Paul D. Turner

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/11/06
Paul D. Turner
04-13401
Memorandum Opinion re: [12-1] Motion For Relief From Stay and For Abandonment o
Secured real property by Lisa L. Rigg, C. Duane Rigg .
Received on: 2004-09-16 10:08:20.000
2004-09-16 00:00:00.000
2004-09-17 00:00:00.000
Patti Hennessy
Case 04-13401-m13 Doc 31 Filed 09/16/04 Entered 09/17/04 10:26:00 Page 1 of 9

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: PAUL TURNER, Case No. 13-04-13401 ML
Debtor.
MEMORANDUM
THIS MATTER is before the Court on the Motion for Relief from Automatic Stay and for
Abandonment of Secured Property (“Motion”) filed by C. Duane Rigg and Lisa L. Rigg (together,
“Riggs”), by and through their attorney of record, William Perkins. The Riggs are sellers and the
Debtor is purchaser under a real estate contract for certain non-residential property located in Silver
City, New Mexico (“Property”). The Motion seeks a determination that the Property is not subject to
the automatic stay, or, alternatively, that the stay should be modified to allow the Riggs to pursue an
action for Forcible Entry and Unlawful Detainer against the Debtor to remove him from the Property.
Debtor objected to the Motion, asserting that the Property is necessary to an effective reorganization,
and that the stay should not be lifted until resolution of the Debtor’s action against the Riggs pursuant to
11 U.S.C. § 548. The Court heard oral argument on the Motion on September 7, 2004, and the Court
took the matter under advisement. For the reasons stated below, the Court finds that the Motion
should be denied, conditioned upon the Debtor making monthly payments to the Riggs in the amount of
$1,672.39.
FACTS AND PROCEDURAL HISTORY
The following facts relevant to this Motion are not in dispute. Debtor, as purchaser, and the
Riggs, as sellers, entered into a real estate contract for the Property in January of 2000. The Property
is non-residential property. The total purchase price for the Property as listed in the real estate contract
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1The first monthly payment was due January 18, 2000.
2
is $200,000.00. Under the terms of the real estate contract, Debtor is required to pay a down payment
of $25,000.00, with $1,500.00 paid at closing and the remainder paid over thirty-three months. The
remaining principal balance in the amount of $175,000.00 is payable in monthly installments of
$1,672.39, including eight percent interest per annum, on or before the fifth day of the month1 until
January 5, 2005 when the total remaining balance becomes due and payable. On March 5, 2004, the
Riggs sent Debtor a notice of default under the real estate contract. (See Exhibit 2 to the Motion). On
May 5, 2004, the Riggs executed an Affidavit of Uncured Default and Election of Termination. (See
Exhibit 3 to the Motion). On the same day, a Special Warranty Deed conveying the Property from the
Debtor to the Riggs was recorded in the real property records of the county clerk of Grant County,
New Mexico in book 264, page 8837. (See Exhibit 3 to the Motion). The real estate contract
provides that:
Upon termination, Purchaser has no continuing right to possession. If Purchaser remains in
possession of the Property after this Contract has been terminated as above provided,
Purchaser shall then become a tenant at will, for a rental amount equivalent to the installment
payment theretofore required as monthly payments under this Contract . . . such tenancy being
subject to termination by either party upon thirty (30) days separate prior written notice.
Debtor filed his voluntary petition under Chapter 13 of the Bankruptcy Code on May 6, 2004, and
remains in possession of the Property. On September 2, 2004, Debtor filed an adversary proceeding
against the Riggs seeking to avoid the recorded Special Warranty Deed as a fraudulent transfer
pursuant to 11 U.S.C. § 548(a)(1).
DISCUSSION
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The Riggs first assert that the Property is not affected by the automatic stay in accordance with
11 U.S.C. § 362(b)(10). That section provides that the automatic stay does not apply to
any act by a lessor to the debtor under a lease of non-residential property that has terminated
by the expiration of the stated term of the lease before the commencement of or during a case
under this title to obtain possession of such property.
