In Re Heitkamp
United States Court of Appeals for the Eighth Circuit
137 F.3d 1087 (1998)
- Written by Rose VanHofwegen, JD
Facts
Homebuilders Scott and Darcy Heitkamp (debtors) borrowed $50,000 from Community First National Bank (the bank) secured by a mortgage to build a house. The Heitkamps ran out of money before finishing construction and borrowed another $40,000 from the bank secured by a second mortgage. Instead of giving the Heitkamps the funds, the bank issued cashier’s checks payable to the subcontractors, who gave mechanic’s-lien waivers in exchange for the checks. When the Heitkamps filed for bankruptcy, the house was sold. The bank and several subcontractors asserted rights to the proceeds. The bankruptcy trustee brought an adversary proceeding to avoid the Heitkamps’ transfer of the second-mortgage interest to the bank as a preferential transfer. The bank countered that the earmarking doctrine prevented avoidance of the transfer. The bankruptcy court set aside the transfer, and the district court affirmed. The bank appealed to the Eighth Circuit.
Rule of Law
Issue
Holding and Reasoning (Fagg, J.)
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