Watts, Ch. 7 Trustee v. Argent Mortgage Company, LLC, No. 07-14615, 2008 WL 5257157 (11th Cir. December 18, 2008).

 The facts are as follows:

On July 8, 2004, debtor Santrice Hunt purchased a house from Bellwood Homes. At closing, Bellwood gave her a warranty deed to the property, and she, in turn, executed and gave Argent two notes and two security deeds. On July 14, 2004, with the proceeds from the loan secured by the security deeds, Bellwood paid off its construction money lender and obtained the cancellation of the security deed the lender was holding on the property. The cancellation of Bellwood’s lender’s security deed was recorded on August 15. One of the security deeds Hunt gave Argent was recorded on August 19; the other security deed and Bellwood’s warranty deed to Hunt were recorded on September 22. On October 18, 2004, Hunt petitioned the bankruptcy court for Chapter 7 relief. The 90th day before Hunt filed her petition was July 20, 2004.

The Trustee sought to avoid the transfers of the security deeds pursuant to 11 U.S.C. §547(b)(4)(A).  The Bankruptcy Court ruled against the Trustee and the District Court affirmed.

The Eleventh Circuit also affirmed and ruled against the Trustee.

A transfer is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee

We look to the law of Georgia, the state where the property is located, to determine if a hypothetical bona fide purchaser should have notice that it could not acquire an interest superior to that of the transferee. …. Georgia recognizes inquiry notice, which imputes knowledge of an earlier interest to a later purchaser, if there is “[a]ny circumstance which would place a man of ordinary prudence fully upon his guard, and induce serious inquiry.” …This concept is codified in O.C.G.A. § 23-1-17…
Here, by July 14, 2004-i.e. prior to the 90-day reachback period-a hypothetical bona fide purchaser would have found record title in Bellwood and Hunt’s possession of the property. This was sufficient to excite attention and trigger a duty of inquiry on the part of the hypothetical purchaser. Such inquiry would have revealed that Hunt purchased the property and delivered two security deeds to Argent as collateral for Argent’s provision of the purchase proceeds. The hypothetical purchaser would also have found that Bellwood had paid its lender and received an as-yet unrecorded cancellation of its lender’s security deed. …
Because the hypothetical bona fide purchaser would be deemed to have notice of Argent’s security deeds, Argent would have an interest superior to that of the purchaser… Thus, Argent’s security deeds were perfected from July 14, 2004, the date a bona fide purchaser would have had such notice. Because the date of perfection was within 10 days of the date of the transfer of property, the transfer was “made” on the date it took effect, July 8, 2004. 11 U.S.C. § 547(e)(2)(A) (2000). Accordingly, the transfer was made before the 90-day reachback period commenced on July 20, 2004, and the trustee may not avoid the deeds under section 547(b)(4)(A).