Montoya v. Tobey

1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	ROBERT EWBANK, 	No. 7-05-18309 MA
Debtor.
______________________________________________________________________________
PHILIP J. MONTOYA, Trustee,
Plaintiff,
v. 	Adversary No. 06-1076 M
CHERYL TOBEY,
Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
THIS MATTER is before the Court on the Chapter 7 Trustee’s Complaint to Recover
Fraudulent Transfer, to Determine the Extent, Priority and Validity of Interest in Property of the
Estate and to Sell Estate’s Interest and Interest of Co-Owner in Real Property (“Complaint”).
The Court held a trial on the merits of this adversary proceeding on December 18, 2006 and took
the matter under advisement. At issue is a parcel of real property (“Property”) that the Debtor
transferred to the Defendant prior to the filing of the Debtor’s bankruptcy petition. The
Complaint contains three counts: 1) to avoid and recover the transfer of the Property as a
fraudulent transfer under 11 U.S.C. § 544 and N.M.S.A. 1978 §§ 56-10-14 to 25 (Repl. Pamp.
1996); 2) to determine the validity, extent, and priority of the Defendant’s interest the Property;
and 3) to sell the Property in which the Defendant has an interest under 11 U.S.C. § 363(h).
Alternatively, Plaintiff seeks a money judgment in an amount equal to the estate’s interest in the
Property.
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 1 of 10

2
After consideration of the evidence and the applicable case law, the Court finds that the
Property is not recoverable as a fraudulent transfer, that Defendant has both legal and equitable
interest in the Property as a joint owner, and that the Chapter 7 Trustee’s interest in the Property
is $7,631.00. 	In reaching this determination, the Court enters the following findings of fact
and conclusions of law.
FINDINGS OF FACT
1. Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on
September 27, 2005.
2. In October of 1996, Debtor and his wife, Pauline Ewbank, purchased the Property
located at 4609 Taylor Ridge Road, Albuquerque New Mexico, and received a warranty deed for
the Property from the seller. (Defendant’s Exhibit A).
3. Defendant, who is the Debtor’s daughter, provided the downpayment of $1,000.00 for
the purchase of the Property. (Defendant’s Exhibit B).
4. In November of 1996, Debtor and Pauline Ewbank transferred the Property by
quitclaim deed to themselves and Defendant as joint tenants (“1996 Quitclaim Deed”).
(Trustee’s Exhibit 1).
5. In February of 1999, the Debtor, Pauline Ewbank, and the Defendant transferred the
Property by warranty deed dated February 4, 1999 to the Debtor and Pauline Ewbank as joint
tenants. (Defendant’s Exhibit C). The purpose of this transfer was to enable the Debtor and
Pauline Ewbank to refinance the Property and obtain a new note and mortgage. (Defendant’s
Exhibit D and E). Only the Debtor and Pauline Ewbank are borrowers under the note.
6. Immediately after the refinance, Debtor and Pauline Ewbank transferred the Property
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 2 of 10

3
by warranty deed dated February 4, 1999 to themselves and Defendant as joint tenants (“1999
Warranty Deed”). (Defendant’s Exhibit F).
7. The 1999 Warranty Deed was recorded in the Office of the County Clerk of Bernalillo
County, New Mexico on March 17, 1999.
8. The current market value of the Property is $209,300.00.
9. The outstanding balance of the note and mortgage on the Property as of the petition
date is $117,294.00.
10. The Chapter 7 Trustee testified that the estimated costs to sell the Property consist of
2% closing costs and 6% commission. The Chapter 7 Trustee’s testimony is the only evidence
before the Court of the costs of sale.
11. Debtor claimed a homestead exemption in the Property in the amount of $30,000.00
on Amended Schedule C pursuant to N.M.S.A. 1978 § 42-10-9 (Michie 2003). 	No objections to
the Debtor’s homestead exemption have been filed.
12. The Debtor is eighty-seven years old.
13. Defendant has lived in the Property since it was purchased in 1996. She regularly
contributed approximately $360.00 per month in cash to the Defendant.
14. The tax bill for the Property from 2005 lists only the Debtor and Pauline Ewbank as
owners.
15. Pauline Ewbank is now deceased.
DISCUSSION AND CONCLUSIONS OF LAW
A. 	Fraudulent transfer
Plaintiff seeks to avoid the 1996 Quitclaim Deed and the 1999 Warranty Deed as a fraudulent
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 3 of 10

