Amicus Curiae Brief — BFP v. Resolution Trust Corporation

No. 92-1370

In The

Supreme Court of the United States

October Term, 1993

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In re: BFP, a Partnership,

Debtor,

BFP, a Partnership,

Petitioner,

VS.

RESOLUTION TRUST CORPORATION as Receiver of

Imperial Savings & Loan Association; PAUL OSBORNE;

WILLIAM LITTLE; DENNIS ROY; ARTHUR RITZ; JOSE

CRUZ; RICHARD MARCZ,

Respondents.

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On Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

ou ®

BRIEF FOR JIM WALTER HOMES, INC. AS

AMICUS CURIAE SUPPORTING RESPONDENTS

+

LAwrRENCE A. G. JOHNSON, Esa.

2535 East 21st Street

Tulsa, Oklahoma 74114

Attorney for Jim Walter Homes, Inc.

COCKLE LAW BRIEF PRINTING CO., (600) 225-6964

OR CALL COLLECT (402) 342-2831

i

TABLE OF CONTENTS

Page

INTEREST OF JIM WALTER HOMES, INC......... 1

STATUTORY PROVISIONS INVOLVED............. 3

INTRODUCTION AND SUMMARY OF ARGUMENT

ET ee ee ee ee 4

A GENERAL OUTLINE OF THE LAW OF THE

STATES WHEREIN THE AMICUS DOES BUSI-

NESS INDICATES MOST STATES UTILIZE

POWER OF SALE AS A FORECLOSURE DEVICE.

A MINORITY OF STATES REQUIRE JUDICIAL

FORECLOSURE WITH APPRAISAL ANL A MINI-

MUM BID OF TWO-THIRDS OF THE APPRAISED

EO ee Ae ere 4

IN POWER OF SALE STATES, THE MAJORITY

RULE IS THAT INADEQUAic PRICE ALONE,

ABSENT OTHER FACTORS, IS NOT A GROUND

TO VACATE A SALE, THE MINORITY RULE

APPLIES THE TEST OF A BID SO GROSS AS TO

SHOCK THE CONSCIENCE OF THE COURT.... 8

IT IS NOT CONSTRUCTIVE FRAUD TO DO

WHAT THE LAW ALLOWS.

A CONVEYANCE OF HOMESTEAD WHICH IS

EXEMPT FROM THE CLAIMS OF

UNSECURED CREDITORS FURNISHES NO

GROUND FOR COMPLAINT UNDER FRAUD-

ULENT CONVEYANCE LAW.

A PRIOR CONVEYANCE OF HOMESTEAD

PASSES NO RIGHTS TO THE TRUSTEE IN BANK-

RUPTCY AND IS OF NO CONCERN TO THE

TRUSTEES OR THE CREDITORS................ 13

il

TABLE OF CONTENTS - Continued

Page

THE BUTNER RULE SHOULD APPLY TO THIS

CASE TO JUSTIFY THE APPLICATION OF STATE

SUBSTANTIVE LAW TO THE TEST OF FRAUDU-

LENT CONVEYANCE .........---ceeceeceeeceees 17

THIS COURT CANNOT INFER PREEMPTION OF

STATE FORECLOSURE LAW AND STATE AND

COUNTY TAX SALE LAW .........--- eee eeeee 28

CONCLUIBION 2. nc ccccesccvescesueseeen een eee 30

TABLE OF AUTHORITIES

Page

Cases

Arnold v Melvin R. Hall, Inc., 496 N.E.2d 63 (Ind.

EEE 12

Berman v Nat. Acceptance Co. of America, 239 F

I TEED xc scccccsccesvessccesecss 9

Blades v Ossenfort, 481 S.W.2d 531 (Mo. App. 1972) ..... 5

Britt v Smith, 169 S.E.2d 482 (N.C. 1969) ............ 10

Butner v United States, 440 U.S. 48, 99 S.Ct. 914, 59

SS 18, 19, 21, 22, 27

Cipollone v Liggett Group, Inc., 112 S.Ct. 2608 (1992) .... 29

City of Wewoka v Fink, 173 P.2d 936 (Okla. 1946)...... 5

Clarimont Development Cop. v Trust Co. Bank, 233

Ee 10

Dewsnup v Timm, 112 S.Ct. 773 (1992)........ 17, 20, 22

Durrett v The Washington National Insurance Co.,

621 F.2d 201 (Sth Cir. 1980)............ 18, 19, 21, 22

Earl v Liberty Loan Corp. of West Monroe, Inc., 193

So.2d 280 (La. App. 1966) .................0...... 14

Forestier v San Antonio Sav. Ass'n, 564 S.W.2d 160

EE 11

Garcia v San Antonio Metropolitan Transit Authority,

469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016

EC URCUSUGLGSSbascessicccccscces. 24

iv

TABLE OF AUTHORITIES

Page

Hillsborough County v Automated Medical Laborato-

ries, Inc., 471 U.S. 707, 105 S.Ct. 2371, 85 L.Ed.2d

Pee nib 60060064-~e- comesneneebeseswasensess 29

Hines v Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85

Sy ED GEES oc coecneccccabeunvdovescesescns 29

Hodges v Wellons, 175 S.E.2d 690 (N.C. 1970)........ 10

Homecraft Corp. v Fimbres, 119 Ariz. 299, 580 P.2d

Te t cehtdeudans codenased esas 8

In re Bass, 3 Woods 382 (1877).............--005055. 16

In re Littleton, 888 F.2d 90 (11th Cir. 1989) ....... 18, 19

In the Matter of Bundles, 856 F.2d 815 (7th Cir. 1988) 21, 25

In the Matter of Southern Land Title Corporation, 474

Pee ee EE GS Ucn nc cckcnsencacvevecsnee: 23

In the Matter of Winshall, 758 F.2d 1136 (6th Cir.

SR Cis tbiveacéencnbenesciapeccecdeutesteekssees 20

Lake Hillsdale Estates, Inc. v Galloway, 473 So.2d 461

Ss SES narra necdedcacsslanvadedanieadnnadsees 5

Lewis v Beale, 162 Md. 18, 158 Atl. 345 (1932)....... 11

Lockwood v Exchange Bank, 190 U.S. 294, 23 S.Ct.

Fe SF Gee We GUD cases ccecccccesecncececss 16

Magnolia Springs Apts. v U.S., 323 F.2d 726 (5th Cir.

Se ea kéabhbdecesccbcncscnaavinstubbckscetssiveces 9

Mansell v Carroll, 379 F.2d 682 (10th Cir. 1967) ...15, 16

Mason v Wilson, 116 Ariz. 255, 568 P.2d 1153 (1977) ..... 8

Matter of Grissom, 955 F.2d 1440 (11th Cir. 1992)..... 19

Missouri-Kansas-Texas Ry. Co v States, 712 P.2d 40

Ss Cada ecccksdndcounsyscdicansacrecseseans 28

Vv

TABLE OF AUTHORITIES

Page

Musgrove v Glasgow, 188 S.E.2d 94 (Va. 1972)........ 10

Myles v Cox, 217 So.2d 31 (Miss. 1968).............. 10

Nobleman v American Sav. Bank, 113 S.Ct. 2106

Pe eukaceinsetsddssekndaceesseeeseaccens 17, 18, 22

Rake v Wade, 113 S.Ct. 2187 (1993) ............ 2, 18, 22

Ray v Atlantic Richfield Co., 435 U.S. 151, 98 S.Ct.

