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Winter 2006-09 Transfer of title occurs when court marshal signs the deed of judicial sale

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Number 62
Winter 2006

Transfer of title occurs when court marshal signs the deed of judicial sale

Does title to foreclosed property pass at the public auction, or when the court marshal subsequently executes the deed of judicial sale? Is the signing f the deed a mere formality? In Ramos Rodríguez v. Inmobiliaria Naihomy, 2005 Bankr. LEXIS 2304, the U.S. Bankruptcy Panel for the First Circuit said that the deed is more than a formality; that it is the event that actually transfers title.

Doral Financial Corporation foreclosed on Raúl Ramos Rodríguez's house. Judgment was entered for the lender in May, 2001, and the public auction commanded by Puerto Rico law took place on April 6, 2004. On April 13 the court marshal signed the public deed to transfer title to Doral, but not before Ramos filed for bankruptcy, which had the effect of staying the whole process.

Permission to evict

Two months later Doral requested the Bankruptcy Court's leave to evict Ramos. Doral alleged that it was then the legal owner of the property. The debtor's opposition to the motion was based on the premise that the creditor did not receive title because the bankruptcy filing-and thus the automatic stay-had preceded execution of the deed. Doral's position was that it had received title on April 6, the date of the auction.

Property of the estate

If title transferred to Doral at the auction, then the house in question was not the property of the bankruptcy estate, but of Doral. Otherwise, Doral could not evict because the house did not belong to it.

The Bankruptcy Court had ruled that in a public auction the marshal's execution of the deed is merely symbolic, but the panel disagreed, following what it called the literal interpretation of Rule 51.8 of Puerto Rico Civil Procedure: "When real property is sold, the officer in charge of the sale shall execute a public deed in favor of the purchaser . . ." The panel also cited the Puerto Rico Supreme Court's opinion in the case of Varcarcel v. Sancho,Treasurer, 61 P.R.R. 207 (1942), to the effect that ownership of a thing sold does not vest in the purchaser until its delivery. When the thing sold is real estate, the method of delivery is execution of the deed of sale.

The Bankruptcy Panel did not seem to be too sure of its ruling, as it added the following note at the end:

"If and when appropriate, the Panel recommends that parties to future litigation over this issue seek review by the Puerto Rico Supreme Court, or the First Circuit Court of Appeals, so that litigants in Puerto Rico may have clear guidance and (overdue) predictability of result on this issue. In the meantime, to the extent that it may be persuasive, although not binding, this Panel rules that the Decision appealed is REVERSED, and REMANDED to the Bankruptcy Court, with instruction to enter judgment consistent with this opinion."


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