4
transfer under the New Mexico Uniform Fraudulent Transfer Act (“NMUFTA”), N.M.S.A. 1978
§ 56-10-14 to 25 (Repl. Pamp. 1996). A bankruptcy trustee’s “power to avoid a transfer under
state fraudulent transfer law is derived from ‘stepping into the shoes’ of an actual creditor who
has standing to avoid the transfer under the applicable state law.” In re Sheffield Steel Corp.,
320 B.R. 423, 446-47 n.14 (Bankr.N.D.Okla. 2004). See also, 11 U.S.C. § 544(b) (“the trustee
may avoid any transfer of an interest of the debtor in property . . . that is voidable under
applicable law . . . ”). 	Under the NNMUFTA, the maximum statute of limitations is four
years, or, if later, within one year after the transfer could reasonably have been discovered.
N.M.S.A. 1978 § 56-10-23(A) (Rep. Pamp. 1996) (“A cause of action with respect to a
fraudulent transfer . . . under the Uniform Fraudulent Transfer Act [56-10-14 to 56-10-25 NMSA
1978] is extinguished unless action is brought . . . . within four years after the transfer was made
. . . or, if later, within one year after the transfer . . . could reasonably have been discovered by
the claimant.”). 	Both the transfers represented by the 1996 Quitclaim Deed and the 1999
Warranty Deed occurred more than six years before the filing of the Debtor’s bankruptcy
petition in 2005. Upon recordation, the deeds became part of the public record, and, therefore,
could reasonably have been discovered by searching the Bernalillo county real property records.
Cf. In re Jones, 184 B.R. 377, 384-85 (Bankr.D.N.M. 1995) (noting that the purpose of requiring
perfection of a transfer of an interest in real property by recordation is “to prevent a fraudulent
transfer from becoming impregnable to attack by keeping it secret until the limitation period has
lapsed.”)(citation omitted). Thus, the four-year statute of limitations under the NMUFTA
expired well before the Debtor filed his bankruptcy petition. The Plaintiff’s action based on the
NMUFTA fails regardless of whether reasonably equivalent value was given because the action
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 4 of 10

5
is time-barred. See First Southwestern Fin. Services v. Pulliam, 121 N.M. 436, 912 P.2d 828
(Ct.App. 1996) (applying four-year statute of limitations under NMUFTA to bar claim).
B. Estate’s interest in the Property.
Plaintiff contends that the 1996 Quitclaim Deed and the 1999 Warranty Deed conveyed
only legal title to Defendant, and that the Debtor retained all equitable interest in the Property,
and requests the Court to conclude that Defendant held the Property in a resulting or constructive
trust. 	The evidence before the Court belies this interpretation of the transfers. Defendant has
continuously lived in the Property since it was initially purchased in 1996. 	She furnished the
downpayment for its purchase. While she is not named in the note or the mortgage on the
Property, the 1996 Quitclaim Deed and the 1999 Warranty Deed conveyed the Property to her as
a joint tenant. 	Whether this was done for estate planning purposes, or as a gift from the Debtor
and his wife Pauline Ewbank to their daughter, the fact that Defendant has continuously lived in
the Property since it was initially purchased in 1996 and holds legal title to the Property is
sufficient for the Court to conclude that Defendant holds both a legal and an equitable interest in
the Property. 	Cf. Jones, 184 B.R. at 382 and 385 (noting that the proponent of a resulting trust
“must prove the absence of an intent for the transferee to have a beneficial interest in the
property” (citation omitted) and finding that the evidence did not support a finding that the
debtors’ transfer of real property by quitclaim deed to their children divested the debtors of their
equitable interest in the property because the debtors continued to use the property in the same
way following the transfer); In re Taylor, 133 F.3d 1336, 1341 and 1342 (10th Cir. 1998)
(considering Utah law, and noting that “[w]here a transfer of property is made to one person and
the purchase price is paid by another and the transferee is a . . . child or other natural object of
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 5 of 10

