or “Musolino”) appeals the decisions of the
Bankruptcy Court granting summary judgment to Chapter 7 Bankruptcy Trustee Thomas J. Orr
(“Trustee” or “Appellee”), to avoid, pursuant to 11 U.S.C. § 544(a), Appellant’s interest in certain
real property held by the Bankruptcy Debtor Lottie Hoberman (“Debtor”), and denying
Appellant’s cross-motion for summary judgment against the Trustee and Third Party Defendants
Amboy National Bank (“Amboy”) and Wells Fargo, N.A. (“Wells Fargo”) (collectively, “Third
Party Defendants”). This Court has jurisdiction to review the decision of the Bankruptcy Court
pursuant to 28 U.S.C. § 158(a)(1). For the reasons set forth below, the Court affirms the decisions
of the Bankruptcy Court.
This appeal involves ownership interests in the property located at 389-391 East Main Street,
Somerville, New Jersey 08876 (the “Property”), and, specifically, several conveyances of the
Property. These and other relevant facts are set forth as follows. 1
By deed dated May 20, 1967 and recorded on June 23 of that year, Debtor became an equal
owner of the Property with her mother, Theresa Uryc (“Uryc”); each party owned an undivided
one-half interest in the Property (the “May 1967 Deed”). 2 In December of that year, Uryc passed
away and bequeathed her one-half interest in the Property to Appellant, who is Uryc’s other
daughter and who also served as executrix of Uryc’s will. R. 34-35.
Appellant began living on the Property in 1968, but did not record her one-half interest for
nearly two decades. In a deed dated February 25, 1987 (the “February 1987 Deed”) and recorded
on April 6, 1987, Appellant, in her capacity as executrix and grantor, conveyed the one-half
ownership interest held by Uryc’s estate to Appellant in her individual capacity, for the price of
one dollar. R. 37-40. 3 Then on April 23, 1987, Appellant—again in her capacity as executrix of
Uryc’s estate—and Debtor together as grantors, conveyed their interests in the Property to Debtor
alone (the “April 1987 Deed”). R. 41-44. 4 The only other conveyance mentioned in the April 1987
Deed is the May 1967 Deed; the April 1987 Deed contains no reference to the February 1987
Facts are drawn from the record supplied on appeal.
I note that Debtor held her interest in the Property with her now former spouse; however,
Debtor’s spouse is not relevant to this appeal and for that reason, I refer to Debtor in the singular,
without reference to her spouse.
Specifically, the February 1967 Deed states: “The Grantor grants and conveys (transfers
ownership of) the [Property] . . . to the [Appellant] . . . for the sum of one dollar.” R.37.
The April 1967 Deed specifically states that “The Grantor grants and conveys (transfers
ownership of) the [Property] . . . to the [Debtor] . . . for the sum of one dollar . . .,” identifies the
“Grantor” as both the Debtor and the Appellant as Executrix. R. 41. The last sentence of the April
1987 Deed further recites that “[Appellant] executes this Deed as Executrix under said Will for the
sole purpose of exhausting the power of sale granted under the terms of said will.” R. 42.
According to Appellant, she executed these two deeds because she was informed by her
attorney that both were necessary to clear title over her individual interest in the Property. Aff. of
Mary Musolino, ¶ 14.
On February 10, 2004, Debtor granted a mortgage on the Property to Amboy. R. 79. Before
executing the mortgage, Amboy hired Jersey Land Abstracts to perform a title search of the
Property, which was completed on January 26, 2004. The Jersey Land Abstracts title search
revealed Debtor as the sole owner of the Property, by virtue of the April 1987 Deed. Subsequently,
Debtor executed another mortgage on the Property with Wachovia Bank, N.A., now known as
Wells Fargo. Appellant was neither a party nor a signatory to either mortgage agreement, and the
record does not reveal whether Appellant had any knowledge of these mortgages prior to when
Debtor’s bankruptcy proceeding commenced. Throughout this time, Appellant continued to live
on the Property.
