Matter of Tippett

Craig and Christine Tippett (debtors) filed for Chapter 7 bankruptcy. Upon the filing of the Tippetts’ bankruptcy petition, the Tippetts’ property, including their residence, became the property of the bankruptcy estate. However, nobody recorded the Tippetts’ bankruptcy petition or gave other notice of the bankruptcy to the county recorder’s office. Over a year after filing for bankruptcy, the Tippetts listed the residence for sale through a real estate broker without the trustee’s authorization and without disclosing the bankruptcy. Seitu Coleman eventually purchased the residence for $225,000. Coleman was a bona fide purchaser with no notice of the bankruptcy proceedings. Coleman signed purchase-money notes in favor of two separate lenders, secured by duly recorded deeds of trust on the residence. Under California’s recording statute, an unrecorded conveyance of property is void as to a subsequent bona fide purchaser who duly records his purchase first. The trustee subsequently brought an adversary proceeding against the Tippetts, Coleman, and Coleman’s lenders to recover the sale proceeds received by the Tippetts, avoid the lenders’ liens on the residence, and quiet title. The bankruptcy court concluded that the deed for the residence and the lenders’ liens were void because they violated 11 U.S.C. § 362(a)’s automatic stay of any acts to exercise control over the property of the bankruptcy estate. The bankruptcy appellate panel (BAP) reversed, holding that the Tippetts’ transfer of the residence to Coleman had not violated the automatic stay and thus was not void. The BAP further noted that although trustees may avoid debtors’ unauthorized transfers under 11 U.S.C. § 549(a), that section was inapplicable in the Tippetts’ case because Coleman was a bona fide purchaser. The trustee appealed to the Ninth Circuit, arguing that the Bankruptcy Code preempted California’s recording statute in this context and that the bankruptcy court had correctly concluded that the automatic stay rendered void the Tippetts’ deed to Coleman.