6
bounty of the person by whom the purchase price is paid, a resulting trust does not arise unless
the latter manifests an intention that the transferee should not have the beneficial interest in the
property” and concluding that the husband who transferred his interest in real property to his
spouse “manifested no intent that his wife not have the legal and equitable title to the
home.”)(emphasis in original) quoting Restatement (Second) of Trusts, § 442 (1959). Here, there
is no indication that the Debtor did not intend for Defendant to have both a legal and an equitable
interest in the Property. Cf. In re Valente, 360 F.3d 256, 263 (1st Cir. 2004) (applying Rhode
Island law and imposing resulting trust where debtor transferred legal title to his son shortly
before filing bankruptcy, but with the understanding that the debtor would continue to live in the
property and treat it as his own). Nor does it appear from the evidence that Defendant would be
unjustly enriched by her one-half interest in the Property; the imposition of a constructive trust
is, therefore, not warranted. Taylor, 133 F.3d at 1342 (“‘A constructive trust is imposed not
because of the intention of the parties but because the person holding title to property would
profit by a wrong or would be unjustly enriched if [s]he were permitted to keep the property.’”)
quoting Restatement (Second) of Trusts § 326 (1959).
Having determined that Defendant enjoys both a legal and equitable interest in the
Property, the Court will next determine the extent of the estate’s interest in the Property. 	Each
joint tenant enjoys an undivided interest in an equal fraction of the whole. Black’s Law
Dictionary 1477 (7th ed. 1999) (“‘each undivided interest [of a joint tenant] must be an equal
fraction of the whole – e.g., a one-third undivided interest to each of three joint tenants.’”)
quoting Thomas F. Bergin & Paul G. Haskell, Preface to Estates in Land and Future Interests 55
(2d ed. 1984). 	As joint tenants, Defendant and the Debtor (whose interest in the Property is
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 6 of 10

7
part of the bankruptcy estate under 11 U.S.C. § 541) are each entitled to an undivided one-half
interest in the Property. 	The parties agree that the current market value of the Property is
$209,300.00, and that the outstanding balance of the mortgage on the Property as of the petition
date is $117, 294.00. 	As determined above, the Court finds that the anticipated costs of sale
total $16,744.00 (including realtor’s commission and trustee’s commission).
In determining the estate’s interest in the Property, Plaintiff contends that only one
homestead exemption can be claimed in the Property, such that the computation of the Trustee’s
interest is as follows:
Sales price: 	$209,300.00
Less costs of sale: 	$ 16,744.00
= 	$192,556.00
Less outstanding
Mortgage balance: 	$117,294.00
= 	$ 75,262.00
Less Debtor’s
Homestead exemption:$ 30,000.00
= 	$ 45,262.00
Trustee’s ½
Interest 	= 	$ 22,631.00
In urging this method of calculating the estate’s interest, Plaintiff relies on In re Lambert, 34
B.R. 41 (Bankr.D.Colo.1983), a case which hinged upon the bankruptcy court’s determination
that the filing of the bankruptcy severed the joint tenancy, and that under Colorado law, only one
homestead exemption may be claimed in a property. 	The Lambert court applied the homestead
exemption before dividing the ownership interests because application of the homestead
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 7 of 10