On February 27, 2013, Debtor filed a voluntary bankruptcy petition under Chapter 7 of the
Bankruptcy Code. Thereafter, in an adversary proceeding to ascertain ownership interest in the
Property, the Trustee moved for summary judgment on the grounds that, pursuant to the Trustee’s
powers under 11 U.S.C. § 544(a), 5 the Trustee held an interest in the Property superior to any
interest of Appellant, and that, furthermore, Trustee could avoid whatever interest in the Property
Appellant may hold. Pl. Mot. For Summ. J; See Pl.’s Compl. ¶ 18, 22, 26. Specifically, the Trustee
Section 544(a) of the Bankruptcy Code, often referred to as the “strong-arm” provision,
provides in relevant:
(a) The trustee shall have, as of the commencement of the case, and without regard
to any knowledge of the trustee or of any creditor, the rights and powers of, or may
avoid any transfer of property of the debtor or any obligation incurred by the debtor
that is voidable by—
(3) a bona fide purchaser of real property . . . from the debtor, against whom
applicable law permits such transfer to be perfected, that obtains the status of a bona
fide purchaser and has perfected such transfer at the time of the commencement of
the case, whether or not such a purchaser exists.
11. U.S.C. § 544(a).
argued that under § 544(a), he assumed the role of a hypothetical bona fide purchaser of the
Property as soon as Debtor filed her bankruptcy petition. The Trustee contended that as a bona
fide purchaser, he took free and clear of Appellant’s interest as established by the February 1987
Deed because nothing in the April 1987 Deed or a reasonable title search would put him on notice
of Appellant’s interest in the Property. In that regard, the Trustee supported his argument by
relying on the Jersey Land Abstracts report prepared in connection with Debtor’s Amboy
mortgage, which concluded that Debtor was the Property’s sole owner.
In response to the Trustee’s motion, Appellant cross-moved for summary judgment, seeking a
declaration both that (i) she has clear title to an undivided one-half interest in the Property, and (ii)
her interest is not encumbered by either the Amboy or the Wells Fargo mortgages. In support,
Appellant argued that the April 1987 Deed is a nullity because Appellant had no interest to transfer
by virtue of the previously executed and recorded February 1987 Deed, and that a hypothetical
purchaser would be on notice of this fact by conducting a sixty-year title search. In that connection,
Appellant challenged the Trustee’s reliance on the Jersey Land Abstracts search, instead arguing
offering as evidence a sixty-year title search conducted by Prestige Title Agency, Inc., which
revealed Appellant’s one-half interest in the Property. In light of these facts, Appellant argued
that allowing the Trustee to exercise his strong arm powers to avoid Appellant’s interest would be
contrary to law and/or inequitable. Finally, Appellant sought a declaration that her half-interest,
as evidenced by the February 1987 Deed and the Prestige Title Agency search, is unencumbered
by Debtor’s mortgages because Appellant was not a signatory to those conveyances, and Debtor
could only convey her interest in the Property.
The Bankruptcy Court granted the Trustee’s motion and denied Appellant’s cross-motion. In
so ruling, the Bankruptcy Court first found that the April 1987 Deed was a nullity by virtue of the
February 1987 Deed; however, the Bankruptcy Court determined that Appellant’s interest in the
Property could nevertheless be avoided by the Trustee under his strong-arm powers. In that
connection, the Bankruptcy Court accepted the Jersey Land Abstracts title search of the Property
as evidence that a hypothetical bona fide purchaser would not be on notice of the February 1967
Deed, and would instead rely on the April 1987 Deed. R. 102. With respect to Appellant’s crossmotion against the Third Party Defendants, the Bankruptcy Court declined to entertain Appellant’s
arguments on procedural grounds, finding that the relief Appellant sought against the Third Party
Defendants exceeded the scope of the Trustee’s motion. It is from these decisions that Appellant
Standard of Review
The standard of review for Bankruptcy Court decisions is determined by the nature of the issues
on appeal. Baron & Budd, P.C. v. Unsecured Asbestos Claimants Committee, 321 B.R. 147, 157
(D.N.J. 2005). Findings of fact are reviewed under a “clearly erroneous standard.” Fed. R. Bankr.
P. 8013. A factual finding is overturned as being “clearly erroneous” only when a reviewing court
has a “definite and firm conviction that a mistake has been committed.” Concrete Pipe & Prods.
v. Constr. Laborers Pension Trust, 508 U.S. 602, 622 (1993). On the other hand, legal conclusions
from the Bankruptcy Court are subject to de novo, or plenary, review by the district court.
Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir.1997). If the issues on appeal present both
findings of fact and conclusions of law, the applicable standard, “clearly erroneous” or “de novo,”
must be appropriately applied to each component. Meridian Bank v. Alten, 958 F.2d 1226, 1229
(3d Cir. 1992) (citing In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989) and Universal
Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102-103 (3d Cir. 1981)).