Ty SD GM BFP GUDGOD oc ccc ccsscvccccseess 29

Rife v Woolfolk, 289 S.E.2d 220 (W. Va. 1982)......... 12

Robert R. Wisdom Oil Co., Inc. v Gatewood, 682

D.veae SEs Gee. Ame. BOOED .... 2. ccccccscccccccs: 5

Rutledge v C.R. Johansen, 270 F.2d 881 (10th Cir.

Dab kctinsenekdcdinetucechebedédetanetseass 14, 15

Security Sav. and Loan Ass'n v Fenton, 806 P.2d 362

I tbako i Ca ab bye re bu a 10

Shipp Corporation, Inc. v Charpilloz, 414 So.2d 1122

ibe k cn coli keelennanainieeEaens a4 10

Sieb’s Hatcheries, Inc. v Lindley, 209 F.2d 674 (8th

Sy EE Ronhesncuncénendébincenkvestnnvesecess+: 14

Smith v Equitable Life Assurance Society of U.S., 448

Sn nknnscenasanécnsecusanesves 12

Smith v Jackson State Bank, 63 F.2d 934 (10th Cir.

DERE AbGneeSEeNt ede ubivetes bade besscucsec és 14

Tarrant Savings Ass'n v Lucky Homes, Inc., 390

EE, Sn ctnecnghuedenncencencosnes 11

The Colonial Nat'l Bk v J]. H. Bredenkamp, |r., 151

Ind. App. 366, 279 N.E.2d 845 (1972) ............. 14

Triplett v Bridgeforth, 38 So.2d 756 (Miss. 1848) ....... 5

vi

TABLE OF AUTHORITIES

Page

U.S. v McKenzie, 322 F. Supp. 1058 (D. Nevada

1971), aff'd 474 F.2d 1009 (9th Cir. 1983) ........... )

U.S. v Ron Pair Enterprises, Inc., 109 S.Ct. 1026

nansunckeaksaetentobessdcenceesesesdecvevens 22

U.S. v Wells, 403 F.2d 596 (5th Cir. 1968)............. 9

United Savings Assn. of Texas v Timbers of Inwood

Forest Associates, Ltd., 484 U.S. 365, 108 S.Ct.

626, SB L.BG2S TED (IDES)... cc ccrcsccccceccces. 18

Vanston Bondholders Protective Committee v Green, 329

US. 156, 67 S.Ct. 237, 91 L.Ed. 162 (1946)........ 26, 27

Wansley v First National Bank of Vicksburg, 566

ey as cparccidee seus 0s y0sesne. 5

Waring v Guy, 237 A.2d 763 (Md. 1968)............. 11

Watson v United American Bank of Knoxville, 588

SE Ee GE: CPE 660 0bessccteesovtttennces 11

Wright v Union Central Life Insurance Co., 304 US.

502, 58 S.Ct. 1025, 82 L.Ed. 1490 (1938)........... 25

STATUTES

Bankruptcy Code 11 USC

RESO TTT TTT TT TTT TTT ETT ET TET CTT TTT Te 3

Rs 4640 dwe dashes odeccensndaicauyenaeert 16

DMM ddhukecnepeeens snes nendeuendgnnes 2, 21, 24, 25

PL : é¢oneccpepestesds scennetebnodnateodehs 3

PEE $asuk ockésbdcancdeeecuwete spars decbcnscbens 3

vii

TABLE OF AUTHORITIES

1322(b)(2)

1325(a)(5)

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BRIEF FOR JIM WALTER HOMES, INC. AS

AMICUS CURIAE SUPPORTING RESPONDENTS

°

INTEREST OF JIM WALTER HOMES, INC.,

Jim Walter Homes, Inc. is a Florida corporation hav-

ing its home office in Tampa, Florida. The nature of

business of the company is the financing and construction

of single family homes in various stages of construction

from a shell to a completed, two-story home. By the very

nature of the company’s market, it is largely limited to

building and financing homesteads for low-income fami-

lies, including those on some form of disability compen-

sation or social security benefits.

The company actively does business in twenty-three

states, namely, Oklahoma, Texas, Louisiana, Arkansas,

Missouri, Georgia, Alabama, Florida, North Carolina,

South Carolina, Virginia, Kentucky, Tennessee, New Mex-

ico, Illinois, Arizona, Mississippi, Ohio, West Virginia,

Pennsylvania, Maryland, Indiana, and Delaware.

Jim Walter Homes, Inc. presently services a mortgage

loan portfolio of $4,180,000,000.00 covering 88,500

accounts in those states. The company’s default ratio is

4.47% compared with the national average reported by

the American Banker’s Association of 5.26%. The relative

success of this company is based primarily upon an

aggressive loan servicing system of field personnel as

well as an aggressive foreclosure policy. As such, the

company is active in obtaining title to defaulting proper-

ties and immediately re-selling them to third parties.

Such activity is the very lebensblut of the company’s sur-

vival in such a volatile market. To require the holding of

such acquired houses for one year following foreclosure

sale by reason of § 548 would involve the interest paid on

the investment, and the payment of insurance and taxes,

as well as the management of the houses to minimize

vandalism, theft, and deterioration from the elements. It

is fundamental knowledge that in the winter homes must

be heated in order to avoid deterioration.

By reason of the vast experience of the company in

the mortgage foreclosure arena, we feel our participation

in this appeal lends a vast reservoir of experience in

foreclosure law and how that experience relates to the

increasing number of bankruptcies. The ability to sell

repossessed properties without uncertainty or restraint is

the very essence of the company’s success in maintaining

a stable mortgage portfolio.

The company recently participated in the case of Rake

v Wade, 113 S.Ct. 2187 (1993), since Wade is the Trustee of

a portion of the company’s mortgage portfolio. A Bank-

ruptcy decision such as the one at bar is crucial to the

ability of the company to recover and re-sell properties

which have been the subject of foreclosure. There is a

need for uniformity throughout the United States such

that companies that do business must be able to rely

upon applicable substantive state law as to the validity of

foreclosures rather than some arbitrary floor or a case by

case analysis one year later after the property has been

sold to an innocent third party.

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STATUTORY PROVISIONS INVOLVED

Sections 101(54), 548(a)(2)(A), 548(d)(1) of the Bank-

ruptcy Code, 11 USC are involved in this case and are set

forth in the Appendix, infra.

S

INTRODUCTION AND SUMMARY OF ARGUMENT

1. The various state laws wherein Jim Walter Homes,

Inc. conducts business and the standards relative to vaca-

tion of foreclosure sales are discussed for the Court's

consideration.

2. The majority of states discussed utilize power of sale

or trustee sales without appraisal or requirement for min-

imum bid. The majority of those states will not vacate a

sale based upon minimum bid alone absent fraud, mis-

take, collusion, or other defect in the sale; the minority of

the states discussed will vacate a sale if the price bid is so

low as to “shock the conscien of the court.” Most of the

states do not inquire as to market value unless the pro-

ceeding involves a request for deficiency judgment. Very

few states require a two-thirds bid of a court appraised

value before the sale is judicially confirmed.

3. It is not fraud to perform an act or fail to perform an

act which the law allows. It is not a fraudulent convey-

ance nor are creditors injured by the sale of a homestead

since that exempt property is beyond the reach of credi-

tors.

