Failure to Record Mortgage, an Error Compounded by Three Failed Challenges

Wells Fargo made a mortgage loan, then failed to record the mortgage for whatever (undisclosed) reason, so that, when borrower/homeowner filed for bankruptcy, Wells Fargo was a mere unsecured lender due to its failure to perfect its security interest by recording it.

Wells Fargo had been designated as a secured creditor throughout the bankruptcy due to an error of the debtor.  When Wells Fargo’s unsecured status came to light (about nine months after the bankruptcy case had been closed), the bankruptcy trustee reopened the case, filed a complaint against Wells Fargo, and won summary judgment before U.S. Bankruptcy Judge Nancy Dreher (D. Minn.) to avoid the transfer of mortgage to Wells Fargo as preferential (a transfer, if not perfected prior to filing for bankruptcy, is deemed to occur immediately prior to filing).

Wells Fargo appealed the adverse decision before U.S. District Court Chief Judge Michael Davis and lost again. And now Wells Fargo has lost before the U.S. Court of Appeals for the Eighth Circuit in an opinion by Judge Raymond W. Gruender (joined by Judges Smith and Riley).

An interesting aside in the case:  Wells Fargo argued that the $190,000 owed on the mortgage was not the actual value of the mortgage (and, thus it should have owed less than that to the estate) because this was not how much Wells Fargo, post-bankruptcy, sold it to EMC for.  Curiously, however, Wells Fargo submitted papers with the Court in the form of an affidavit, saying that it did not know how much it sold the mortgage to EMC for, as it was part of a bundle.  Under such circumstances, the Eighth Circuit held that this was not evidence as to the value of the mortgage.