Lance R. Pomerantz
Attorney at Law

Land     Title     Law

“Constructive Notice”  The  Newsletter

Excerpted from the February 6, 2013 mailing of "Constructive Notice":

BigFoot Priority Is A Mirage

The legendary BigFoot is said to be a 10-foot tall, 500-pound, omnivorous creature that roams the Pacific Northwest striking fear into the hearts of all who encounter it. In New York, a Chapter 7 bankruptcy trustee claimed to be the BigFoot of the Bankruptcy Code—a federally created bona fide purchaser that eats even properly perfected security interests.

Stern, Trustee v. American Home Mortgage Servicing, Inc, (In re Asher), Case No. 8-11-78837-reg, Adv. Pro. No. 8-12-08097-reg (Bankr. Ct., E.D.N.Y., January 24, 2013) involved a properly recorded mortgage on a residential parcel. The Trustee asserted that Bankruptcy Code §544(a)(3) rendered him a bona fide purchaser of real property as a matter of federal law “fully preempting all contrary state regulations and common law.” As such, the Trustee believed that this Federal BFP status allowed him to disregard a properly recorded mortgage.

In a detailed opinion, the Court analyzed the text of §544(a)(3), the structure of the Bankruptcy Code, the relationship of other Code sections to this inquiry, broader canons of statutory construction, New York’s recording statute and common law. To the relief of those secured creditors who do everything right in perfecting their priority, the Court rejected the Trustee’s interpretation of the Code.


The term “BigFoot Priority” is a Constructive Notice original, and we sure hope it catches on. But seriously, we are unaware of any other case in which this strategem has been deployed. Let’s hope this case is the first and last word on the matter. Were a court to uphold this approach, it could undermine the core of the U.S. bankruptcy system.