ROBERT H. JACOBVITZ, United States Bankruptcy Judge.
More than six years after the Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code, the Chapter 7 Trustee, Philip J. Montoya ("Trustee"), seeks Court approval of the sale of the certain real property located at 4570 Los Morenos Court in which the estate has a tenant in common interest (the "Property") free and clear of liens, claims and interests pursuant to 11 U.S.C. §§ 363(b), (f) and (h) with such liens, claims and interests to attach to the proceeds of sale with the same validity and priority and to the same extent that they attached to the asset sold. See Trustee's Amended Motion for Authority to Sell Estate's Interest in Real Property and Interest of Co-Owner Out of the Ordinary Course of Business, Free and Clear of Liens, Claims and Interests ("Motion to Sell").
Christopher R. Moreno and Ernestina S. Moreno (the "Debtors") filed a voluntary petition under Chapter 7 of the Bankruptcy Code on January 9, 2009. Philip J. Montoya is the appointed Chapter 7 Trustee for the Debtors' bankruptcy estate. The Debtors' Schedule A filed in this bankruptcy case listed certain land and apartments located on Los Morenos Court with a zero value, stating that Christopher Moreno claimed "no interest" in the property and explaining that the property was "put under debtor's name for probate purposes
On January 11, 2011, Christopher Moreno transferred his interest in the Property to the Trustee by Warranty Deed. See Exhibit 2. In November of 2011, the Trustee filed an adversary proceeding against Christopher Moreno, Teresa Moreno, Monica Moreno, and Larry Moreno as Adversary Proceeding No. 09-1174 J (the "Adversary Proceeding") seeking authority to sell the estate's interest in certain real property. The Trustee amended the complaint in January of 2012, seeking authority to sell the estate's interest in the following properties:
As part of the Adversary Proceeding, the Court determined that Teresa Moreno and Christopher Moreno each held an interest as tenants in common in the Property as of the petition date, and that the Trustee was authorized to sell both the estate's interest and Teresa Moreno's interest in the Property, subject to filing the Motion to Sell with a notice of objection deadline. See Order Granting Partial Final Summary Judgment in Favor of Plaintiff Pursuant to Rule 54(b) with Respect to Property Located at 4570 Los Morenos Court — Adversary Proceeding, Docket No. 76.
In 2013, the Trustee sold the real property located at 4560 Los Morenos Court to Bobby Moreno for $17,300. See Order Approving Trustee's Motion for Authority to Sell Estate's Interest in 4560 Los Morenos Court, Las Cruces, New Mexico Out of the Ordinary Course of Business, Free and Clear of Liens, Claims and Interests — Docket No. 68. Bobby Moreno is Teresa Moreno's brother in law, and a relative of Christopher Moreno. He also owns other property located across the private dirt road that provides access to properties on Los Morenos Court identified above. Teresa Moreno has an interest in a tri-plex rental property located kitty-corner from the property located at 4560 Los Morenos Court and directly across from the Property that is the subject of the Motion to Sell. See Exhibit 6. Ms. Moreno testified that she has had trouble with Bobby Moreno for the past eleven years concerning water service to the tri-plex rental property and the private dirt road.
The Property abuts the property located at 4560 Los Morenos Court. See Exhibit 6. The Property consists of a .706 acre tract of land more particularly described as follows:
Access to the Property is along the private dirt road. The residential dwelling located on the Property is a duplex. The duplex units are rented. Currently, only one septic tank services the duplex. Upon a change in ownership of the Property, two separate septic systems will need to be installed, along with two new water meters and a new water line. An "existing 30' Ft. wide roadway easement" runs up to the northeast corner of the Property, but it would be impracticable to run a new water line along the roadway easement. Any potential buyer would need to obtain an
The Trustee first listed the Property for sale in February 2014 with Don Brown, a real estate broker for Steinborn & Associated Real Estate. See Exhibit 3. The Trustee originally listed the Property for sale for $70,000. The Trustee received no offers to purchase the Property at the original listing price. Mr. Brown passed away, and a new broker, Thomas Watley, took over the listing for the Property in March of 2015. Because the Property is in a rural area with dirt roads, has significant water and septic issues, and is in need of other significant repairs, it is a difficult property to sell. Investors who might be interested in buying an income producing rental property are generally not interested in properties located in rural areas outside the "lot/block" subdivisions of the city. The Trustee eventually dropped the listing price to $55,000.