Lastly, decisions on procedural bases are reviewed for abuse of discretion. In re United
Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005). Deference is the hallmark of abuse of
discretion review. See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 143 (1997); Koon v. United States,
518 U.S. 81, 98-99, (1996). Thus an exercise of discretion is not disturbed unless the court
committed a clear error of judgment in making its decision, meaning that it relied upon “a clearly
erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.”
In re Nutraquest, Inc., 434 F.3d 639, 645 (3d Cir. 2006); see also In re Orthopedic Bone Screw
Prods. Liab. Litig., 246 F.3d 315, 320 (3d Cir. 2001); Int’l Union, UAW v. Mack Trucks, Inc., 820
F.2d 91, 95 (3d Cir. 1987).
Appellant appeals the decision of the Bankruptcy Court granting the Trustee’s summary
judgment motion and denying Appellant’s cross-motion on several grounds. First, Appellant
argues that Bankruptcy Court erred in finding that the Trustee had the status of bona fide purchaser
for value as of the date at which Debtor’s bankruptcy petition was filed. In that connection,
Appellant argues that the Bankruptcy Court erred by not requiring the Trustee to submit proof of
a sixty-year title search of the Property, which, Appellant contends, would have revealed
Appellant’s interest therein. Second, Appellant argues that the Bankruptcy Court erred in holding
that the strong-arm powers allowed the Trustee to avoid Appellant’s interest in the Property,
contending that the strong-arm powers do not apply to the circumstances of Debtor’s case, where
there exists an undisputed, recorded deed, because such an application of the strong-arm powers
is contrary to law and/or would be inequitable. Finally, Appellant contends that the Bankruptcy
Court erred in denying the cross-motion for summary judgment against the Third Party Defendants
because, Appellant asserts, she held, and continues to hold, a one-half interest in the Property,
which Debtor could not encumber through the mortgages to the Third Party Defendants. I address
each of these arguments in turn.
A. The Trustee’s Strong-Arm Powers
In the summary judgment proceedings below, the Bankruptcy Court initially determined that,
pursuant to § 544(a)(3), the Trustee held the status of a hypothetical bona fide purchaser of real
property as of the filing of the Debtor’s bankruptcy petition. R. 101. On appeal, Appellant argues
that this determination was in error, contending that a trustee’s bona fide purchaser status does not
automatically arise upon the filing of a bankruptcy petition, but rather only when a trustee has
conducted a proper title search of the property. Appellant’s Reply Br., 6. According to Appellant,
the Trustee never obtained bona fide purchaser status, thus precluding the Trustee from using his
strong-arm powers under § 544(a), because he did not offer evidence of a sixty-year title search of
the Property. 6
This argument is meritless. To begin, Appellant cites to no case law or provision of the
Bankruptcy Code in support of her claim. Moreover, review of the applicable law is to the
As a hypothetical bona fide purchaser, the trustee is deemed to have paid value for
the [debtor’s] property and is deemed to have perfected (i.e., recorded) his interest
as legal title holder in the subject property as of the date of the bankruptcy petition’s
filing. The trustee also has the status of a hypothetical bona fide purchaser who is
deemed to have searched the title of the [debtor’s] property as of the petition’s
In re Bridge, 18 F.3d 195, 204 (3d Cir. 1994) (emphasis added). The plain language of § 544(a)
establishes that the strong-arm powers arise when the bankruptcy “case” is commenced, i.e., upon
It does not appear from the record that Appellant raised this precise argument below.
Ordinarily, an issue that was not raised at bankruptcy court cannot be considered by the district
court on appeal. In re Kaiser Group Intern. Inc., 399 F.3d 558, 565 (3d Cir. 2005). Nevertheless,
in the interest of thoroughness and because the Appellant’s new argument relates so closely to the
issue of the general applicability of strong-arm powers, which was raised below, I address this
aspect of Appellant’s appeal.
the filing of the bankruptcy petition. 11 U.S.C. §§ 301(a), 302(a), 303(b); Fed. R. Bankr. P.
