• Bankruptcy Court Denies Debtor's Objection to Claim Transferee's Claim
  • June 24, 2009
  • Law Firm: - Office
  • In the recent decision of In re T P & J Corp.,1 the U.S. Bankruptcy Court for the Southern District of Indiana denied the debtor’s objection to a claim that had been transferred to a title company by the debtor’s former owner. In T P & J Corp, the debtor had secured a debt owed to the debtor’s former owner by granting a mortgage on three properties. The debtor subsequently borrowed money from a bank, and in order to secure the note, the debtor granted a mortgage on one of the properties. Due to the title company’s failure to note the existence of the pre-existing lien on the property, the bank believed that it had a first mortgage on the property. The bank later discovered the error of the title company when the debtor filed a motion to sell the property.

    The bank objected to the sale of the property and also filed an adversary proceeding alleging that the pre-existing lien should be set aside. In connection with efforts to settle the dispute and in an attempt to offset the bank’s damages, the title company bought the $370,000 claim of the debtor’s former owner for $320,000. The former owner’s claim was assigned and transferred to the title company as a part of the settlement.

    The debtor objected to the title company’s claim, arguing that by buying the former owner’s claim, the title company was attempting to avoid the financial consequences of its own negligence and was merely pursuing its own economic self-interest, since the title company was liable under the title insurance policy for the bank’s loss. Although the Bankruptcy Court agreed with the Debtor that the title company did buy the claim in order to minimize its loss and avoid the financial consequences of its own negligence, the Court denied the debtor’s objection to the claim since the title company owed no fiduciary obligations to the debtor, and there is no statutory impediment to the allowance of the claim.

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    In re T P & J Corp., 51 BCD 121 (Bankr. S.D. Ind. 2009).