8
exemption after dividing the interest would give the debtor who held only a one-half interest in
the property the full benefit of the exemption which, under Colorado law, applies to the property
as a whole. Id. at 43-44.
Lambert is easily distinguished, since New Mexico law clearly provides that “[i]f the
homestead is owned jointly by two persons, each joint owner is entitled to an exemption of thirty
thousand dollars.” N.M.S.A. 1978 § 42-10-9 (Michie 2003). In this case, although the joint
tenancy among the Debtor, Pauline Ewbank and the Defendant may have been severed upon the
death of Pauline Ewbank, the New Mexico homestead exemption statute applies to “homesteads
owned jointly by two persons.” N.M.S.A. 1978 § 42-10-9 (Michie 2003). See Romero v.
Melendez, 83 N.M. 776, 778, 498 P.2d 305, 307 (1972) (noting that “‘[a] joint tenancy will be
severed by the destruction of any one or more of its necessary units” i.e., the unity of interest,
title, time and possession) quoting Carson v. Ellis, 186 Kan. 112, 348 P.2d 807 (1960). 	It
therefore applies whether the Property is owned as joint tenants or as tenants in common. 	See
Swink v. Fingado, 115 N.M. 275, 850 P.2d 978 (1993) (discussing the different forms of joint
ownership of property, either as joint tenants or tenants in common, withing the context of
community property interests of husband and wife); Burlingham v. Burlingham, 72 N.M. 433,
446, 384 P.2d 699, 708 (1963) (Moise, J., dissenting) (“‘Joint ownership’ does not necessarily
mean ‘joint tenancy.’ Each of the mentioned estates creates a form of joint ownership.”)(citation
omitted). Defendant’s joint-ownership interest in the Property in which she resides is a
sufficient property interest in which she may claim a homestead exemption. 	The Court,
therefore, finds that it is not appropriate to deduct the Debtor’s homestead exemption from the
equity in the property prior to determining the estate’s interest in the Property. Rather, the one-
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 8 of 10

1That section provides, in relevant part:
the trustee may sell both the estate’s interest, under subsection (b) or ©) of this
section, and the interest of any co-owner in property in which the debtor had, at the time of the
commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant
by the entirety, only if--
(1) partition in kind of such property among the estate and such co-owners
is impracticable;
(2) sale of the estate’s undivided interest in such property would realize
significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests
of co-owners outweighs the detriment, if any to such co-owners; and
(4) such property is not used in the production, transmission, or
distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
11 U.S.C. § 363(h).
9
half interest in the Property should be determined prior to the application of any homestead
exemption the owners in the Property may claim.
The equity in the Property after deducting the costs of sale and paying off the outstanding
mortgage balance is $75,262.00. Thus, the Plaintiff’s interest in the Property is $37,631.00.
From this amount, the Debtor is entitled to deduct his homestead exemption of $30,000.00,
leaving the Plaintiff with an interest in the Property equal to $7,631.00. Although the Complaint
included a request to sell the Property under 11 U.S.C. § 362(h) 1
, Plaintiff does not now urge the
Court to order the sale of the Property, and, in any event, insufficient evidence was presented at
trial for the Court to consider and make a determination as to all of the necessary elements under
that section. 	The Court, will, therefore, limit its conclusion to a determination of the amount of
the estate’s interest in the Property and provide the Defendant with an opportunity to pay the
Plaintiff a sum equal to the estate’s interest in the Property. If the estate has not received such
payment in sixty days, the Plaintiff can request a further hearing.
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 9 of 10

10
These findings of fact and conclusions of law are entered pursuant to Rule 7052,
Fed.R.Bankr.P.
_________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
COPY TO:
Bonnie Gandarilla
Attorney for Plaintiff
PO Box 216
Albuquerque, NM 87103-0216
Ella J. Fenoglio
Attorney for Defendant
4427 Avenida Del Sol NE
Albuquerque, NM 87110-6178
Case 06-01076-m Doc 24 Filed 01/25/07 Entered 01/25/07 10:31:06 Page 10 of 10