11 U.S.C. § 362(b)(10).
Debtor disputes that he has become a tenant at will under the terms of the real estate contract, and that
the Riggs have terminated the at-will rental arrangement, effective July 5, 2004. (See Debtor’s
Objection to Motion for Relief from Stay, ¶ 4). Assuming, arguendo, that the effect of the recorded
Special Warranty Deed was to create a tenancy at will under the terms of the real estate contract, the
Riggs did not attempt to terminate the tenancy at will until after Debtor filed his voluntary bankruptcy
petition. (See Motion, ¶ 4). Section 362(b)(10) applies post-petition when the term stated in the lease
expires after the commencement of the bankruptcy. In other words, only when the lease expires under
its stated terms is the stay inapplicable. See 3 Collier on Bankruptcy ¶ 362.05[10] (Alan N. Resnick
and Henry J. Sommer, eds., 15th ed. rev. 2004) (“Only when the termination is based on expiration of
the agreed term of the lease may the stay be disregarded.”).
A “tenancy at will” is a continuing agreement with no fixed expiration date. Black’s Law
Dictionary, 1477 (7th ed. 1999) (defining tenancy at will as “[a] tenancy in which the tenant holds
possession with the landlord’s consent but without fixed terms (as for duration or rent). Such a tenancy
may be terminated by either party upon fair notice.”); see also, N.M.S.A. § 47-8-15 (Repl.Pamp.
1995) (providing that “Unless the rental agreement fixes a definite term, the residency is week to week
in the case of a person who pays weekly rent and in all other cases month to month.”); see also, In re
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Scott, 209 B.R. 777, 783 (Bankr.S.D.Ga. 1997) (“A tenancy at will is a continuing agreement with no
expiration date where typically only the statutorily prescribed notice or a failure of the tenant to pay rent
followed by an eviction proceeding can terminate the legal relationship.”) (citation omitted). This
definition is consistent with the language contained in the real estate contract, supra. Thus, because the
real estate contract purporting to create a tenancy at will does not contain a fixed expiration term, 11
U.S.C. § 362(b)(10) does not apply.
Debtor argues that the automatic stay should not be lifted until resolution of the Debtor’s
fraudulent transfer action filed against the Riggs pursuant to 11 U.S.C. § 548. Because a successful
action under 11 U.S.C. § 548 would avoid the Special Warranty Deed and have the practical effect of
reinstating the Debtor’s interest under the real estate contract, whether the Debtor can maintain such an
action will determine whether stay relief should be granted. Two issues are implicated: 1) whether the
Debtor has standing to bring an action under 11 U.S.C. § 548; and 2) whether a special warranty deed
recorded pre-petition upon default under a real estate contract is subject to avoidance as a fraudulent
transfer under 11 U.S.C. § 548.
A. Standing
Section 548 specifically confers upon the trustee the power to avoid certain transfers of a
debtor’s property made within one year of the date of the filing of the petition if the debtor received less
than reasonably equivalent value for the transfer at a time when the debtor was insolvent. 11 U.S.C. §
548(a)(1)(B) (“The trustee may avoid . . . ”) (emphasis added). Because the language in the statute is
clear, courts have held that chapter 13 debtors have no standing to bring fraudulent transfer actions
under 11 U.S.C. § 548, finding that such powers are restricted to trustees. See, e.g., Davis v. Victor
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2Section 522 which defines a debtor's exemptions, also empowers a debtor to avoid certain
liens. See 11 U.S.C. § 522(f) and (h).
5
Warren Properties, Inc. (In re Davis), 216 B.R. 898, 903 (Bankr. N.D.Ga. 1997) (finding that the
language of 11 U.S.C. § 548 is clear and concluding that a Chapter 13 debtor lacks standing to bring a
suit under that section) (citation omitted); LaBarge v. Benda (In re Merrifield), 214 B.R. 362, 365
(8th Cir. B.A.P. 1997) (Section 548 confers avoidance powers exclusively on the trustee). But see,
e.g., Hernandez v. Cantu (In re Hernandez), 150 B.R.29, 30 (Bankr. S.D.Tex. 1993) (finding that
the Chapter 13 debtor has standing under § 548); Robinson v. Taylor (In re Robinson), 80 B.R. 455,
457 (Bankr. N.D.Ill. 1987) (allowing the debtor to bring suit under 11 U.S.C. § 548, alleging lack of
reasonably equivalent value).