1002(a). Furthermore, absent from § 544 is any requirement that a trustee perform his own title
search in order to secure bona fide purchaser status. Rather, § 544(a)(3) confers upon a trustee,
whenever real property is at issue, the rights of a bona fide purchaser, “against whom applicable
law permits,” of the debtor’s property, without any other requirement. Numerous courts have
reached this same conclusion. See, e.g., In re Bridge, 18 F.3d 195, 199, 204 (3d Cir. 1994)
(explaining that hypothetical bona fide purchaser is deemed, without taking any affirmative action,
to have searched the title of the property as of that date of the bankruptcy petition); see also In re
Aulicino, 400 B.R. 175, 180 (Bankr. E.D. Pa. 2008); In re Mariano, 339 B.R. 344, 347 (Bankr.
D.N.J. 2006). Accordingly, I reject Appellant’s argument that the Bankruptcy Court erred by not
requiring the Trustee to perform a title search prior to assuming hypothetical bona fide purchaser
Appellant next argues that, even assuming the Trustee held bona fide purchaser status, §
544(a)(3) does not grant Trustee the ability to avoid Appellant’s interest, evidenced by the recorded
February 1987 Deed. Appellant’s argument in this regard is two-fold. First, Appellant contends
that the Trustee failed to establish that a hypothetical bona fide purchaser would not have been on
notice of Appellant’s interest identified in the February 1987 Deed because the Trustee did not
offer evidence of a sixty-year title search on the Property. Second, Appellant argues that,
regardless of whether a purchaser would be on notice of the February 1987 Deed, the strong-arm
powers do not extend to circumstances where, as here, there is a recorded interest in property,
because such a result would be contrary to law and/or inequitable.
At the outset, I note that Appellant correctly points out that the Bankruptcy Court determined
that the April 1987 Deed was a nullity by effect of the February 1987 Deed; however, Appellant
ignores the Bankruptcy Court’s conclusion that under § 544(a), this fact alone is insufficient to
preclude the operation of the Trustee’s strong-arm powers to avoid Appellant’s interest. The
strong-arm provision grants trustees the rights of a bona fide purchaser to the extent that applicable
law permits a transfer of real property to be perfected, 11 U.S.C. § 544(a)(3). Here, applying New
Jersey law, 7 the Bankruptcy Court determined that a hypothetical bona fide purchaser, i.e., the
Trustee, would not have been on notice of the February 1987 Deed, and thus not on notice of
Appellant’s interest in the Property, because neither the April 1987 Deed nor an independent title
search of the Property—the 2004 Jersey Land Abstract report—revealed the existence of the
February 1987 Deed. On these facts, the Bankruptcy Court concluded that the Trustee held bona
fide purchaser status over Appellant, and, by operation of § 544(a), could avoid any interest in the
Property asserted by Appellant. There is no error in this conclusion.
The New Jersey Recording Act (“Recording Act”) establishes that “[a] deed or other
conveyance of an interest in real property shall be of no effect against subsequent bona fide
purchasers . . . for valuable consideration without notice . . . unless [that] conveyance is evidenced
by a document that is first recorded.” N.J.S.A. § 46:26A-12. To receive the protection of the
Recording Act, a purchaser must make a reasonable and diligent inquiry into the existing rights to
the property at the time of a conveyance. 8 Friendship Manor, Inc. v. Greiman, 581 A.2d 893, 895
The determination of property rights and interests in bankruptcy cases is decided by state
law. Butner v. United States, 440 U.S. 48, 55 (1979). Once bona fide purchaser status has been
obtained under the federal Bankruptcy Code, the extent and applicability of a trustee’s strong-arm
powers is defined by state law. In re Bridge, 18 F.3d 195, 200 (3d Cir. 1994); McCannon v.
Marston, 679 F.2d 13, 14 (3d Cir. 1982); In re Aulicino, 400 B.R. 175, 180-81 (Bankr. E.D. Pa.
2008). Here, the parties do not dispute that New Jersey law applies.
As the Third Circuit has explained:
As New Jersey’s recording statute is of the race-notice variety, “in order for a
subsequent purchaser to have a priority she must achieve a dual status: she must
(N.J. Super. Ct. App. Div. 1990). In that regard, the Recording Act operates to give effect to a
conveyance only to the extent that the conveyance can be discovered by a “reasonable” search of
the particular chain of title. Palamarg Realty Co. v. Rehac, 404 A.2d 21, 26 (N.J. 1979); Howard
Savings Bank v. Brunson, 582 A.2d 1305, 1309 (N.J. Sup. Ct. Ch. Div. 1990). Bona fide
purchasers will be charged with knowledge of whatever a reasonable search would uncover, e.g.,
facts “to apprise him of the existence of an outstanding title or claim.” Friendship Manor, 581
A.2d. at 895.
