A Second Look: United States Bankruptcy Court for The District of New Jersey Clarifies Start of Look-Back Periods for Avoidance Actions Involving Real Property

Debtors and trustees seeking to avoid the hardship of a foreclosure often attempt to employ sections 547 and 548 of the Bankruptcy Code.[1] In accordance with the former section, a debtor may avoid any transfer of an interest in property “on or within 90 days before the date of the filing of the petition.” When there is an allegation of a fraudulent transfer, the latter section provides, “The trustee may avoid any transfer . . . incurred by the debtor that was made or incurred on or within two years before the date of the filing of the petition.”

Because these look-back periods extend the time when a debtor can avoid certain transfers, the threshold determination of when the applicable period starts is crucial to assess whether these provisions are available to the debtor. A recent adversary proceeding in the United States Bankruptcy Court for the District of New Jersey, Cedrick Goodman v. MTAG as Custodian for Alterna Funding I, LLC, et al. Adv. Pro. No.: 20-01162[2], provides important guidance applicable when a lender files a lis pendens[3] years before the debtor files for bankruptcy.

The debtor filed for chapter 13 on January 15, 2020. About two months later, the debtor initiated an adversary proceeding to avoid the transfer of real property located in New Brunswick, New Jersey (“Property”) resulting from a final judgment of foreclosure entered on December 27, 2019, and to re-vest title of the Property in the debtor’s name. After a previous unsuccessful attempt, the debtor’s lender filed a second motion to dismiss the adversary proceeding on February 23, 2021. The lender’s primary argument was based on the recording date of the underlying lis pendens, September 17, 2015. The lender contended that because the lis pendens was recorded more than four years before the final judgment of foreclosure was entered, the debtor was foreclosed from asserting a claim under either section 547 or section 548 of the Code.

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