First Circuit Notes Split re: Whether 10-day Requirement for Perfecting Security Interest of a New Lender Under 11 USC § 547 May Be Extended

Per In re Lazarus, 478 F.3d 12, (1st Cir. Jan. 09, 2007):

Because of the failure to perfect within 10 days, we must (under section 547(e)(2)(B)) treat the property transfer as occurring on recordation on July 15, 2004; because the debt arose earlier-either on June 22 (when the note was signed) or July 1 (when the funds were disbursed)-it is antecedent but by only two or three weeks. GAMC says that this is contemporaneous enough; the trustee, that the 10-day period specified in section 547(e)(2) should control.

Section 547(c)(1) was aimed, as its legislative history shows, at a generic problem: those on the verge of bankruptcy still need to buy things ( e.g., groceries or household items) and the fact that checks are used (with a brief gap between purchase and payment) ought not render the payment avoidable as one made for an antecedent debt. H.R.Rep. No. 95-595, at 373 (1977).

By contrast, section 547(e)'s 10-day limit is directed specifically to mortgages and applies even if the loan and mortgage are exchanged simultaneously. Congress' concern, therefore, was not with whether the exchange was simultaneous or nearly so, but with getting the mortgage recorded within a reasonably brief and predefined period. The aim was to combat secret liens and protect those who might lend in ignorance of the mortgage.

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The cases on this precise issue are few and are divided. One circuit has flatly rejected the attempt to use section 547(c)(1) to extend the 10-day period, while another has allowed such an extension, supported by a summary affirmance in another circuit of such an extension by a bankruptcy appellate panel where the delay in perfection was satisfactorily explained.FN8 But nothing in the latter two cases does anything to answer our concern that this is simply an end run around the 10-day limit and so a disregard of Congress' specific intent.

FN8. Compare In re Arnett, 731 F.2d 358, 364 (6th Cir.1984), with In re Dorholt Inc., 224 F.3d 871, 874 (8th Cir.2000), and In re Marino, 193 B.R. 907, 915 (9th Cir. BAP 1996), aff'd, 117 F.3d 1425 (9th Cir.1997). Yet another circuit decided a similar issue in the state insurance context (relying on interpretations of the federal bankruptcy code), Pine Top Ins. Co. v. Bank of Am. Nat'l Trust and Sav. Ass'n, 969 F.2d 321 (7th Cir.1992), and its holding has been expanded by other courts to federal bankruptcy. See In re McLaughlin, 183 B.R. 171, 175 (Bankr.W.D.Wis.1995). But see In re Messamore, 250 B.R. at 920 & n. 11 (noting that Pine Top might not be controlling, but finding a failure to meet even this flexible standard). In the context of section 547(c)(3), other circuits have held that section 547(c)(1) cannot be used to give more flexibility to the limitation given in section 547(c)(3). See, e.g., In re Davis, 734 F.2d 604, 606-07 (11th Cir.1984).