In a California transaction, the buyer receives a grant deed that is properly executed and delivered but NOT recorded. One month later, the grantor files for bankruptcy. The bankruptcy trustee claims the property is part of the bankruptcy estate. Under California law, what is the MOST likely outcome?
Correct Answer
D) The bankruptcy trustee prevails because the trustee has the rights of a bona fide purchaser under the Bankruptcy Code, and the deed was not recorded
Under 11 U.S.C. §544(a)(3), a bankruptcy trustee has the status of a hypothetical bona fide purchaser of real property as of the date of the bankruptcy filing. Since California is a race-notice state (Civil Code §1214), a bona fide purchaser who records first without notice prevails over an unrecorded interest. The trustee, as a hypothetical BFP, can avoid the unrecorded transfer, making the property part of the bankruptcy estate.
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During escrow for a property in Sacramento, the title company discovers a recorded abstract of judgment against the seller for $45,000. The buyer is concerned about proceeding with the purchase. What must happen before the title company will issue a clean title insurance policy?
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