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The Trustee's Power to Avoid a Mortgage

The Trustee has what is known as 'strong arm' avoidance powers contained under 11 U.S.C § 544 of the Bankruptcy Code. This code provision allows a bankruptcy Trustee the powers to avoid a mortgage on a debtor's real property. An unwittingly Debtor, who files a bankruptcy without knowing this potential and wishes to keep his home, unfortunately learns to late, particularly if they are a pro se filer, what the strong arm powers can do if the mortgage is avoidable.

Specifically, under section 544(a)(3) is where the strong arm clause is contained, and this leads to many adversary proceedings between the Trustee and the mortgage creditor. The Bankruptcy Court will look to the applicable state statutes where the mortgage was recorded, in determining whether the mortgage is in fact defective. Section 544 typically grants the Trustee the status of being the 'hypothetical bona fide purchaser' due to the notion that the Trustee is without notice of any third party's claim, until the debtor files the bankruptcy case that the Trustee is assigned to administer.

Under Michigan law, the bona fide purchaser is one who takes the real property for value, without any notice, or any such knowledge of an adverse interest on the real property. If there is found to be constructive notice, the mortgage is deemed to not be defective. Thus, the arguments by parties to the adversary action, typically revolves around whether notice or constructive notice is found or not.

The purpose of this blog is not to provide legal advice, but to merely give you an understanding that if you intend on pursuing a bankruptcy, there are many complexities and nuances and that some issues, if not identified prior to a bankruptcy filing can create major problems on the debtor who files for bankruptcy relief. I always find it best advice to hire an attorney who specializes in bankruptcy law, as there are too many pitfalls that await an individual who is not fully prepared to understand all the potential issues.

If you are struggling with too much debt, being garnished by a debt collector, medical debt, behind on mortgage payment, behind on vehicle payments etc., then please CALL US TODAY at 989-891-9780 for your free initial bankruptcy consultation. It is always good due diligence on your part to know all your options at your disposal to deal with this financial distress you find yourself in.

I have over 18 years of experience filing successful chapter 7 and chapter 13 cases, and would love to help you! I am so concerned about my clients that I have a 7-day availability to meet with them. Call me at (989)891-9780, even on weekends and if it’s late at night leave me a message, we will return your call/message. Call and schedule your FREE initial bankruptcy consultation, You can also schedule your free bankruptcy consultation on our website at

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