Appellant contends that a hypothetical bona fide purchaser should have been on notice of the
February 1987 Deed, which conveyed the one-half interest in the Property held by Uryc’s estate
to Appellant. Although it appears that the Bankruptcy Court was correct in finding that this
conveyance renders void the subsequent conveyance of the same one-half interest held by Uryc’s
estate to Debtor by virtue of the April 1987 Deed, this does not end the analysis under the
Recording Act because the focus must be on what a hypothetical bona fide purchase of Debtor’s
property would have discovered. The February 1987 Deed is not within Debtor’s particular chain
of title prior to the April 1987 Deed. Nothing on the face of the April 1987 Deed indicates the
existence of the February 1987 Deed, but instead only references the May 1967 Deed. Under these
facts, the Bankruptcy Court correctly determined that the Trustee, as a hypothetical bona fide
purchaser, would not have been on notice of the existence of the February 1987 Deed.
Furthermore, the Bankrupcy Court also concluded that a reasonable search would not have
uncovered the February 1987 Deed. Indeed, the Bankruptcy Court’s conclusion is supported by
not only take without notice of the prior interest, but she must also put her interest
on the record before the holder of the prior interest is able to do so.”
In re Bridge, 18 F.3d at 198 n.1 (quoting 6A Richard R. Powell, The Law of Real Property ¶
the third-party Jersey Land Abstracts title search performed in 2004, 9 which determined that
Debtor was the sole owner of the Property. R.102 (“[T]he fact that a disinterested third-party
reached that conclusion is strong evidence that nothing in the [April] 1987 Deed would have put a
bona fide purchaser on inquiry notice that there was a defect in the chain of title.”).
Appellant nevertheless challenges whether the Trustee adequately established that a
hypothetical bona fide purchaser would not have been on notice of the February 1987 Deed,
arguing that the Jersey Land Abstract report does not satisfy the Trustee’s obligation to conduct
an inquiry into the Property’s records. Specifically, Appellant argues that the only acceptable form
of inquiry for a bona fide purchaser is a sixty year title search, which Appellant asserts is the
“industry standard.” Appellant’s Br. On Appeal 24-25. In that connection, Appellant contends
that if Trustee had performed such a search, the February 1987 Deed would have been discovered,
identifying both the Debtor and the Appellant as owners of one-half interests in the Property, as
evidenced by the sixty year title search that Appellant performed. See R. 58-59. Appellant’s
argument is misplaced. 10
Although the Jersey Land Abstracts report was prepared in 2004, whereas Debtor filed for
bankruptcy in 2013, there is no dispute that the same search performed in 2013 would not have
revealed anything different.
Appellant also relies on the Debtor, at six points in the schedules of her Bankruptcy
Petition, listing herself as having only a one-half interest in the Property. Bankruptcy schedules
are not dispositive of whether assets are part of the bankruptcy estate. Rather, an asset that belongs
to a debtor becomes part of an estate even if she fails to schedule it in her petition. See Neville v.
Harris, 192 B.R. 825, 832 (D.N.J. 1996) (unscheduled assets remain part of the estate under § 544);
see also Correll v. Equifax Check Servs., Inc., 234 B.R. 8, 10 (D. Conn. 1997) (a cause of action
is part of the estate even if the debtor fails to schedule the claim in his or her petition); In re Brooks,
227 B.R. 891, 894 (Bankr. W.D. Mo. 1998). Thus, Appellant cannot obtain an interest that takes
priority over that of the Trustee simply by virtue of how Debtor filled out her bankruptcy
In that connection, I note that Appellant’s reliance on Mueller v. Youmans, 117 B.R. 113, 116
(Bankr. D.N.J. 1990)—for the proposition that all parties with an interest in certain real property
are entitled to equal shares of the net proceeds of that real property sales, absent proof that one
party is entitled to more, regardless of the existence of bankruptcy proceedings—is misplaced.