In In re Montoya, 285 B.R. 490 (Bankr.D.N.M. 2002), this Court considered whether a
chapter 13 debtor standing to assert an avoidance action under 11 U.S.C. § 548, and determined that,
while a chapter 13 debtor generally does not have standing under 11 U.S.C. § 548, a debtor who
qualifies under the avoidance provisions of 11 U.S.C. § 522(h)2 can nevertheless maintain such an
action provided certain circumstances are present. Id. at 493. Those circumstances are:
1) the debtor's transfer of property was involuntary; 2) the trustee did not attempt to avoid the
transfer; 3) the debtor did not conceal the property; 4) the debtor seeks to exercise an
avoidance power set out in 11 U.S.C. § 522(h); and the transferred property could have been
exempted if the trustee had avoided the transfer under 11 U.S.C. § 522(g).
Id. (citing DeMarah v. United States (In re DeMarah), 62 F.3d 1248, 1250 (9th Cir. 1995)
(establishing five-part test under 11 U.S.C. § 522(h) to determine whether debtor may bring an
avoidance action)).
Debtor appears to satisfy these criteria. The “transfer” consisting of the Riggs’ recording of the Special
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Warranty Deed was involuntary. The Chapter 13 Trustee has not sought to avoid the transfer. Debtor
listed the Property in his statements and schedules, so the Debtor did not conceal the Property.
Section 548 is one of the avoidance powers enumerated under 11 U.S.C. § 522(h). Debtor has
claimed an exemption in the Property on his Schedule C. Thus, Debtor has sufficient standing to bring
an action under 11 U.S.C. § 548.
B. Whether the Special Warranty Deed is Subject to 11 U.S.C. § 548
Debtor’s adversary proceeding filed against the Riggs seeks to avoid the Special Warranty
Deed as a fraudulent transfer under 11 U.S.C. § 548, alleging that the transfer was made for less than
reasonably equivalent value at a time when the Debtor was insolvent. This section requires that there
be a transfer of the debtor’s interest in property. 11 U.S.C. § 548(a)(1). The Riggs point out that the
Special Warranty Deed was recorded pre-petition, terminating the real estate contract and the
Debtor’s interest in the Property before the bankruptcy estate was created. This Court previously
considered whether the pre-petition recording of a special warranty deed following default under a real
estate contract constitutes a “transfer” within the meaning of 11 U.S.C. § 548. See Veretto v. Boone
Trust (In re Veretto), 131 B.R. 732 (Bankr.D.N.M. 1991). In In re Veretto, the creditor asserted
that upon the debtor-purchaser’s default under the real estate contract, the real estate contract was
automatically terminated and the debtor-purchaser’s rights thereunder were extinguished so that the
debtor-purchaser had no interest in property to transfer when the special warranty deed was recorded.
Id. at 736. The Court looked to the broad definition of “transfer” under 11 U.S.C. § 101(50), and
New Mexico law providing that a purchaser under a real estate contract holds a property interest in
land to conclude that “a forfeiture of an equity interest under a real estate contract constitutes a
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transfer.” Id. at 737. Thus Debtor’s adversary proceeding seeking to avoid Special Warranty Deed
recorded upon default under a real estate contract sufficiently states a cause of action under 11 U.S.C.
§ 548. See Dunbar v. Johnson (In re Grady), 202 B.R. 120, 123 (Bankr.N.D.Iowa 1996)
(noting that “forfeiture of a real estate contract can constitute a fraudulent transfer under 11 U.S.C. §
548(a)(2).”).
CONCLUSION
Based on the foregoing, the Court concludes that the Motion should be denied. Termination of
a tenancy at will is not excepted from application of the automatic stay under 11 U.S.C. § 362(b)(10).
Debtor’s pending adversary proceeding is sufficient grounds to withstand the Riggs’ request for relief
from stay for the purpose of initiating an action to remove Debtor from the Property. The automatic
stay shall remain in place, conditioned upon the Debtor making monthly payments in the amount of
$1,672.39 as adequate protection to the Riggs for their interest in the Property. 11 U.S.C. §
362(d)(1). An appropriate Order will be entered in accordance with this Memorandum.
__________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
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I hereby certify that a true and correct copy of the foregoing was either electronically transmitted,
faxed, delivered or mailed to the listed counsel and parties, on the date file stamped above.
Chris W. Pierce
Attorney for Debtor
PO Box 6
Albuquerque, NM 87103
William Perkins
Attorney for C. Duane Rigg and Lisa Rigg
PO Box 1219
Silver City, NM 88062
________________________________
Patti G. Hennessy
Law Clerk
(505) 348-2545
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