June 20, 2019

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (2)

Editor’s note: This is Part 17 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Egelhoff v. Taylor
Colorado Court of Appeals, August 15, 2013
2013 COA 137,
312 P.3d 270

Spurious lien statute; phony lien against judge.

Lest anyone be confused about why the legislature passed the spurious lien statute in 1998, we give you the case of Denver District Judge Egelhoff. In 2008, the judge sentenced Taylor to prison on a felony conviction. After he was sentenced, Taylor began mailing the judge various documents, claiming that Judge Egelhoff was indebted to him. The judge understandably did not respond. Taylor filed suit, claiming that the judge’s failure to respond created liability to Taylor under a terrific doctrine called the “commercial affidavit process.” Robin Hood could not have done better.

Taylor contends that the “commercial affidavit process” permits an individual to send an affidavit to a purported debtor, claiming the recipient owes the sender a debt, and if the recipient does not specifically rebut the alleged debt, he is deemed to have agreed to the debt and its collection by any means. At our social gathering tonight, perhaps someone can advise us from whence this legal doctrine derives. According to Taylor, a recipient’s silence results in a “self-executing contract,” binding the recipient to pay the amount of the alleged debt. Thus, Taylor argues that, because the judge did not respond to his affidavit, his honor “agreed” that the five hundred million dollar debt was valid.

The panel of the court of appeals, seemingly lacking any sense of humor, goes on for several pages as to why this procedure does not form a contract between judge and convict. An opportunity was missed. It is interesting that this case was selected for publication, when many other real estate cases of considerable substance are passed over.

Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Co. (In re Ute Mesa Lot 1, LLC)
United States District Court, District of Colorado, November 25, 2013
No. 12-1134

Bankruptcy; lis pendens; preferential transfer.

Ute Mesa Lot 1, LLC (Ute Mesa) borrowed $12 million from United Western Bank to finance the construction of a home in Aspen. The deed of trust incorrectly named the property’s owner, so the deed of trust was ineffective in giving the Bank a lien on the property. Later, the Bank filed suit to reform the deed of trust and give it a first priority lien on the property. The Bank then recorded a notice of lis pendens with the county real property records. Two months later, Ute Mesa filed for bankruptcy and sought to avoid the lis pendens as a preferential transfer. The bankruptcy court and district court dismissed Ute Mesa’s claim. Ute Mesa appealed, arguing that the lis pendens would prevent a bona fide purchaser from acquiring an interest in the property superior to the Bank’s. Therefore, it was a “transfer of an interest in property” and an avoidable preferential transfer.

The Tenth Circuit holds that a lis pendens is merely a notice and does not constitute a lien, despite the fact that under Colorado law, a lis pendens renders title unmarketable. The lis pendens is not a transfer, so it was not subject to the bankruptcy provision allowing a debtor-in-possession to avoid a transfer of an interest in property that occurs within ninety days before the filing of the bankruptcy petition. The judgment is affirmed.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Tenth Circuit: Filing Lis Pendens Does not Create a Transfer of Interest in Property Under Bankruptcy Code

The Tenth Circuit Court of Appeals published its opinion in Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust on Monday, November 25, 2013.

Ute Mesa is a real estate developer in Colorado. In October 2007, it received a $12 million loan from Defendant-Appellee United Western Bank (“Bank”) to finance the construction of a single family home. First-Citizens Bank & Trust acquired United’s interest in the loan and state court claims. To secure the loan, the Bank prepared a deed of trust incorrectly identifying Ute Mesa’s sole member as the owner rather than Ute Mesa. Because the grantor under the deed of trust was not the owner of the property, the deed of trust was ineffective in giving the Bank a lien on the property.

In May 2010, the Bank filed suit in Colorado state court seeking reformation of the deed of trust and a declaration that it had a first priority lien on the property. Two days later, the Bank filed a notice of lis pendens in the Pitkin County real property records. In August 2010, Ute Mesa petitioned for Chapter 11 bankruptcy relief. Ute Mesa continued as debtor in possession of the property. In April 2011, Ute Mesa filed an adversary proceeding against the Bank seeking to avoid the lis pendens as a preferential transfer. The bankruptcy court granted the Bank’s motion to dismiss, and the federal district court affirmed.

Ute Mesa argued that under 11 U.S.C. § 547(e)(1)(A), a “transfer of an interest in property” occurs when a bona fide purchaser cannot acquire an interest superior to that of a creditor. According to Ute Mesa, because the lis pendens prevents a bona fide purchaser from acquiring an interest in the property superior to the Bank’s interest, the lis pendens qualifies as a transfer of an interest in the property. The Bank argued that the first and only step of the analysis is to determine whether an underlying property interest exists under state law. Because a lis pendens is merely a notice and does not constitute a lien, no transfer occurred. The Tenth Circuit agreed with the Bank and affirmed.