Opinion
NO. 3:06-1105.
September 25, 2007
ORDER
This action is an appeal by Mortgage Lender Network, USA under 11 U.S.C. § 158(a)(1) from the Final Order of the Honorable George Paine, Chief Judge of the Bankruptcy Court. The appeal presents the issue of which date for the financing of real property controls on the "takes effect" clause in 11 U.S.C. § 547(c)(2), the date of the closing of the transaction or the additional three days for the debtor's right of rescission of the transaction.
The Court adopts and incorporates the factual findings and legal authorities cited by Chief Judge Paine. In essence, the transaction documents for the refinancing transaction between Appellant and the debtor had a closing date of March 23, 2005 when the debtor signed the priority deed of trust, the notice of right to cancel and the promissory note. The disbursement date was March 28, 2005. The deed on the debtor's real property was recorded on April 5, 2005 and the payoff of the debtor's prior debt on the real property was calculated as of April 5, 2005. The debtor did not exercise his right of cancellation. On June 6, 2005 the debtor filed his Chapter 7 petition.
Citing his prior decision in Waldschmidt v. Countrywide Home Loans, Adv. Proc. No. 05-0797A, Chief Judge Paine concluded that the three day right of rescission, under the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA") does not impact the calculation of the ten (10) days look back provision in 11 U.S.C. § 547(e)(2) as to when a transaction "takes effect".
Appellant cites Hildebrand v. Resource Bancshares Mortgage Group, 178 B.R. 154 (Bankr. M.D. Tenn. 1995) in which then Bankruptcy Judge Aleta Trauger looked beyond the facts of the transaction and examined the relevant law governing the transaction. Hildebrand also involved a real estate transaction and the creditor asserted that the transaction "took effect" when the loan was funded. The trustee asserted that the transaction "took effect" when the deed of trust unconditionally conveyed to the lender a security interest in the property and when the debtors unconditionally promised to pay money to the lenders pursuant to the note. Judge Trauger relied on Tennessee law that to pass title, a deed must be executed and delivered to the grantee. Hildebrand, 178 B.R. at 159 (citing Brevard v. Neely, 34 Tenn. 164, 169 (1854)). Judge Trauger also cited Estate of Atkinson v. Allied Fence, 746 S.W.2d 709, 712 (Tenn.Ct.App. 1988) stating "delivery must be such as to deprive the grantor of the power to recall the deed." Id. (quoting Estate of Atkinson, 746 S.W.2d at 712). Judge Trauger concluded that the determination of when a transaction "took effect" to trigger the 10 day period for perfection under § 547 is when the deed to real property is delivered.
The Court agrees with Judge Trauger that to decide the § 547 issue requires a review of the facts of the transaction and the governing law of that transaction as to when a transaction "takes effect" under § 547(c)(2). The Court concludes that here the transaction between the debtor and MLN did not take effect until the debtor no longer possessed the legal right to cancel the transaction. During the three day right to rescind, the debtor could render the prior agreements a nullity. Thus, as a matter of law, parties' agreements could not "take effect" until after the expiration of the three day cancellation period under TILA.
Accordingly, the Order of the Bankruptcy Judge is SET ASIDE and this action is REMANDED to the Bankruptcy Court for further proceedings consistent with this Order.
It is so ORDERED.