Bobby Moreno is the only person to make an offer to purchase the Property since the Property was listed for sale. He offered $20,000. The Trustee made a counter-offer of $30,000 that Bobby Moreno did not accept. Instead, Bobby Moreno obtained the following quotes for work to be done on the Property and renewed his offer to purchase the Property for $20,000:
Dona Ana Mutual Domestic Water Consumers Association Installation of water main and water meter: $9,897.55 Installation of a second water meter: $3,215.13 Installation of water main line extension: $6,603.67B & J Sand and Gravel Installation of two 1200 gallon septic tanks: $9,066.75Gardea Roofing Co. Installation of new shingled roof: $7,150.00 Installation of new stucco: $12,650.00 TOTAL cost estimate: $48,583.10
See Exhibit 4.
Mr. Watley believes these repairs and upgrades to the Property are necessary and that the cost estimates are reasonable. Ms. Moreno agrees that the Property needs a new water main, two water meters, two septic tanks, and some stucco repair, but disagrees that the roof needs to be replaced because she made some repairs to the roof less than five years ago. Taking into account the cost of necessary repairs and upgrades, the need for an easement to provide access for water, and the Trustee's efforts to sell the Property, the Court finds that the fair market value of the Property in "as is" condition is $20,000.
Bobby Moreno and the Trustee entered into a Purchase Agreement for the Property
On January 25, 2016, the Trustee accepted Bobby Moreno's offer to purchase the Property for $20,000. Id. Teresa Moreno has not made an offer to purchase the Property.
A Chapter 7 trustee has a duty "collect and reduce to money the property of the estate for which such trustee serves." 11 U.S.C. § 704(a)(1). A "primary role [of a chapter 7 trustee] in administering a debtor's bankruptcy estate is to liquidate property for the benefit of unsecured creditors." In re First State Bancorporation, 2013 WL 823414, *7 (Bankr.D.N.M. Mar. 6, 2013) (citation and internal quotation marks omitted).
Before a sale of estate property outside the ordinary course of business may be approved, the Chapter 7 trustee must demonstrate "sound business reasons" for the sale. In re Allen, 607 Fed. Appx. 840, 843 (10th Cir.2015) (unpublished) (stating that "[t]he `business judgment' test applies to determine whether a sale under § 363(b) should be approved" and that "[u]nder this standard, the Trustee... must show sound business reasons for the sale.") (citing In re Castre, Inc., 312 B.R. 426, 428 (Bankr.D.Colo.2004) (citing Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir.1983), as "the most cited authority [for] the proper standard for the [c]ourt's use in considering a proposed motion to sell")).
Applying these factors to the evidence before the Court, the Court finds that the Trustee has established sound business reasons justifying the sale of the Property and has satisfied the other requirements for a sale pursuant to 11 U.S.C. §§ 363(b), (f), and (h).
The sales price is both fair and reasonable. The Property has significant issues that affect its marketability and value. Any potential purchaser would need to acquire an easement over the property located at 4560 Los Morenos Court to provide water access to the Property. Given these access issues and its current condition, the Court has found that the fair market value of the Property is $20,000. Bobby Moreno is willing to purchase the Property "as is." The cost estimates for the upgrades and repair, if added to the purchase price of $20,000, nearly total the original listing price of $70,000. Sale of the Property for $20,000 in an "as is" condition will "result in the estate obtaining the best price possible under the circumstances." In re Psychrometric Systems, Inc., 367 B.R. 670, 674 (Bankr. D.Colo.2007) (quoting In re Bakalis, 220 B.R. 525, 532 (Bankr.E.D.N.Y.1998) (citing In re Chung King, Inc., 753 F.2d 547, 549 (7th Cir.1985)). In addition, the sale of the Property is necessary to pay the unsecured claims in the bankruptcy estate, since the sale of the property located at 4560 Morenos Court did not yield sufficient funds to pay all unsecured claims in full. Proceeds from the sale of the Property will enable the Trustee to pay all unsecured claims of the bankruptcy estate in full.