4. It is the general rule that a transfer prior to bank-

ruptcy of exempt property is not affected by the failure to

claim the previously transferred property as exempt since

pre-filing exempt property does not pass to the trustee

and is of no concern to the trustee or the creditors he

represents.

5. Congress has expressed a policy of special treatment

of mortgages upon the homesteads of Debtors. Congress

has not expressed a policy of disregard of substantive

state law as it relates to mortgage foreclosure sales and

state tax sales.

6. It cannot be inferred by the Courts that Congress

intended to preempt state substantive law as it relates to

foreclosure sales and tax sales.

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ARGUMENT

A GENERAL OUTLINE OF THE LAW OF THE STATES

WHEREIN THE AMICUS DOES BUSINESS INDI-

CATES MOST STATES UTILIZE POWER OF SALE AS

A FORECLOSURE DEVICE. A MiNORITY OF STATES

REQUIRE JUDICIAL FORECLOSURE WITH

APPRAISAL AND A MINIMUM BID OF TWO-

THIRDS OF THE APPRAISED VALUATION.

A consideration of the states wherein amicus, here-

inafter termed JWH, does business indicates the diversity

of state law applicable to foreclosures and the consider-

ation paid at those foreclosure sales.

Oklahoma: Oklahoma requires foreclosure by action

wherein, prior to sale, the property is appraised by court-

appointed appraisers. To purchase the property, any bid-

der must bid at least two-thirds of the appraisal. The time

and place of the sale is advertised by publication and

mailing for three consecutive weeks and by mailing the

notice of sale to all other interested parties. The sale is

subject to judicial review at confirmation of the sale. Mere

inadequacy of price in absence of fraud or irregularity is

not a ground for refusal to confirm the sale. City of

Wewoka v Fink, 173 P.2d 936 (Okla. 1946). The Court there

held at 938:

The only test a court can have of the value of

property sold at a forced sale is the price it

would bring on due notice at a public saie fairly

conducted.

Missouri: That state does not require appraisal, nor are

there provisions for a minimum bid in their non-judicial

foreclosures. Again, mere inadequacy of consideration is

not sufficient to invalidate a sale in absence of fraud as

evidenced by gross inadequacy of consideration, the test

being the price should not be so low as to “shock the

conscience of the court.” Blades v Ossenfort, 481 S.W.2d

531 (Mo. App. 1972), or “so inadequate as to shock the

moral sense and outrage the conscience.” Robert R. Wis-

dom Oil Co., Inc. v Gatewood, 682 S.W.2d 882 (Mo. App.

1984).

Mississippi: Foreclosure sales are conducted without a

minimum bid or appraisal. An early case approved a sale

of 50% of the value of the land. Triplett v Bridgeforth, 38

So.2d 756 (Miss. 1848). More recently, where the market

value was $392,897.00 of property, and appellees estab-

lished a total indebtedness of $185,530.00, a bid of

$85,530.00 resulted in a conveyance to the purchaser at

the sale. See Lake Hillsdale Estates, Inc. v Galloway, 473

So.2d 461 (Miss. 1985). The rule was amplified in Wansley

v First National Bank of Vicksburg, 566 So.2d 1218, 1225

(Miss. 1990) as follows:

Subject to our otherwise governing statutes, we

declare that, if the secured creditor is authorized

to foreclose by power of sale, after the debtor’s

default and upon compliance with the deed of

trust or other instrument, the secured creditor

may sell any or all of the real estate that is

subject to the security interest in its then condi-

tion or after any reasonable rehabilitation or

preparation for sale. Every aspect of the sale,

including the method, advertising, time, place,

and terms, must be commercially reasonable.

This is an objective standard.

New Mexico: No appraisal or minimum bid is required at

judicial sales. The test is that the bid must not be so low

as to shock the conscience of the court.

Kentucky: Sales are conducted pursuant to court order

where after required appraisal, a bid of two-thirds is

required to cut off redemption rights. If a bid is for less

than two-thirds, the owner may redeem by paying within

one year from sale date the original purchase money

together with ten percent interest.

Alabama: Power of sale is the mode of foreclosure where

there is neither minimum bid nor prior appraisal. The

standard of review is to set aside the sale if the price is

grossly disproportionate to the real value of the property.

Tennessee: This state utilizes Trustee’s sales without any

requirement of an appraisal or a statute providing for a

minimum bid.

West Virginia: This state utilizes power of sales.

Illinois: Illinois utilizes judicial sales with no appraisal

and no minimum bid. The standard there is “fair and

reasonable” as to amount of bid.

Ohio: Judicial sales are performed with appraisal and a

requirement of two-thirds of the appraisal as a minimum

bid.

Arkansas: Judicial sales are performed with appraisal and

a requirement of two-thirds of the appraisal as a mini-

mum bid.

Georgia: Georgia utilizes power of sale procedure. There

is no prior appraisal and no statutory requirement for

minimum bid. Within 30 days after the sale, to preserve a

deficiency balance, an in personam action must be brought

wherein it is established the property was sold for fair

market value.

Texas: This state utilizes trustee’s sales with no required

appraisal and no statutory requirement for minimum bid.

If a deticiency is sought, a hearing is conducted to deter-

mine the fair market value as of the date of sale. If no

request for determination of the fair market value is

made, the sale price will be used by the court to compute

the deficiency.

Florida: Judicial sales are conducted with no appraisal and

no minimum bid provided for.

South Carolina: Judicial sales are conducted with no

appraisal and no minimum bid provided for.

North Carolina: Power of sales are utilized with no

appraisal nor minimum bid.

Virginia: This state utilizes Trustee sales with no appraisal

or minimum bid.

Louisiana: Judicial sales are conducted with appraisal and

required two-thirds bid of the appraisal under writ fiera

facias. There is an alternate procedure called “executory

process” wherein there is no appraisal and no minimum

bid required.

Indiana: By statute judicial sales do not require appraisal

or is a minimum bid provided for.

Delaware: Delaware utilizes power of sale with no mini-

mum bid required.

Arizona: Arizona utilizes judicial sales and trustee sales,

neither of which requires a minimum bid nor a prior

appraisal. In that state, where the judgment creditor bid

$367.41 for property with a net equity value of between

$1,500 and $6,353, this 5-7% equity bid did not shock the

conscience of the court. See Mason v Wilson, 116 Ariz. 255,

568 P.2d 1153 (1977). Contra Homecraft Corp. v Fimbres, 119

Ariz. 299, 580 P.2d 760 (1978) where the judgment creditor

bid $623.38 and acquired a $10,000 equity, it was not error

to set aside an execution sale. Arizona follows the general

rule that mere inadequacy of price is not adequate to set

aside an execution sale, but where the inadequacy is so

great as to shock the conscience of the court, such will

authorize the court to set aside the sale and order a new

one.

IN POWER OF SALE STATES, THE MAJORITY RULE

IS THAT INADEQUATE PRICE ALONE, ABSENT

OTHER FACTORS, IS NOT A GROUND TO VACATE

A SALE. THE MINORITY RULE APPLIES THE TEST

OF A BID SO GROSS AS TO SHOCK THE CON-

SCIENCE OF THE COURT.

