STEPHEN MITCHELL, Bankruptcy Judge
This case is before the Court on the debtor's motion under F.R.Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(6) to dismiss the plaintiff's First Amended Complaint Objecting to Discharge for failure to state a claim upon which relief can be granted and for sanctions pursuant to F.R.Bankr.P. 9011(a). The Court has considered the pleadings, the briefs of the parties, and the arguments of counsel at the hearing held on January 3, 1995, and concludes, for the reasons set forth herein, that the motion to dismiss and the motion for sanctions should be denied.
The debtor, Benjamin Tsui ["Tsui"], filed a voluntary chapter 7 petition in this court on July 20, 1994. The plaintiff, La Ruche of White Flint, Inc. ["La Ruche"], filed a timely complaint to bar Tsui's discharge in bankruptcy pursuant to 11 U.S.C. § 727(a)(2)(A).
Plaintiff's complaint objecting to discharge was filed on October 18, 1994. The First Amended Complaint Objecting to Discharge was subsequently filed on November 21, 1994.
Under familiar principles, the well-pleaded facts in the plaintiffs complaint, on a motion to dismiss, must be taken as true and must be construed in the light most favorable to the plaintiff. Conley v. Gibson, 355 U.S. 41 (1957).
Although the complaint may be fairly described as sketchy, the essential allegations are clear enough. On October 4, 1990, La Ruche obtained a judgment by confession against the debtor in the amount of $237,252.80 plus interest in the Circuit Court of Montgomery County, Maryland. On or about October 19, 1990, Tsui was personally served with a copy of the Circuit Court's Notice of Entry of Judgment by Confession. Four days later, October 23, 1990, Tsui executed a deed of trust allegedly securing a debt to Lang Buu Trau ["Trau"] in the amount of $60,000.00. (The Court was advised at oral argument that Trau is the debtor's mother.) The property with respect to which the deed of trust was given is not described in the complaint, but the debtor's schedules reflect that on the date of filing he owned, as joint tenants with his father and sister, real property described as 8360 1st Avenue, Vienna, Virginia. The property is valued on the debtor's schedules at $230,000.00 and is shown as subject to a first lien deed of trust in favor of Prudential Home Mortgage in the amount of $143,933.03, a second trust in favor of Lang Buu Trau in the amount of $60,000.00, and a judgment lien in favor of La Ruche of White Flint, Inc. the amount of $237,332.80.
The debtor's schedules give the name as Tran rather than Trau.
Although the complaint alleges that the deed of trust was recorded on November 7, 1994, this appears to be a typographical error, and the Court assumes that November 7, 1990, was intended.
La Ruche asserts that Tsui never received the consideration stated in the deed of trust, and that, in fact, the debtor never actually borrowed any funds from Trau. The plaintiff contends that the debtor "in an attempt to conceal his assets fabricated a paper transaction designed to shield" his only real asset, the equity in the Vienna property, from his principal creditor — the plaintiff.
Section 727(a)(2)(A) of the Bankruptcy Code provides:
(a) The court shall grant the debtor a discharge, unless —
* * *
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed —
(A) property of the debtor,
within one year before the date of the filing of the petition . . .
11 U.S.C. § 727(a)(2)(A) (emphasis added).
By its terms, this provision applies only to deceitful conduct occurring within the one year period prior to bankruptcy. It is this limitation on § 727(a)(2)(A) that forms the basis of debtor's motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The debtor asserts that because the transfer-the execution and recording of the deed of trust-occurred more than three and one-half years before the commencement of the bankruptcy proceeding, the § 727(a)(2)(A) window is permanently closed. The plaintiff, however, argues that its claim is actionable under § 727(a)(2)(A) because the focus of the complaint is on the debtor's continuingconcealment of his equity in the property through the device of a sham deed of trust. Accordingly to the complaint, the debtor, "in furtherance of his intent to conceal his assets, has listed the fabricated debt as a debt on the schedules which he has caused to be filed with this Court" (Plaintiff's First Amended Complaint, ¶ 9).
The plaintiff is correct that existing case law does recognize that a transfer occurring more than one year prior to the petition may warrant the denial of discharge if the transfer is concealed or beneficial interests are retained within the one-year period and the requisite intent to hinder, delay, or defraud is present. In re Penner, 107 B.R. 171, 173 (Bankr.N.D.Ind. 1989). The plaintiff relies chiefly on two cases in support of its position: Rosen v. Bezner, 996 F.2d 1257 (3d Cir. 1993) and In re Olivier, 819 F.2d 550 (5th Cir. 1987). These cases emphasize that a "concealment will be found to exist during the year before bankruptcy even if the initial act of concealment took place before the one year period as long as the debtor allowed the property to remain concealed into the critical year." Rosen v. Bezner, 996 F.2d at 1531.
Rosen and Olivier both involved outright conveyances, without consideration, of record title to real estate in which the debtor continued to reside, a fact situation somewhat different from that presented by the present case. Nevertheless, the analysis in Rosen that concealment may exist where "the transfer of title represents to the world that the debtor has transferred away all of his interest in the property while in reality he has retained some secret interest" Id., is equally apposite to a situation where a debtor, although retaining record title, has attempted to conceal his equity interest in real estate by causing a fictitious lien to be recorded against it.
The debtor argues that his actions cannot be considered "concealment" because the October 23, 1990 deed of trust, as well as the interest owned by debtor and his two joint owners, were publicly disclosed both in the land records of Fairfax County and in the debtor's bankruptcy schedules. That, of course, begs the question: the critical issue under the concealment provision is "whether there is concealment of property, not whether there is concealment of a transfer." Id. at 1532 (emphasis added). As numerous cases have recognized, the concept of concealment is broad enough to include the open transfer of legal title to a third party with the retention of a secret interest by the debtor. Minsky v. Silverstein (In re Silverstein), 151 B.R. 657, 661 (Bankr.E.D.N.Y. 1993). Put another way, the crux of the complaint is not the failure to disclose a "transfer" but rather the failure to disclose that the transfer was a fabrication. In the case at hand, the plaintiff asserts that Trau never actually loaned any money to the debtor, and, as a result, the deed of trust was simply a sham designed to shield the debtor's equity in the property.
For the foregoing reasons, the Court concludes that the complaint sufficiently alleges facts that, if proven at trial, could constitute concealment of property of the debtor within the year prior to bankruptcy under Section 727(a)(2)(A). Accordingly, an order will be entered denying the debtor's motion to dismiss. As the Court has determined that the plaintiff's complaint has a colorable legal basis, there is no need to address the debtor's motion requesting sanctions, and the motion for sanctions will be denied, without prejudice to the debtor's right to renew the motion if it should later appear that there was no reasonable factual basis to support the filing of the complaint or its continued prosecution.