Teresa Moreno asserts that the Trustee should not sell the Property to a family member and complains that Bobby Moreno will cause her trouble. There is
No evidence has been presented that would demonstrate a bad motive on Bobby Moreno's part in purchasing the Property or that Bobby Moreno inappropriately colluded with the Trustee in negotiating the sales price. When the Trustee made a counter offer in response to Bobby Moreno's initial offer to purchase the Property for $20,000, he obtained independent bids for the work required to repair and upgrade the Property to justify the lower offer. Any dispute that may arise between Teresa Moreno and Bobby Moreno following the sale of the Property to Bobby Moreno is a matter best resolved in state court.
Ms. Moreno also protests that she maintained the Property over the years so that her grandson, Josue L. Samaniego, would ultimately get the Property when she passes on. See Objection, ¶ 6. Post-petition, she executed a transfer on death deed for the Property in favor of her grandson (the "Transfer on Death Deed") which was recorded in the real property records of Dona Ana County on January 6, 2010. See Adversary Proceeding No. 09-1174 — Docket No. 70-2. As explained below, the Transfer on Death Deed does not grant Josue L. Samaniego an interest in the Property.
The Court has determined that the Trustee may sell Ms. Moreno's interest in the Property pursuant to Bankruptcy Code § 363(h) to the same extent Ms. Moreno could sell her interest in the Property. New Mexico has adopted the Uniform Real Property Transfer on Death Act (the "Act"). See N.M.S.A.1978 §§ 45-6-401 through 45-6-417 (Repl.Pamp.2014). The Act "applies to a transfer on death deed made before, on or after January 2014 by a transferor dying on or after January 1, 2014." N.M.S.A.1978 § 45-6-403 (Repl. Pamp. 2014). The Transfer on Death Deed that Ms. Moreno executed and recorded before January 1, 2014 is subject to the Act. Because a recorded transfer on death deed during the life of the transferor does not "affect an interest or right of the transferor or any other owner, including the right to transfer or encumber the property," and does not "create a legal or equitable interest in favor of the designated beneficiary," the Trustee may sell the Property free of the Transfer on Death Deed consistent with the requirements of 11 U.S.C. § 363(h), notwithstanding Josue Samaniego's status as beneficiary under that deed. See N.M.S.A.1978 §§ 45-6-412(A) and (E) (Repl.Pamp.2014). Because Ms. Moreno is alive, the Transfer on Death Deed does not create an interest in the Property. The Transfer on Death Deed will not encumber the Property and will have no further force or effect following the Trustee's transfer of the Property to Bobby Moreno.
In the Motion to Sell, the Trustee requests a sale free of liens, claims and interests in the Property with such liens, claims and interests to attach to the proceeds of sale with the same validity and
Based on the foregoing, the Court concludes that the Motion to Sell should be granted. The Trustee may sell the interest of the Debtor and the ownership interest of Teresa Moreno in the Property to Bobby Moreno free of liens, claims and other interests. The Court will require that any liens against or other interests in the Property (other than Teresa Moreno's ownership interest), including any liens of William Moreno and Beneficial, will attach to the proceeds of sale with the same validity and priority and to the same extent that they attached to the Property on the date of transfer to Bobby Moreno. Further, any such liens and other interests that so attach to the proceeds of sale will be subject to the avoidance powers of the Trustee to the same extent the liens and interests could be avoidable had no transfer occurred. Theresa Moreno will be compensated for her one-half interest in the Property from the proceeds of the sale consistent with 11 U.S.C. § 363(j)
The Court will enter a separate order consistent with this Memorandum Opinion