As can be seen by the above list of procedures, at

least in the states where JWH is actively pursuing fore-

closures, the preferred method is power of sale with no

requirement for appraisal and no requirement for a mini-

mum bid. In those states where appraisal is required, we

see that a bid of two-thirds of the appraised valuation is

the minimum bid.

The general rule relating to power of sales in most

states is that inadequate price is alone not sufficient to set

aside the sale; however, gross inadequacy coupled with

other circumstances showing unfairness or fraud will

suffice. In other states, the minority rule is to evaluate the

bid to determine if the amount is so low as to shock the

conscience of the court.

One recent federal case regarding Nevada property

but applying federal law is U.S. v McKenzie, 322 F. Supp.

1058 (D. Nevada 1971), aff'd 474 F.2d 1009 (9th Cir. 1983)

which held that a disparity between the sale price and the

market value was $16,550. Such a spread was held not to

be so great as to shock the conscience of the court, citing

U.S. v Wells, 403 F.2d 596 (5th Cir. 1968) and Magnolia

Springs Apts. v U.S., 323 F.2d 726 (5th Cir. 1963). The court

approved a deficiency judgment of $89,907.35.

Berman v Nat. Acceptance Co. of America, 239 F. Supp.

767 (WD TX 1965) applied Texas law in a deed of trust

sale. The court there observed at 770:

Since the exercise of a power under the trust is a

harsh remedy, the state courts have insisted on

rigid adherence to the various requirements by

statute and in the trust instrument itself . .

There, the bid was $60,000 at the sale; the court held a

$23,000 difference was not sufficient to vitiate the sale,

the law of Texas being mere inadequacy of price alone is

10

not grounds for setting aside a sale. There must be some-

thing more, such as fraud or collusion.

In those states where inadequacy alone is not suffi-

cient to set aside a sale, we submit the following authori-

ties: |

See Britt v Smith, 169 S.E.2d 482 (N.C. 1969); Clari-

mont Development Cop. v Trust Co. Bank, 233 S.E.2d 37 (Ga.

1977); Musgrove v Glasgow, 188 S.Ed.2d 94, 96 (Va. 1972)

where the bid was one-third the value of the property,

and the court approved the sale in absence of fraud;

Hodges v Wellons, 175 S.E.2d 690, 692 (N.C. 1970)

approved a sale where the bid was $625 for property

valued at $2,600 where the court observed that “the only

obligation of the trustee . . . was to conduct and consum-

mate the foreclosure sale in accordance with law.” In

Georgia, it is only when gross inadequacy of price is

accompanied by fraud, mistake, apprehension, surprise

or other circumstances that brought about the inadequacy

that a sale may be set aside. See Giordano v Stubbs, 184

S.E.2d 165, 169 (Ga. 1971). A case of first impression in

Arizona is Security Sav. and Loan Ass'n v Fenton, 806 P.2d

362, 364 (Az. 1990) where it was ruled that a trustee sale

cannot be set aside for inadequacy by holding that the

statute relating to deficiency judgments protects the

debtor where fair market value is then considered. In

Myles v Cox, 217 So.2d 31, 34 (Miss. 1968) a bid of $3,218

was approved where the value of the property was

between $6,500 and $8,000. In Florida, Shipp Corporation,

Inc. v Charpilloz, 414 So.2d 1122, 1124 (Fla. 1982) approved

a sale where the value was in the range of $2,800,000 to

$3,200,000 and the bid was $1,100,000, the court saying:

11

. . a forced sale seldom brings the property's

true value.

In Tennessee, a sale price of $30,000 where land was

worth $90,000 was not considered inadequate by the

court. See Watson v United American Bank of Knoxville, 588

S.W.2d 877, 882 (Tenn. 1979); however, the sale was

invalidated because notice of the sale was not sent to the

owner, but the rule in that state is inadequacy alone is not

adequate to set aside a sale.

In Texas, absent irregularity, mere insufficiency of bid

is not enough to set aside a sale. Forestier v San Antonio

Sav. Ass'n, 564 S.W.2d 160 (Tex. Civ. App. 1978) at 165,

citing as authority the Texas Supreme Court in Tarrant

Savings Ass'n v Lucky Homes, Inc., 390 S.W.2d 473 (Tex.

1965).

The following authorities are submitted for those

states which examine the bid price as being so gross as to

shock the conscience of the court:

Waring v Guy, 237 A.2d 763, 767 (Md. 1968) citing

Lewis v Beale, 162 Md. 18, 158 Atl. 345 (1932):

The fact that the court must consider the ques-

tion at bar with reference to the circumstances

that the standard is that of a forced sale, fairly

made, rather than a voluntary sale by the owner,

is due to the default of the debtor, who must

assume the agreed consequences of the default.

If the sale takes place during a period of finan-

cial depression, or of depreciation of the value

of land, or of other adverse conditions for which

neither party is responsible, and hardship

thereby results, it is a consequence which must

be borne as an incident of the contract, and the

-

court cannot relieve one party to the contract

without violating the contractual right of the

other.

Other cases which examine the gross disparity of the

value and the bid price are Rife v Woolfolk, 289 S.E.2d 220

(W. Va. 1982) where the disparity was a bid of $8,000 for

property valued at $62,000; Smith v Equitable Life Assur-

ance Society of U.S., 448 S.W.2d 588, 594 (Mo. 1970) where

the property had a value of $35,000 and the sale price was

$16,700 and the court held the bid did not represent a

gross inadequacy.

Indiana looks at the situation somewhat differently in

that the test is the entry of a deficiency judgment which is

shocking to the court’s sense of conscience and justice,

holding that mere inadequacy of price alone may be

sufficient to justify setting aside the sale, the test there

being the price paid must be so great as to shock the

sense of justice and right. Arnold v Melvin R. Hall, Inc., 496

N.E.2d 63, 65 (Ind. 1986). However, an allegation of inad-

equate price is not in and of itself insufficient to set aside

the judgment for the reason in Indiana the law presumes

that the successful bid at sheriff’s sale is the fair market

value of the property, even though there was only one

bidder, i.e., the mortgagee. The mortgagor bears the bur-

den of proving the disparity between price and value

should be shocking to the court’s conscience.

Such is a reasonable summary of state substantive

law governing the conduct of power of sale foreclosures.

In those states which require foreclosure by action which

uniformly require a bid of two-thirds of the appraised

valuation, there is no real problem, except that all such

sales would be voided under Petitioner’s bright line rule

13

of 70%. It is in those states where a power of sale or

trustee’s sale is utilized that a controversy arises.

A typical scenario is as follows: Jim Walter Homes at

a sale under power bids in 1990 $5,575, that being the

balance of its mortgage. The property was thereafter sold

to a third party for $10,000 cash. That purchaser sold the

property 90 days later to a neighbor who wanted the

property because it adjoined his property for a price of

$17,500. Now, a year later the bankruptcy court desires to

apply the 70% rule to a valuation and obtain the differ-

ence from the mortgage company. Jim Walter Homes

broke no law, engaged in no collusion or fraud, and the

question begs if it is fair and lawful that American busi-

ness is to be conducted under this cloud.

IT IS NOT CONSTRUCTIVE FRAUD TO DO WHAT

THE LAW ALLOWS.

A CONVEYANCE OF HOMESTEAD WHICH IS

EXEMPT FROM THE CLAIMS OF UNSECURED

CREDITORS FURNISHES NO GROUND FOR COM-

PLAINT UNDER FRAUDULENT CONVEYANCE LAW.

