Can Payment To A Fully Secured Mortgagee Be A Preference?

Law360, New York (February 5, 2014, 12:36 PM EST) -- Surprisingly, the answer may be “yes.”

If you follow the reasoning of a recent bankruptcy case, a payment to a fully secured first mortgagee may be recovered from the first mortgagee, or possibly even a second mortgagee. In Gladstone v. Bank of America (In re Vassau), 499 B.R. 864 (Bankr. S.D. Cal. 2013), the Bankruptcy Court for the Southern District of California held that a payment made on a fully secured first mortgage was a preference recoverable from an undersecured junior mortgagee whose equity in the...
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