Collins v. JP Morgan Chase Bank, N.A. (In re
Flannery), 513 B.R. 1 (Bankr. D. Mass. 2014) –
A chapter 7 trustee sought to avoid as a preference a
mortgage that was recorded within 90 days before a bankruptcy
filing. The mortgagee defended on the basis that it was protected
by the "earmarking" doctrine and because it would have
been entitled to receive all of the proceeds of the property anyway
based on its junior mortgage.
The mortgagee held both first and second priority mortgages on
property of the debtors. In connection with refinancing the first
priority mortgage, the debtors executed a new mortgage and the
lender executed a subordination confirming that the second mortgage
remained a junior mortgage. The new loan was used to pay off the
old loan on January 25; a discharge of the old mortgage was
recorded on February 12; and the new mortgage was recorded on
April 18.
