In re Rodriguez

Douglas and Ann Hassell (creditors) owned two real estate lots, one at 151 Sequams Lane West (151 Sequams) and the other at 155 Sequams Lane West (155 Sequams). In August 1997, the Hassells sold 151 Sequams to Mario Rodriguez (debtor) subject to a mortgage held by the Hassells. The mortgage and deed were given to the title insurer for recording with the county, but the title insurer did not record the documents until June 1998. In May 1998, Rodriguez filed for Chapter 11 bankruptcy. Rodriguez’s case subsequently was converted to a Chapter 7 case. In August 1999, the bankruptcy trustee brought an adversary proceeding against the Hassells and others, seeking to avoid the Hassells’ mortgage. The trustee argued that the mortgage was avoidable because he had the status of a bona fide purchaser as of Rodriguez’s bankruptcy petition; as of that date, the trustee maintained, the Hassells’ mortgage was unrecorded, depriving the trustee of notice. The bankruptcy court granted summary judgment to the Hassells, ruling that the trustee could have discovered the mortgage with reasonable inquiry. Additionally, the bankruptcy court reformed the deed and mortgage to correct the facts that although the deed referred to 151 Sequams, the deed and mortgage erroneously described the relevant property by the metes and bounds of 155 Sequams. The trustee appealed the bankruptcy court’s summary-judgment ruling to the district court, arguing that he had no obligation to inquire about a possible unrecorded mortgage because there was no evidence of a possible mortgage and because Rodriguez actually possessed the property. The trustee did not appear to appeal the bankruptcy court’s reformation ruling.