Memorandum of Decision Re: Postpetition Transfer

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re RICK and DEBORAH WILLHITE,                                       No. 1-87-00959      Debtors. ___________________________/ ROBERT M. DAMIR, Trustee,      Plaintiff,    v.                                                                                          A.P. No. 1-90-0045 KENNETH O'CONNOR, et al.,      Defendants. ______________________________/
Memorandum of Decision
     The facts in this matter have been stipulated. Debtors Rick and Deborah Willhite dissolved their marriage in 1985, without the benefit of legal counsel. As part of a fair and equal division of their property, Rick agreed to convey to Deborah his interest in their residence in Rohnert Park.      Rick signed a deed intended to effect the transfer on August 29, 1986, and it was recorded on September 26, 1986. Unfortunately, the deed was not prepared by counsel and contained only an assessor's parcel number, with no legal description or street address.      1The debtors filed a joint bankruptcy petition on June 4, 1987.      On March 31, 1988, without leave of court, Rick executed a new deed to correct the defects, which was recorded at the same time and allowed Deborah to sell the property. The Trustee attacks this as a viodable postpetition transfer, and argues that it entitles him to half of Deborah's proceeds.      The Trustee's argument is not logical. He argues that because the postpetition deed was unauthorized, he is entitled to half the proceeds. However, if the postpetition deed did not actually transfer anything, then the fact that it was unauthorized just makes it a nullity, and not the basis for recovering anything. The Trustee may recover part of the sale proceeds only if the postpetition deed transferred something Rick owned or if the Trustee was entitled to bona fide purchaser status on the date the bankruptcy was filed. The stipulated facts make clear that Rick had no actual interest left in the property when he executed the postpetition deed. Thus, its avoidance as a postpetition transfer recovers nothing for the estate because nothing was conveyed away. Avoidance of the postpetition deed means only that the court must determine the rights of the parties as if it had not been executed and recorded. Even if the postpetition deed had not been executed, the Trustee would have no valid claim. Accordingly, the Trustee has no claim to the sale proceeds.      The facts in this case are almost identical to those in In re Elin, 20 B.R. 1012 (D.N.J.1982), aff'd 707 F.2d 1400 (3rd Cir.1983). In that case, a defective deed from husband to wife was of record at the time of the bankruptcy. The bankruptcy court concluded that this gave the trustee a right to half of the proceeds of sale. The district court reversed, holding that the original deed did not have to be correct, but only sufficient to cloud title.      Applying the Elin test, which this court believes to be a correct interpretation of the law, it is clear that the original deed, containing the correct assessor's parcel number, was at least 2sufficient to cloud title to the property. No title company in this state would insure title based on a deed from Rick after the defective deed was of record. Since the defective deed was sufficient to protect Deborah against the claims of a third party claiming title from Rick based on an instrument made after the defective deed was recorded, this defeats the Trustee's claims under section 544(a)(3) of the Bankruptcy Code. Deborah's rights appear otherwise unavoidable; even if the correct deed had been recorded the day before the bankruptcy, no aviodable transfer would have resulted. See In re Gurs, 35 B.R. 755 (9th Cir.BAP 1983). Accordingly, judgment will be rendered in favor of Deborah and declaring that the Trustee has no right, title, or interest in the proceeds of the sale.      Counsel for Deborah shall submit an appropriate form of judgment.
Dated: November 1, 1990                                                                          _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy Judge
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1. The stipulation does not say what a divorced couple is doing filing a joint bankruptcy petition. 2. Not only was the original deed sufficient to cloud title, it probably was sufficient, under California law, to pass title. Under state law, a deed is sufficient if it affords any means of identification; the usual test is whether a competent surveyer would have any difficulty identifying the property. 3 Augustine & Zarrow, California Real Estate Law and Practice, sec.