As previously noted, in New Jersey, purchasers are only charged with notice from the records
that can be ascertained from a reasonable search of those records. Palamarg, 404 A.2d at 26;
Sonderman v. Remington Const. Co., Inc., 603 A.2d 1, 8 (N.J. 1992). Appellant is correct that
New Jersey courts have recognized that a sixty-year title search is standard practice, see Palamarg,
404 A.2d at 28; Donovan v. Bachstadt, 453 A.2d 160, 164 (1982), and that purchasers who employ
standard search methodologies are entitled to rely on their findings. Sonderman v. Remington
Const. Co., Inc., 603 A.2d 1, 8 (N.J. 1992). However, the case law indicates that although sixtyyear searches are per se reasonable, there is no black letter requirement for such a search; rather,
the facts and circumstances of the case, along with the customs and practices of the industry, define
what is reasonable. Palamarg, 404 A.2d at 28. Consequently, a bona fide purchaser will only be
charged with undertaking a “reasonable” search of the particular chain of title involved. Id. at 26;
Island Venture Assocs. v. New Jersey Dep’t of Envtl. Protection, 179 N.J. 485, 846 A.2d 1228
(2004) (“[Courts] charge a subsequent purchaser with notice of a recorded instrument if it ‘can be
discovered by a reasonable search of the particular chain of title.’”).
And, although what
constitutes a reasonable search varies according the facts of a particular case, see Palamarg, 404
A.2d at 26, courts have frequently found that a prospective bona fide purchaser satisfies his or her
obligation under the Recording Act by conducting an investigation into any instruments made in
the time frame between when the seller receives a property interest and when that seller
relinquishes that interest. Brunson, 582 A.2d at 1309; Wack v. Collingswood Extension Realty
Co., 114 N.J. Eq. 253, 168 A. 639 (1933) (“The usual method of examining a title is to search
against the party who holds the record title up until the time he parts with the title and then search
The Mueller case concerns the trustee’s powers to order a sale under § 363(h) of property coowned as a joint-venture; it has no relevance to the operation of the strong-arm powers.
against the person who holds the title so long as he has the title.”). This appears to be the method
by which the Jersey Land Abstracts report was conducted; in any event, a title search of the
Property beginning with Debtor’s current interest and working back in time would reveal that
Debtor is the sole owner of the Property by operation of the April 1987 Deed. See Wack, 114 N.J.
253; Security Pac. Fin. Corp. v. Taylor, 474 A.2d 1096, 1097-99 (N.J. Sup. Ct. Ch. Div. 1984)
(holding that there is no requirement to search beyond the previous conveyance in the seller’s
chain of title). Appellant does not challenge this fact or dispute that the April 1987 Deed makes
no reference to the February 1987 deed, and Appellant identifies nothing else in this chain of title
that would put a purchaser on notice of the existence of the February 1987 Deed. See Friendship
Manor, Inc. v. Greiman, 581 A.2d 893, 895 (N.J. Super. Ct. App. Div. 1990) (finding no
requirement to search for instruments which came before the conveyance to seller as long as
nothing exists in that deed to put prospective purchaser on notice to conduct further inquiry); cf.
Island Venture Associates v. New Jersey Dep’t of Envtl. Prot., 846 A.2d at 1229-30 (holding it
proper to rely on face of master deed that referenced only some restrictive covenants imposed by
neighboring property where nothing indicated existence of other covenants). Indeed, Appellant’s
sole argument is that the Trustee’s strong-arm powers are inapplicable because a sixty-year title
search would have revealed Appellant’s interest. However, as the above case law make clear,
there is no sixty-year requirement, and, like the Bankruptcy Court below, I am satisfied that a
reasonable search of Debtor’s chain of title would not have revealed Appellant’s interest in the
Property. See Security Pac. Fin. Corp., supra. Accordingly, I affirm the Bankruptcy Court’s
conclusion that the Trustee could avoid Appellant’s interest in the Property by operation of §
Turning to Appellant’s final argument regarding the Trustee’s strong-arm power, Appellant
contends that, even if Trustee has a legal interest in the Property superior to Appellant’s, Appellant
nevertheless has an equitable interest that falls beyond the Trustee’s strong-arm avoidance powers.
Appellant Br., 17-18. Even assuming, arguendo, that Appellant has an equitable interest in the
Property under New Jersey law, such an interest is avoided by the Trustee’s strong-arm powers
under § 544(a)(3), which provides that the interests of a trustee, as a hypothetical bona fide
purchaser, prevail over the equitable interests of other parties. In re Bridge, 18 F.3d at 204; see
also In re Day, 443 B.R. 338, 349 (Bankr. D.N.J. 2011) (“The trumping position given to bona
fide purchasers over preexisting equitable interest holders in real property is historic.” (Emphasis
added.)); In re Peebles, 197 B.R. 799, 801 (Bankr. W.D. Pa. 1996) (“[E]quitable principles are not
applicable against a bona fide purchaser . . . .”). 11 Thus, the Bankruptcy Court did not err in finding
that the Trustee could avoid any equitable interest in the property held by Appellant.
