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On July 19, the Third Circuit Court of Appeals entered a decision upholding the results of a foreclosure sale against a debtor’s allegation that the sale was a preference because the bankruptcy estate could have sold the property for a higher price. Veltre v. Fifth Third Bank (In re Veltre), Case No. 17-2889 (3d Cir. July 19, 2018).
Veltre’s home was encumbered by two mortgages prior to her bankruptcy; a senior mortgage in favor of Capital One Bank and a second mortgage held by another bank. Veltre defaulted on her loan, at which point the first lienholder foreclosed and the property went to sheriff’s sale. At the sale, the second lienholder purchased the home at auction for $90,000, which paid off the first mortgage in full.
Veltre later filed for bankruptcy and sued to avoid the foreclosure sale as a preferential transfer to the second lienholder. Among other things, this required her to show that the second lienholder received more than it would have in a Chapter 7 liquidation. Veltre’s theory was that the foreclosure sale suppressed the price of the real estate, and that in Chapter 7, the home would have sold for a greater amount. Thus, the second lienholder received a better deal in the foreclosure sale than it would have in bankruptcy. Veltre did not allege that the foreclosure sale was collusive or that it failed to comply with state law.
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