Case No. 00-61211-T, Chapter 7United States Bankruptcy Court, E.D. Virginia, Richmond Division
January 17, 2002
MEMORANDUM OPINION AND ORDER
DOUGLAS O. TICE, JR., Chief Judge
Hearing was held on December 20, 2001, on trustee’s motion to sell property outside the ordinary course. At conclusion of hearing, the court made a bench ruling denying the trustee’s motion. This opinion supplements the court’s bench ruling.
Findings of Fact.
Debtor filed her chapter 7 petition on October 28, 2000. Keith L. Phillips serves as her trustee in bankruptcy.[1]
Debtor and Ranjit Edwards (Mr. Edwards) are co-owners as tenants in common of real property, including the subject realty located at 1301 Dixon Street in Fredericksburg, Virginia. They received their ownership of real property through the will of debtor’s mother.
On March 14, 2001, Chase Manhattan Bank, present holder of a first deed of trust on the Fredericksburg realty, was granted relief from automatic stay. The relief was consented to by the trustee, who determined that he had no interest in the property because of debtor’s nominal equity.
On October 18, 2001, the trustee contracted with the co-owner Mr. Edwards to sell debtor’s interest in the subject realty to Mr. Edwards for the sum of $2,500.00,[2] after which the trustee filed the present motion to authorize the sale.[3]
On December 5, debtor filed a response objecting to the trustee’s motion. Her response stated that: 1) she has requested that the U.S. Trustee conduct a thorough investigation of the handling of her case by the chapter 7 trustee, 2) she has made several attempts to challenge the validity of her mother’s will; if her mother’s will is ruled invalid, Mr. Edwards will not be a legal heir to the property,[4] 3) she was coerced into signing the deed of trust under duress, and 4) she received notification of the contract for sale to Mr. Edwards one month and five days after the contract was executed.
Discussion and Conclusions of Law.
The trustee seeks to sell debtor’s interest in realty to the co-owner of the property pursuant to 11 U.S.C. § 363(b)(1). At hearing the trustee’s counsel advised the court that the trustee accepted Mr. Edward’s $2,500.00 offer to sell as being in the best interest of debtor’s estate inasmuch as the trustee had consented to relief from stay, and he had no interest in the property. Counsel stated also that debtor has another, more valuable interest in real property located at 3203 Stonesboro Road in Fort Washington, Maryland.[5] The trustee believes that debtor may have significant equity in this property, which has a current market value of approximately $200,000.00 to $300,000.00.
At hearing Mr. Edwards testified that he has been maintaining the deed of trust on the Virginia property since debtor filed her chapter 7 petition[6] and has also been paying the real estate taxes and insurance on the property. Debtor testified that she also had contributed to the Virginia property’s maintenance, that she disputes Mr. Edwards’ ownership interest, and that she intends to contest her mother’s will.
Under Virginia law, a co-owner of real property can compel other owners of the property to sell only by bringing a partition suit in a chancery proceeding. Partition suits are conducted under close scrutiny of the Virginia circuit courts. In this case, the co-owner seeks to acquire debtor’s interest in the subject realty by the simple expedient of purchasing her interest from the trustee. The court recognizes that it is only appropriate that the trustee, having effectively abandoned debtor’s interest in the property, recommends sale for whatever the interest will bring.
Code § 363(h) provides for the trustee to sell both the estates’s interest and the interest of a co-owner of property under § 363(b) only under conditions stated. One of these conditions requires the court to determine that “partition in kind of such property among the estate and such co-owners is impracticable; . . .” 11 U.S.C. § 363(h)(1) (2001). Where a trustee proposes to sell a non-consenting co-owner’s interest in estate property under § 363(h), an adversary proceeding is required so that the bankruptcy court can make an informed decision that the conditions to sale of the co-owner’s interest are met. Although the statute is not clear, I have usually allowed sales of a consenting co-owner’s interest without an adversary proceeding. Here, it is the debtor who does not consent to the sale, and her standing to object carries little, if any, weight. Nevertheless, this court, as a court of equity, should fairly balance the interests of all interested parties, including, of course, creditors of the estate.
Based on the evidence at hearing, the court believes there is a genuine issue between the property owners that should be resolved in accordance with Virginia law. The issue cannot be resolved by this court under the summary proceeding of a motion to sell.
Many months before contracting to sell the debtor’s interest in the realty, the trustee had relinquished that interest. Although a number of factors could have gone into his decision, the trustee in essence determined that the nominal value of debtor’s equity did not warrant the property being administered. In light of this fact, the court believes it would be quite unfair to deprive debtor of her interest in the manner proposed. The relatively slight benefit to creditors from the proposed sale does not justify the court’s approval.
Accordingly, IT IS ORDERED that the trustee’s motion to sell is denied.