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Home / Case News / Georgia Bankruptcy Court Allows Trustee To Seek Disallowance of a Claim Even After the 11 U.S.C.S. § 546(a) Two-Year Limit Passed

Georgia Bankruptcy Court Allows Trustee To Seek Disallowance of a Claim Even After the 11 U.S.C.S. § 546(a) Two-Year Limit Passed

March 8, 2019, GeorgiaDebtor Mathew David Miller acquired a residential real property (“Property”) in Georgia in 2005. Two years later, on January 31, 2007, the Debtor borrowed funds from ABN AMRO Mortgage Group, Inc. (“ABN”) in the amounts of $168,000 (Note 1) and $26,000 (Note 2), and granted two security deeds in favor of ABN. ABN recorded the security deed associated with Note 1 and Note 2 in Fulton County, Georgia (SD1)&(SD2).

SD1 was assigned several times – first, it was assigned to Ditech and then subsequently to Defendants New Penn and then to the U.S. Bank. All the three assignments were recorded in the real property records of Fulton County, Georgia; they were never filed and recorded in Cobb County, Georgia, where the Property is located. SD2 was assigned to another Defendant Webster, and the assignment was also filed and recorded in the Fulton County, Georgia. Defendant CitiMortgage, as successor, to ABN later rerecorded SD2 in Cobb County, Georgia and assigned rerecorded SD2 to Webster.

On October 31, 2015, the Debtor filed a petition under Chapter 13 of the Bankruptcy Code, and the Defendants filed claims asserting that their claims were secured by the Property. The Trustee filed its complaint seeking a determination that the Debtor’s bankruptcy estate held the Property free and clear of the interests asserted in SD1, SD2, and subsequent assignments.

The Trustee filed a motion and sought to amend the complaint to add another count III to object to certain claims as secured claims and declare them general, non-priority, unsecured claims. The Defendants opposed the motion arguing that the amendment was futile based on section 546(a), which provides that the statute of limitations for actions under section 544 is two years after the bankruptcy court enters an order for relief. The Defendant alleged that time to file a lawsuit under 11 U.S.C.S. § 544 was till October 31, 2017. However, the trustee filed the complaint more than nine months later, i.e., on August 15, 2018.

The Court found that the Trustee can nevertheless assert her bona fide purchaser for value (“BFP”) status defensively and object to the claims, either in total according to section 502(d) or as to the secured status under section 506, both without regard to section 546. Section 544 (a) confers upon the Trustee the rights and powers available to a BFP under state law, which she may exercise to the same extent they were available under state law. The Court added that the Trustee did not seek to avoid the liens in question in count III affirmatively, the Trustee did not request an affirmative judgment and recovery; instead, she sought to object to the secured status of the claims or the claims in total. The Court held that the apparent weight of authority permitted the Trustee to seek disallowance of a claim after the section 546(a) two-year limit passes.

The Court determined that it should freely give leave to amend when justice so requires. In the case at bar, the Court found that since count III related to the facts central to the adversary proceeding, it was appropriate to litigate the claim in this adversary proceeding. The Court granted the Trustee’s motion to amend the complaint.