A PRIOR CONVEYANCE OF HOMESTEAD PASSES

NO RIGHTS TO THE TRUSTEE IN BANKRUPTCY

AND IS OF NO CONCERN TO THE TRUSTEES OR

THE CREDITORS.

The legal basis for setting aside a state law fore-

closure proceeding where the property was sold in strict

conformity with state law is constructive fraud; however,

it is fundamental law that it is not fraud to do what the

law allows and provides for.

. the law will not deduce fraud from any

number of acts, each of which is lawful and

14

innocent in itself. 37 CJS, Fraudulent Convey-

ances, § 7, p. 856.

In all of the foreclosures conducted by Jim Walter

Homes, Inc. throughout the states, the transfers by sale

involve the homestead of the mortgagors. In all those

states, the homesteads are exempt property.

. . aS a general rule a conveyance of a home-

stead which is exempt from liability from debts

is not a fraud on creditors and furnishes no

ground for complaint. 37 CJS, Fraudulent Con-

veyances, § 31, p. 878.

... fraud in order to be actionable must result in

injury, and the creditor is not injured by a con-

veyance of property which he cannot subject to

his claims. [bid.

Examples of state courts which have sustained the

general rule that it is not fraud to do what the law allows

are The Colonial Nat'l Bk v J. H. Bredenkamp, Jr., 151 Ind.

App. 366, 279 N.E.2d 845, 848 (1972) and Earl v Liberty

Loan Corp. of West Monroe, Inc., 193 So.2d 280, 282 (La.

App. 1966)

Federal Courts which have applied the law declaring

that it is not a fraudulent conveyance when the asset is

the exempt homestead are Smith v Jackson State Bank, 63

F.2d 934, 936 (10th Cir. 1933); Sieb’s Hatcheries, Inc. v

Lindley, 209 F.2d 674, 676 (8th Cir. 1954). The Tenth Circuit

involved a bankruptcy case in Rutledge v C.R. Johansen,

270 F.2d 881 (10th Cir. 1959). That case involved an action

by the trustee to set aside a voidable preference under 11

USCA §§ 96, 64 and 60, subs, a and b. The bankrupt had

made a conveyance in satisfaction of an antecedent debt

involving his homestead and did not claim an exemption

15

in his schedules. The court in holding that such a transfer

does not give rise to a voidable preference stated:

The statement is grounded in the legal concept

that property exempt by law remains in the

bankrupt, does not pass to the trustee, and the

bankrupt’s disposition of it prior to bankruptcy

is therefore of no concern to the trustee or the

creditors he represents. Citing Lockwood v

Exchange Bank, 190 U.S. 294, 23 S. Ct. 751, 47

L.Ed. 1061; First National Bank of Cleveland v

Orten, 43 Okl. 325, 142 Pac. 1096; Annotation 161

ALR 1013-1018. 270 F.2d at 881.

Countering the argument the bankrupt did not claim

the exemption at the later bankruptcy, the court said “if

the bankrupt had the right to transfer his exempt prop-

erty prior to bankruptcy without committing a voidable

preference, there was no exemption rights to be exercised

in bankruptcy, and appellant’s argument must fail.” The

court held the active steps to claim bankruptcy exemp-

tions provided for in the Code apply only to property of

which the bankrupt was seized at the time of filing. To

hold otherwise would be to give creditors a right to

exempt property they did not have prior to the filing. 270

F.2d at 882.

It is appropriate, however, to point out that Rutledge

was distinguished in the later case of Mansell v Carroll,

379 F.2d 682 (10th Cir. 1967). The same Jurist who decided

Rutledge pronounced the decision. In Mansell, the transfer

was not free of fraud. Although acknowledging the law

in Rutledge “ . . . is, wisely, the general rule of law...” in

this case there was an active plan and a scheme on the

16

part of the bankrupt and his wife to transfer the property

for a fraudulent purpose. 379 F.2d at 684.

One cannot leave this point of law without examin-

ing Lockwood v Exchange Bank, 190 U.S. 294, 23 S.Ct. 751,

47 L.Ed. 1061 (1903). That case involved the bankruptcy

act of 1898 regarding property which is exempted by the

law of the state in which the debtor resides. The case

stands for the proposition that the exempt property does

not pass to the trustee, even if the bankrupt has under the

law of the state waived his exemption in favor of certain

of his creditors. This was evidently the law under the

bankruptcy act of 1867 as well. In re Bass, 3 Woods 382,

384 (1877) which said:

In other words, it made as clear as anything can

be, that such exempted property constitutes no

part of the assets in bankruptcy. The agreement

of the bankrupt in any particular case to waive

the right to the exemption makes no difference.

He may owe other debts in regard to which no

such agreement has been made, but whether so

or not, it is not for the bankruptcy court to

inquire. The exemption is created by the state

law, and the assignee acquires no title to the

exempt property. If the creditor has a claim

against it he must prosecute that claim in a court

which has jurisdiction over the property, which

the bankrupt court has not.

The court noted that the fact the act of 1898 gave the

bankruptcy court authority to control exempt property

afforded no ground for holding that the court of bank-

ruptcy must administer and distribute such property

It is to be noted as well that the current Code 11

USCS § 522(b)(2)(B) also excludes property of the estate

17

“to the extent that such interest as a tenant by the entirety

or joint tenant is exempt from process under applicable

nonbankruptcy law.”

This line of law is the very reason why the amicus

curiae position of Jim Walter Homes, Inc. is important to a

complete examination of the case at bar.

THE BUTNER RULE SHOULD APPLY TO THIS CASE

TO JUSTIFY THE APPLICATION OF STATE SUB-

STANTIVE LAW TO THE TEST OF FRAUDULENT

CONVEYANCE.

The Supreme Court has graciously consented to con-

sider an unusual number of bankruptcy cases in the

recent years. Such cases are not mundane or dog cases

but are important to the very fabric of the economic

engine of this country. The reason they have become so

important is to-cure the penchant of the lower courts on

frequent occasion to ignore the plain language of the

statute, not paying attention to the plain language of the

text. In so doing, those lower courts have frequently

ignored fundamental substantive state rights.

Such a concern was voiced in Dewsnup v Timm, 112

S.Ct. 773, 779 (1992) relating to the relative ease in which

the lower courts weré reducing the secured creditor’s lien

involuntarily by means other than full payment. The

serious practice of applying this violence toward chapter

13 secured creditors upon the residence of the debtor by

bifurcation or lien splitting was as well halted in Noble-

man v American Sav. Bank, 113 S.Ct. 2106 (1993). What is

clear from a reading of Nobleman is that in absence of a

controlling federal rule, the determination of property

18

rights as enunciated in Butner v United States, 440 U.S. 48, —

54-55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979), has been

left to state law, subject, of course to the alteration of

remedies of a mortgagee. See United Savings Assn. of Texas

v Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365,

369-370, 108 S.Ct. 626, 629-630, 98 L.Ed.2d 740 (1988).

Nobleman made it clear, at least under 11 USCS

§ 1322(b)(2), the lower courts cannot modify the mort-

gagee’s rights to interest rates, payment amounts, “and

other contract terms.” This last term, in Rake v Wade, 113

S.Ct. 2187 (1993), this court by reading the plain text of

the Bankruptcy Code (§ 1325(a)(5)) reversed over fifteen

circuit judges who had refused to give attention to text in

denying interest to a secured creditor who was forced to

forebear the arrearages over several years without inter-

est.

