WILLIAM A. HILL, JUDGE, U.S. BANKRUPTCY COURT
By Complaint filed August 25, 1999, the Chapter 7 trustee, Kip M. Kaler, relying upon section 547 of the Bankruptcy Code, seeks to avoid two mortgages held by the Defendants, David A. Overboe ("Overboe") and John R. Wentz ("Wentz"), preserving their value for the Chapter 7 estate as consistent with section 551 of the Bankruptcy Code.
The principal defense raised by both Defendants is that as the mortgages in question attached to real property comprising the Debtors' homestead, the mortgaged property was not property of the estate and therefore, section 551 cannot be used to preserve the transfer for the estate.
Trial was held on December 20, 1999.
Findings of Fact
The Debtors, Roger and Carol Arzt, filed a petition for relief under Chapter 7 on March 30, 1999. In Schedule A, they list as their only real property, Lot 16, Block 1, Tintes Land Company 3rd Addition to the City of West Fargo. This is property upon which they have resided since 1991 and which constitutes their homestead.
On Schedule C, filed April 14, 1999, the above-described real property was claimed as exempt homestead pursuant to North Dakota law.
Roger Arzt developed long standing professional and business relationships with each of the Defendants and owed them considerable amounts of money. When his plumbing business failed and bankruptcy was eminent, he was determined not to leave the Defendants unpaid. He approached each of them offering a mortgage on his residence as security for what he owed.
On March 26, 1999, just four days prior to filing of the bankruptcy petition, the Debtors executed a mortgage in favor of Overboe in the sum of $12,000.00. Also on March 26, 1999, Wentz was given a mortgage in the sum of $58,000.00. of the $12,000.00 reflected by the Overboe mortgage, $9,135.00 was owed for antecedent services with the balance being incurred for contemporaneous services provided in connection with the Debtors' bankruptcy filing. Thus, it appears $2,865.00 represents new value.
The Defendants concede that the mortgages evidenced a transfer of an interest of the Debtors in property; that the mortgages were made for the benefit of creditors on account of an antecedent debt (except for a certain sum given by Overboe to secure new value); that the transfers were made within ninety days of bankruptcy filing while the Debtors were insolvent and allowed the Defendants to receive more than they would have had the transfers not been made.
Conclusions of Law
In light of the factual concessions by the Defendants, just recited, all elements essential for avoiding the mortgages as preferences under section 547 (b) have been met. The mortgage lien in favor of Overboe in the sum of $9,135.00 is avoidable as a preference as is the mortgage lien in favor of Wentz in the sum of $58,000.00.
The Defendants' quarrel, however, is not with section 547 and its application, but with the applicability of section 551 in view of the fact that the property against which the two mortgages lie is claimed as the Debtors' homestead.
Section 551 of the Code enables the Chapter 7 estate to acquire the rights of the holder of the avoided lien. This section provides:
"Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724 (a) of this title, or any lien void under section 506 (d) of this title, is preserved for the benefit of the estate but
only with respect to property of the estate. (emphasis added)
It is with the highlighted language that the Defendants' argument finds voice. They argue that as the property involved is exempt homestead property it is not "property of the estate." This is not a new argument but is one that has been made to the Court in a previous case and one which the Court in that case thoroughly addressed. In re Wegner, 210 B.R. 799, Bankr. D.N.D. 1997), affirmed in In re Wegner, 162 F.3d 1166 (8th Cir. 1998) (finding that the well-reasoned opinion of the Bankruptcy Court correctly discusses and decides the issues in dispute). In Wegner it was explained that exemptions do not exist in advance of bankruptcy case commencement but are carved out of the bankruptcy estate that comes into being upon petition filing. The Defendants invite the court to revisit Wegner and reconsider the point in time when property is "property of the estate" for purposes of section 551. They posit that the time to make the test is not case commencement but rather at some later point during case administration when an adversary proceeding or other contested matter arises directly placing the issue in contention. The Defendants' argument is novel but finds no purchase either in the Code or case law. Wegner remains controlling of the issue.
Conclusion
The mortgage held by David A. Overboe is hereby avoided as a preference in the sum of $9,135.00 pursuant to section 547. The mortgage held by John R. Wentz in the sum of $58,000.00 is hereby avoided pursuant to section 547. The trustee, Kip M. Kaler, by virtue of section 551, succeeds to the respective mortgage interests of David A. Overboe in the sum of $9,135.00 and John R. Wentz in the sum of $58,000.00.
JUDGMENT MAY BE ENTERED ACCORDINGLY.
SO ORDERED.
Dated this 5th day of January, 2000.