BFP v. Resolution Trust Corp.
511 U.S. 531, 114 S. Ct. 1757, 128 L. Ed. 2d 556 (1994)

  • Barton and the Petersons formed BFP to speculate on real estate. They bought a house using a loan from Imperial Bank (who later sold the loan to Resolution).
  • BFP defaulted on the loan and the bank foreclosed. Imperial then sold the house for $433k.
    • The assessed market value of the house was $725k.
  • After the sale, but before Imperial could transfer the deed to the buyer, BFP declared bankruptcy. BFP sued for an injunction to block the sale.
    • BFP argued that Federal bankruptcy law (11 U.S.C. 548(a)(2)(A)) guarantees that debtors receive reasonably equivalent value for a foreclosed property.
    • BFP argued that the reasonably equivalent value was equal to the market value of the property in question.
  • The Trial Court found for Imperial. BFP appealed.
  • The Appellate Court affirmed. BFP appealed.
  • The US Supreme Court affirmed.
    • The US Supreme Court looked to the plain meaning of the word reasonable in the Statute and found that that the value received for a property at a foreclosure sale can be reasonable even if it is different from the fair market value.
      • The Court reasoned that a house in foreclosure will sell for a lower price than a house that isn't.
      • The Court found that the price at which the property is sold is reasonable so long as "all the requirements of the State's foreclosure law have been complied with."
        • Basically, the Statue is there to stop fraud, and there was no accusation of fraud in this case. The sale price in this case does not 'shock the conscious'.
      • There was no Statutory definition of fair market value.
    • Because Congress used different terms (fair market value and reasonably equivalent value) in the Statute, the Court found that they must have meant that there was a difference.
      • The meaningful variation doctrine.
  • In a dissent it was argued that the Court could have come up with a definition of reasonably equivalent value. It's a pretty clear term, so the Court should be able to find a definition for it.
    • In addition, the dissent argued that the legislative history shows that Congress meant for the Statute to deal with things like this.
  • In this case, by using the meaningful variation doctrine, the majority refused to define the term reasonable equivalent value and therefore basically ignore the clear purpose of the Statute.