Now, the Court is called upon again to halt another

transgression of the lower courts in their slavish adher-

ence to Durrett v The Washington National Insurance Co.,

621 F.2d 201 (5th Cir. 1980). That case is flawed in several

instances. In the first place, there is no judicial basis for

the arbitrary assessment of a 70% guideline for the courts

to follow doggedly. There is no federal statute relating to

such a guideline; there is no word in the bankruptcy act

which would come close to validate such an application.

Had the Fifth Circuit adhered to state law of Texas, they

would have seen that mere inadequacy of price at a sale

is alone insufficient to set aside a sale, absent fraud,

mistake, etc. As well, their stating that they had been

unable to find a case where a sale of less than 70% under

the Bankruptcy Act had been approved was the barest

form of dictum. See In re Littleton, 888 F.2d 90, 92 (11th

19

Cir. 1989), which condemned the “bright line” rule of

Durrett, claiming that failing to realize that other factors

are just as important, such as the bargaining position of

the parties and the marketability of the property, that a

sale in a foreclosure market brings less than one in a

retail market, and that sale of property worth $1,000,000

for $700,000 might not constitute reasonably equivalent

value even though the 70% standard is met. The Eleventh

Circuit rejected that bright line rule since it would pro-

duce an unfair result, especially in light of the fact the

sale extinguished junior liens on the property.

In vacating the lower court's talismanic adherence to

the 70% rule, Matter of Grissom, 955 F.2d 1440 (11th Cir.

1992) was laudable in its criticism of both Durrett and

Littleton. Certain points were made in that case which are

worthy of examination:

Absent fraud, collusion, or irregular or unlawful

procedures, courts should presume that a legiti-

mate foreclosure sale brings a price which is

reasonably equivalent to the property’s value.

In addition, courts should consider whether or

not the foreclosing party obtained a fair

appraisal of the property before selling it, the

extent to which the foreclosure sale was adver-

tised, and the competitive conditions surround-

ing the sale. -

On the other hand, we also realize that allowing

commercial entities to ignore equity in fore-

closure proceedings undermines one crucial pol-

icy of Section 548 - ensuring that bankruptcy

estates will not be unnecessarily depleted.

Nullifying a legitimate foreclosure sale solely

because the market for the property sold could

20

not bring 70% of the property’s value may

advance bankruptcy policy, but it also violates

the policy protecting the rights of secured credi-

tors and diminishes the integrity of foreclosure

sales.

Similarly, we allow the interests of secured cred-

itors to trump bankruptcy policy when we give

a commercial lender carte blanche to ignore the

equity interests of a borrower as long as the

lender follows the minimal requirements of state

foreclosure law.

After all, sale prices obtained at regularly con-

ducted, non-collusive, lawful foreclosure sales

are presumed to be reasonably equivalent

values, unless the bankruptcy trustee establishes

otherwise. 955 F.2d at 1446-1449.

The Sixth Circuit’s view reflected In the Matter of

Winshall, 758 F.2d 1136 (6th Cir. 1985) is probably the

most rational approach to the tension between state sub-

stantive law and § 548. Congress does not write “on a

clean slate” when it enacts bankruptcy statutes. Dewsnup

v Timm, supra, at 779. When Congress sought to continue

the fraudulent conveyance statute, it did so with the

dictates of Butner clearly in mind. If we are to give effect

to that most cited case, then the holding of Winshall is

most appealing:

While the power of the trustee to avoid certain

preferential transfers was clearly intended to

assure the equitable distribution of a debtor's

assets araong unsecured creditors, it can hardly

be argued that Congress intended the rights of

such creditors necessarily to override those of

good faith purchasers at state foreclosure sales

21

or the policy judgments of states in balancing

the interests of parties thereto.

The cloud created over mortgages and trust

deeds by making foreclosure sales subject to

being voided by a bankruptcy trustee will natu-

rally inhibit a purchaser other than the mort-

gagee from buying at foreclosure. This tends to

depress further the prices of foreclosure sales

and thus increases the potential size of the defi-

ciency in each foreclosure. 758 F.2d at 1139

Even if the sale in question were a transfer

subject to § 548, the better view is that reason-

able equivalence for the purposes of a fore-

closure sale under § 548(a)(2)(A) should be

consonant with the state law of fraudulent con-

veyances.!

In the Matter of Bundles, 856 F.2d 815 (7th Cir. 1988)

attempted to reconcile § 548 with the dictates of the

wisely decided Butner, but fell back upon the issue they

could not concern themselves with the policy consider-

ations of ignoring state law but instead read § 548 as

establishing “a federal basis - independent of state law -

for setting aside a foreclosure sale.” 856 F.2d at 822. The

court, however, softened the application of Durrett and

fell back to a case-by-case adjudication:

Consequently, it is appropriate to consider, as a

Starting point, the fair market value. However,

' It is important to note that Michigan law provides that

inadequate sale price, in and of itself, is an insufficient ground

for setting aside a foreclosure sale by advertisement. There must

be both a grossly inadequate sale price and some other defect

such as fraud, mistake, unfairness, or irregularity.

22

the fact that the sale was the result of a fore-

closure rather than an arm’s length transaction

between a willing buyer and a willing seller is

also of considerable importance. Therefore, the

bankruptcy court must focus ultimately on the

fair market value as affected by the fact of fore-

closure. As a practical matter, the foreclosure

sale price is the only means of measuring the

effect of foreclosure on the value of the proper-

ty .. . However, the bankruptcy court also must

examine the foreclosure transaction in its total-

ity to determine whether the procedures

employed were calculated not only to secure for

the mortgagee the value of its interest but also

23

chosen to fashion what is the rare pre-emption by Con-

gress of state substantive property law the rule rather

than the exception. One can only look at the record and

observe what was said /n the Matter of Southern Land Title

Corporation, 474 F.2d 1033, 1039 (5th Cir. 1973): “The

record in this case does not carry the fresh air of spring,

the scent of sweet olive in bloom, and the pleasing

thought of young innocents at play.”

If we accept the argument of the Petitioner in this

case, consider if this would not be an appropriate require-

ment in a title opinion by a prudent practitioner in the

field of practical experience:

to return to the debtor-mortgagor his equity in

the property. The bankruptcy court therefore

must consider such factors as whether there was

a fair appraisal of the property, whether the

property was advertised widely, and whether

competitive bidding was encouraged.

The court refused to follow state law and refused to

hold a regularly conducted, noncollusive foreclosure sale

should automatically be deemed a reasonably equivalent

value within the meaning of § 548.

The above cases, together with the plethora of cases

from the inferior courts which follow Durrett and which

refuse to follow that case, or have modified the approach

by the refusal to follow the impact of substantive state

law, places this case in the same posture as Nobleman,

Dewsnup, Rake, and U.S. v Ron Pair Enterprises, Inc., 109

S.Ct. 1026 (1989). We are faced with the arbitrary refusa’

to accord state law property rights in a bankruptcy con-

text. Instead, the courts refuse to follow Butner but have

It is to be noted that title of the grantor was

obtained as a result of a bid at a foreclosure sale

under deed of trust. Although all aspects of the

sale were in conformity with state law (includ-

ing the fact that the property was not required

to be appraised prior to the sale), the examiner

is unable to ascertain from the record whether

or not the bid at the sale was for a reasonably

equivalent value (whatever that term means).

