BFP v. Resolution Trust Corporation

RESPONDENT:Resolution Trust Corporation, As Receiver Of Imperial Federal Savings Association, et al.
LOCATION:C & A Carbone Inc.

DOCKET NO.: 92-1370
DECIDED BY: Rehnquist Court (1993-1994)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 511 US 531 (1994)
ARGUED: Dec 07, 1993
DECIDED: May 23, 1994

Michael R. Sment – on behalf of the Respondents Paul Osborne, et al
Ronald J. Mann – on behalf of the Federal Respondent
Roy B. Woolsey – on behalf of the Petitioner

Facts of the case

BFP, a partnership formed by two private investors, bought a home in Newport Beach, CA in 1987. BFP secured the property by obtaining a deed of trust from Imperial Savings Association (Imperial). Imperial owned the property until BFP could pay off the amount borrowed. BFP defaulted on loan repayment and Imperial proceeded to sell the property for $433,000 to settle the loan (foreclosure). Before the title of ownership transferred to the buyer, BFP filed for bankruptcy under Chapter 11 of the Bankruptcy Code. BFP asked bankruptcy court to nullify the original foreclosure sale because the home was valued at over $725,000. BFP argued that the low sales price constituted a fraudulent transfer under 11 U.S.C. Section 548(a)(2)(A), which guarantees that debtors receive “reasonably equivalent value” for property foreclosed. BFP claimed “reasonably equivalent value” was equal to the market value of the property in question. The bankruptcy court denied BFP’s claim, and a District Court and the U.S. Court of Appeals for the Ninth Circuit affirmed.


Does a property’s fair market value determine whether the amount of debt settled by a foreclosure sale is “reasonably equivalent” to the property’s worth, as required by U.S.C. Section 548(a)(2)(A)?

Media for BFP v. Resolution Trust Corporation

Audio Transcription for Oral Argument – December 07, 1993 in BFP v. Resolution Trust Corporation

Audio Transcription for Opinion Announcement – May 23, 1994 in BFP v. Resolution Trust Corporation

Harry A. Blackmun:

Justice Scalia has an opinion to announce.

Antonin Scalia:

I have the opinion to announce for the Court in No. 92-1370, BFP versus Resolution Trust Corporation.

This case comes to us on certiorari from the United States Court of Appeals for the Ninth Circuit.

Petitioner, BFP, a California Partnership, took title to a house in Newport Beach subject to a purchase money mortgage held by Imperial Savings Association, a savings and loan.

Payments due on the mortgage loan were not made and Imperial commenced foreclosure proceedings.

Respondent, Paul Osboren, purchased the home in those proceedings for $433,000 at a properly noticed foreclosure sale.

BFP, the previous owner of the property, soon petitioned for bankruptcy and, acting as a debtor in possession, filed a complaint to set aside the sale to Osborne as a fraudulent transfer.

BFP alleged that the home was worth over $725,000 when sold and thus, was not exchanged for a “reasonably equivalent value” as required by a provision of the Federal Bankruptcy Code appearing in Title 11 U.S.C. Section 548(a)(2).

During the course of the proceedings, Imperial, by then insolvent itself, went into receivership and its receiver, the Resolution Trust Corporation, was substituted as a party.

So, we have here essentially one bankrupt suing another.

The Bankruptcy Court granted summary judgment against BFP and dismissed the complaint.

The District Court affirmed the dismissal and the Ninth Circuit’s bankruptcy appellate panel affirmed the judgment holding that absent collusion among parties, the consideration received in a regularly conducted non-judicial foreclosure sale establishes reasonably equivalent value as a matter of law.

The Ninth Circuit affirmed as, in an opinion filed with the Clerk today, do we.

We hold that a reasonably equivalent value for foreclosed real property is the price in fact received at the foreclosure sale, so long as the sale is non-collusive in all the requirements of the state’s foreclosure law have been complied with.

Contrary to the positions taken by some Courts of Appeals, fair market value is not necessarily the benchmark against which the determination of reasonably equivalent value is to be measured.

It maybe presumed that Congress acted intentionally when it used the term fair market value else where in the Bankruptcy Code but not in Section 548, particularly when the omission entails replacing standard legal terminology fair market value with a neologism like reasonable equivalent value.

Moreover, fair market value presumes market conditions such as a willing buyer and time to advertise that, by definition, do not exist in the forced sale context.

Property that must be sold within the time and manner strictures of state-prescribed foreclosure is simply worth less than property that can be sold on the open market without such restrictions.

Reasonably equivalent value also cannot be read to mean a reasonable or fair forced sale price such as a percentage of fair market value.

To specify a federal minimum sale price, beyond what state foreclosure law requires, would extend bankruptcy law well beyond the traditional field of fraudulent transfers and upset the coexistence that fraudulent transfer law and foreclosure law have enjoyed for over 400 years.

It is true that under the law of fraudulent transfers, a grossly inadequate price raises a rebuttable presumption of actual fraudulent intent, but it is black letter foreclosure law that when a state’s procedures are followed, the mere inadequacy of a foreclosure sale price is no basis for setting aside the sale.

Absent clear or textual guidance than the phrase “reasonably equivalent value”, a phrase entirely compatible with preexisting practice, we will not presume that Congress intended to displace traditional state regulation with an interpretation that would profoundly affect the state’s essential sovereign interest in the security and stability of title to land.

Justice Souter has filed a dissenting opinion which is joined by Justices Blackmun, Stevens, and Ginsburg.