Lender Alert: Bankruptcy Court Holds that Mortgage with Incorrect Legal Description is Avoidable in Bankruptcy

Lender Alert: Bankruptcy Court Holds that Mortgage with Incorrect Legal Description is Avoidable in Bankruptcy | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In a recent decision of consequence to mortgage lenders, the United States Bankruptcy Court for the District of Massachusetts concluded that a Chapter 7 Trustee may avoid a debtor’s mortgage and maintain it for the benefit of the bankruptcy estate. See Eastern Bank v. Benton (In re Thomas H. and Nancy C. Benton), 2016 WL 53581 (Bankr. D. Mass. Jan. 4, 2017). Simply put, the Bankruptcy Court held that, when a mortgage contains a correct street address but an incorrect legal description, the mortgage lien is avoidable by the bankruptcy trustee in his or her role as a hypothetical bona fide purchaser of a debtor’s property under section 544 of the Bankruptcy Code.

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