Since the sale took place last month, you should

not consider taking title to this property until

one year has passed from the sale date in order

to avoid the possibility a trustee in bankruptcy

may void the sale, taking the property away

from you but allowing you a lien for the amount

of your purchase price. Naturally, if you ignore

this admonition, you are advised that it would

be imprudent for you or your wife to make any

improvements in the property since the trustee

in bankruptcy would be the beneficiary of those

improvements and you would be the loser.

24

Amici for the Petitioner have brought up an interest-

ing point in applying § 548 to tax sales. They complain

that in two instances the debtors did not pay their taxes

on their homesteads and lost them to tax sales. Amicus

Frank Allen, lost his home “for a mere 1% of the

appraised valuation; Amicus McKeever’s home was sold

at tax sale for only 9% of its value.”

Without a diatribe and examination of all of the state

laws on tax sales, we shall examine Oklahoma’s pro-

¢edure. If a taxpayer decides not to pay his taxes, one

may obtain from the County Treasurer a tax certificate for

the payment of the delinquent taxes and collect, upon

payment, the munificent sum of 8% interest. If the third

party accumulates three years of tax certificates, he may

apply for a tax deed by filing an application and notify-

ing the owner under due process. As well, where the

county has bought the property for taxes, it may offer the

property to the highest bidder at a treasurer’s tax sale.

It might be appropriate to point out that in Oklahoma

we have 77 counties, each with their obligation to raise

revenues from their ad valorem tax base. Over half of

those counties are unable to advertise and mail notices of

tax sales for the reason the cost involved exceeds their

available funds. To invade the sovereignty of states and

counties to conduct tax sales under § 548 touches upon a

Tenth Amendment invasion. See Garcia v San Antonio

Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005,

83 L.Ed.2d 1016 (1984).

Amici for the Petitioner have afforded this Court a

valuable service in that they have pointed out the poten-

tial disaster that will be wrought upon the thousands of

25

taxing entities of the states if this Court is to rule that

substantive state law of the individual states is pre-emp-

ted by § 548. It simply would mean that no purchaser of

property from a county could dispose of the property

acquired at a tax sale for a period of one year out of fear

of attack by a bankruptcy trustee. And the guarantee of a

Hen aftorded to such purchasers for and in the amount of

their investment really affords a rather empty promise.

| In the context of tax sales, again Amici argue that

voiding tax sales would achieve the over-riding policy of

§ 548 — to ensure that bankruptcy estates would not be

depleted. Again, most of these instances, where applica-

ble to a chapter 13 debtor(s), involve homesteads and

enempt Property. There, general creditors would not have

been injured by the tax sales since they would not have

ned access to the homestead to satisfy their claims. And

it is clear, that such property does not pass to the srustee

and is not part of the bankrupt estate, a point that Amici

for the Petitioner has neglected to address.

| Some courts have held that it is not within the pur-

view of the judiciary to establish the policy of bankruptcy

law. For example, see In the Matter of Bundles, supra: “It is

beyond our scope of review to consider the policy impli-

cations of permitting the debtor to set aside the fore-

closure of his home.” 856 F.2d at 822. -

As early as 1938 it was established by this court that

congress has the power to alter state property rights

Wright v Union Central Life Insurance Co., 304 U.S. 502 58

S.Ct. 1025, 82 L.Ed. 1490 (1938) clearly stated the power

26

If the argument is that Congress has no power

to alter property rights, because the regulation

of rights in property is a matter reserved to the

states, it is futile. Bankruptcy proceedings con-

stantly modify and affect the property rights

established by state law. A familiar instance is

the invalidation of transfers working a prefer-

ence, though valid under state law.

27

federal law in the application of interest) “we would still

have to decide whether allowance of the claim would be compat-

ible with the policy of the Bankruptcy Act.” 329 U.S. at 161.

Butner is the touchstone case relied upon to defend

the proposition that state law (non-bankruptcy law) is to

be followed in the issue before us. Two points gleaned

Such action does not indicate a disregard of the

property rights created by state law. The state

law still establishes the norm to which Congress

must substantially adhere; a serious departure

from this norm, i.e., from the quality of the

property rights created by the state law, has led

to condemnation of the federal action as consti-

tuting a deprivation of property without due

process.

Property rights do not gain any absolute

inviolability in the bankruptcy court because

created and protected by state law. Most prop-

erty rights are so created and protected. But if

Congress is acting within its bankruptcy power,

it may authorize the bankruptcy court to affect

these property rights, provided the limitations

of the due process clause are observed. 204 U.S.

at 517-518.

Vanston Bondholders Protective Committee v Green, 329

US. 156, 67 S.Ct. 237, 91 L.Ed. 162 (1946) again recog-

nized the rule to be that “What claims of creditors are

valid and subsisting obligations against the bankrupt at

the time a petition in bankruptcy is filed is a question

which, in the absence of overruling federal law, is to be

determined by reference to state law.” 329 U.S. at 161.

What is important about Vanston is this Court took the

position (at least with regard to following state law or

from that case govern our position here:

Property interests are created and defined by

state law. Unless some federal interest requires a

different result, there is no reason why such

interests should be analyzed differently simply

because an interested party is involved in a

bankruptcy proceeding. Uniform treatment of

property interests by both state and federal

courts within a state serves to reduce uncer-

tainty, to discourage forum shopping, and to

prevent a party from receiving ‘a windfall

merely by reason of the happenstance of ba

k-

ruptcy.’ 440 US. at 54. “s ‘

But undefined considerations of i i

equity provide

no basis for adoption of a uniform rw Hee rule

affording mortgagees an automatic interest in

the rents as soon as the mortgagor is d

bankrupt. 440 U.S. at 55. staaharcuees

What does follow is that the federal bankruptcy

court should take whatever steps are necessary

to ensure that the mortgagee is afforded in fed-

eral bankruptcy court the same protection he

would have under state law if no bankruptcy

had ensured. This is the majority view, which

we adopt today. 44 U.S. at 56.

JWH, is arguing this case from the standpoint of a

mortgagee that forecloses properties under default which

28

are the homestead of the mortgagors. From this stand-

point, it is clear Congress desired to afford special treat-

ment and protections to secured creditors who have a lien

upon the principal residence of the debtor. This is clear

from the statute, 11 USCS § 1322(b)(2), and from the latest

decisions of this court in both Rake and Nobelman. Yet,

both of those cases came before this Court from a refusal

of the inferior courts to pay attention to text and the

compulsion to fashion a federal rule in opposition to

established state substantive law.

There is no basis for the fashioning of a federal rule that

upsets validly conducted state foreclosure proceedings and

validly conducted state and county tax sales. All states have

in place uniform fraudulent conveyance or transfer acts. All

states in which JWH does business have in place homestead

exemption statutes which place the debtors’ homes exempt

from general unsecured creditors. In no instance can the

foreclosure or the tax sale of a homestead be deemed to have

injured unsecured creditors.

THIS COURT CANNOT INFER PREEMPTION OF

STATE FORECLOSURE LAW AND STATE AND

COUNTY TAX SALE LAW.

