The Tenth Circuit Court of Appeals recently concluded that, under Colorado law, the recording of a lis pendens is not a “transfer” within the meaning of 11 U.S.C. Sec. 101(54)(D)(ii). The question was presented to the Court in the case of Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Company (In re Ute Mesa Lot 1, LLC), No. 12-1134, ---F.3d--- (10th Cir. 2013).
In Ute Mesa, the bank’s predecessor in interest recorded a trust deed in connection with a loan made to the debtor. However, due to an error in the trust deed, the recording was ineffective to give the bank’s predecessor a lien against the debtor’s property. Before the debtor filed bankruptcy, the bank commenced an action in Colorado state court seeking to reform the trust deed and recorded a lis pendens in connection with the action. Shortly thereafter, the debtor filed bankruptcy and commenced an adversary proceeding against the bank seeking to avoid the lis pendens as a preferential transfer under sec. 547(b). The bankruptcy court held, under Colorado law, the recording of a lis pendens only serves the limited purpose of providing notice of an action and does not create a lien or otherwise result in the transfer of an interest in property, and dismissed the debtor’s adversary proceeding. Both the district court and the Tenth Circuit affirmed.