B. Appellant’s Cross-Motion for Summary Judgment
Appellant additionally argues that the Bankruptcy Court erred by denying her cross-motion
for summary judgment as to the Trustee and the Third Party Defendants. With respect to the
Trustee, my decision to affirm the Bankruptcy Court’s grant of summary judgment in the Trustee’s
favor necessarily entails affirming the denial of Appellant’s cross-motion against the Trustee.
With respect to Appellant’s cross-motion against the Third Party Defendants—in which Appellant
contended that the Third Party Defendants did not hold any interest on her one-half interest in the
Property because Appellant was not a signatory to those mortgages—the Bankruptcy Court
In support, Appellant cites several cases which involve using strong-arm clause to protect
unsecured creditors against unrecorded or unperfected interests and secret liens. See Matter of
McElwaney, 40 B.R. 66, 70 (Bankr. M.D. Ga. 1984); In re Cohoes Indus. Terminal, Inc., 70 B.R.
214 (S.D. N.Y. 1986), aff’d 831 F.2d 283 (2d Cir. 1987); In re Granada, Inc., 92 B.R. 501 (Bankr.
D. Utah 1988) (arguing that the strong-arm clause is meant to prevent fraud on the part of debtors).
I note that none of these cases are binding on this Court and, in any event, are not persuasive in
light of the above cited case law.
declined to entertain Appellant’s arguments on procedural grounds. Specifically, the Bankruptcy
Court determined that Appellant’s motion as to the Third Party Defendants violated the local
bankruptcy rules because the scope of demanded relief exceeded the scope of relief demanded in
the original summary judgment motion.
Appellant does not challenge this procedural
determination, but rather contends that the Bankruptcy Court should have ruled in Appellant’s
favor on the issue of the mortgages for the same reason that the Bankruptcy Court should have
found that the Trustee could not have avoided Appellant’s one-half interest in the Property. Again,
I have already determined that the Bankruptcy Court correctly concluded that the Trustee could
avoid any interest Appellant may have had in the Property, and thus Appellant’s cross-motion is
moot. Moreover, even if Appellant has a viable additional argument against the Third Party
Defendants—which is not apparent in this appeal—the Bankruptcy Court did not abuse its
discretion in declining to entertain this aspect of Appellant’s cross-motion.
In the District of New Jersey, a party may file a cross motion against an original movant
only so long as that cross motion relates to the subject matter of the original motion. See D.N.J.
L.Civ.R. 7.1(h) (which is incorporated into adversarial bankruptcy proceedings by D.N.J. LBR.
1001-1) 12; see also D.N.J. LBR. 9013-1(d)(1) (“No motion shall be designated as a cross motion
unless it is related to the original motion.”). The Trustee’s original summary judgment motion
sought a declaration that he had sole ownership of the Property and that if not, any interest the
Appellant may have had be avoided pursuant to the Trustee’s “strong-arm” powers—i.e., the
motion pertained only to determining the interests between Appellant and the Trustee/Debtor.
L. Civ. R. 7.1(h) specifically provides: “A cross-motion related to the subject matter of the
original motion may be filed by the party opposing the motion together with that party’s opposition
papers and may be noticed for disposition on the same day as the original motion, as long as the
opposition papers are timely filed.” (Emphasis added.)
Thus, the portion of Appellant’s cross-motion seeking a determination of her interest vis-à-vis the
Third Party Defendants is outside the scope of the Trustee’s motion, and thus not permitted under
The Bankruptcy Court’s decision to deny this aspect of Appellant’s motion on
procedural grounds was not an abuse of discretion. See In re Beers, 2011 WL 1627046 at *2
(D.N.J. Apr. 28, 2011); In re Corio, 2009 WL 78157 at*3 (D.N.J. Jan. 9, 2009), aff’d, 371 F. App’x
352 (3d Cir. 2010). Accordingly, I affirm the Bankruptcy Court’s decision to deny Appellant’s
cross-motion for summary judgment.
For the foregoing reasons, the Bankruptcy Court’s decisions to grant summary judgment in
favor of the Trustee, and to deny Appellant’s cross-motion for summary judgment, are affirmed.
An appropriate order shall follow.
Date: July 16, 2014
/s/ Freda L. Wolfson
Freda L. Wolfson, U.S.D.J.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?