The tension arises between the federal bankruptcy

Code and substantive state law. It can be argued, without

real support, the Bankruptcy Code pre-empts state law on

this subject. The Supremacy Clause “invalidates any state

law that contradicts or interferes with an Act of Con-

gress.” Missouri-Kansas-Texas Ry. Co v States, 712 P.2d 40,

47 (Okla. 1985). A state law is invalid, inter alia, to the

extent that it “actually conflicts with a. . . federal stat-

ute.” Ray v Atlantic Richfield Co., 435 U.S. 151, 158, 98 S.Ct.

29

988, 994, 55 L.Ed.2d 179 (1978), or when it “stands as an

obstacle to the accomplishment and execution of the full

purpose of Congress.” Hillsborough County v Automated

Medica: Laboratories, Inc., 471 U.S. 707, 713, 105 S.Ct. 2371,

2375, 85 L.Ed.2d 714 (1985), quoting Hines v Davidowitz,

312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed.2d 581 (1941).

Examination of Cipollone v Liggett Group, Inc., 112

S.Ct. 2608, 2624-2626 (1992) reveals certain applicable

principles:

Our precedents do not allow us to infer a scope

of pre-emption beyond that which clearly is

mandated by Congress’ language.

We resort to principles of implied pre-emption -

that is, inquiring whether Congress has occu-

pied a particular filed with the intent to sup-

plant state law or whether state law actually

conflicts with federal law, see English v General

Electric, Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 2275,

110 L.Ed.2d 65 (1990) - only when Congress has

been silent with respect to pre-emption.

Consideration under the Supremacy Clause

starts with the basic assumption that Congress

did not intend to displace state law.

We are not to conclude that Congress legislated

the ouster of this [state] statute . . . in the

absence of an unambiguous congressional man-

date to that effect.

Any indulgence in construction should be in

favor of the States, because Congress can speak

with drastic clarity whenever it chooses to

30

assure full federal authority, completely displac-

ing the States.

CONCLUSION

This Court should adopt the construction Congress

has not pre-empted the field of state foreclosure law or

the field of state tax sale law.

The rationale of the Ninth Circuit in the case at bar is

the better approach in absence of clear, unambiguous

evidence to the effect that Congress did not infer a scope

of pre-emption such as to allow a bankruptcy court to

ignore state substantive law.

To maintain the integrity of mortgage foreclosure

law, this court should affirm the Ninth Circuit.

Lawrence A. G. JOHNSON

2535 East 21st Street

Tulsa, Oklahoma 74114

(918) 743-0459

Attorney for Jim Walter Homes, Inc.

APPENDIX

la

Title 11 § 101

GENERAL PROVISIONS

(54) “transfer” means every mode, direct or indi-

rect, absolute or conditional, voluntary or involuntary, of

disposing of or parting with property or with an interest

in property, including retention of title as a security inter-

est and foreclosure of the debtor’s equity of redemption;

aa

§ 548. Fraudulent transfers and obligations

(a) The trustee may avoid any transfer of an interest

_of the debtor in property, or any obligation incurred by

the debtor, that was made or incurred on or within one

year before the date of the filing of the petition, if the

debtor voluntarily or involuntarily —

(1) made such transfer or incurred such

obligation with actual intent to hinder, delay, or

defraud any entity to which the debtor was or

became, on or after the date that such transfer

was made or such obligation was incurred,

indebted; or

(2)(A) received less than a reasonably

equivalent value in exchange for such transfer

or obligation; and

§ 548 Title 11

BANKRUPTCY CODE

(B)(i) was insolvent on the date that such

transfer was made or such obligation was

incurred, or became insolvent as a result of such

transfer or obligation;

(ii) was engaged in business or a transac-

tion, or was about to engage in business or a

2a

transaction, for which any property remaining

with the debtor was an unreasonably small capi-

tal; or

(iii) intended to incur, or believe that the

debtor would incur, debts that would be beyond

the debtor’s ability to pay as such debts

matured.

(b) The trustee of a partnership debtor may avoid

any transfer of an interest of the debtor in property, or

any obligation incurred by the debtor, that was made or

incurred on or within one year before the date of the

filing of the petition, to a general partner in the debtor, if

the debtor was insolvent on the date such transfer was

made or such obligation was incurred, or became insol-

vent as a result of such transfer or obligation.

(c) Except to the extent that a transfer or obligation

voidable under this section is voidable under section 544,

545, or 547 of this title, a transferee or obligee of such a

transfer or obligation that takes for value and in good

faith has a lien on or may retain any interest transferred

or may enforce any obligation incurred, as the case may

be, to the extent that such transferee or obligee gave

value to the debtor in exchange for such transfer or

obligation.

(d)(1) For the purposes of this section, a transfer is

made when such transfer is so perfected that a bona fide

purchaser from the debtor against whom applicable law

permits such transfer to be perfected cannot acquire an

interest in the property transferred that is superior to the

interest in such property of the transferee, but if such

transfer is not so perfected before the commencement of

3a

the case, such transfer is made immediately before the

date of the filing of the petition.

4a

Rule 37.3 Consent to Filing

Amicus Curiae Brief

Ray Woolsey

Attorney at Law

113 Via Venezia

Newport Beach, CA 92663-5516

July 1, 1993

Lawrence A. G. Johnson, Esq.

Attorney at Law

2535 East 21st Street

Tulsa, Oklahoma 74114

Re: BFP v Resolution Trust Corp. No. 92-1370

Dear Mr. Johnson:

As requested in your letter, I hereby consent to the

filing of an amicus curiae brief in the above captioned

case.

Very Truly Yours,

/s/ Ray Woolsey

Ray Woolsey

5a

EZER, SMENT & WILLIAMSON

1888 Century Part East

Suite 2020

Los Angeles, California 90067-1706

(310) 277-7747

Fax: (310) 277-2576

Michael R. Sment 674 County Square Drive

Suite 108A

Ventura, CA 93003

(805) 654-0311

Fax: (805) 984-2399

June 30, 1993

Lawrence A. G. Johnson BY FACSIMILE

JOHNSON & SWENSON AND US. MAIL

2535 East 21st Street

Tulsa, Oklahoma 74114

Re: BFP v. RTC

United States Supreme Court No. 92-1370

Dear Mr. Johnson:

In response to your letter of June 25, 1993, my clients

Paul Osborne, et al., Repondents/ Appellees in the pend-

ing appeal, hereby consent to your client, Jim Walter

Homes, Inc., filing an amicus brief in the above-captioned

case. For your information, the Petitioner’s/Appellant’s

brief is due July 8, 1993.

Please call me if you need anything else or have any

questions. Thank you for your interest and assistance.

Very truly yours,

/s/ Michael R. Sment

MICHAEL R. SMENT

MRS:sat

6a

(SEAL) U. S. Department of Justice

Office of the Solicitor General

Washington, D.C. 20530

June 29, 1993

Lawrence A.G. Johnson, Esquire

Johnson & Swenson

Attorneys and Counselors at Law

2535 East 21st Street

Tulsa, Oklahoma 74114

Re: BFP v. Resolution Trust Corp., No. 92-1370

Dear Mr. Johnson:

As requested in your letter of June 25, 1993, | hereby

consent to the filing of an amicus curiae brief in the above-

captioned case.

Sincerely,

/s/ Drew S. Days, Ill/as

Drew S. Days, Ill

Solicitor General

cc: William K. Suter, Esq.

Clerk

Supreme Court of the United States

Washington, D.C. 20543