The District Court reversed, ruling that Trustee had adequate notice of the claimed exemption through the schedules taken as a whole and that under Taylor, the Trustee's motion was barred because he failed to object within the 30-day deadline under Bankruptcy Rule 4003.
Noting that Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), was no longer controlling and, further, that Debtors claimed their exemptions under section 522(d) rather than under section 522(g), the Third Circuit ruled that the Trustee had no duty to object within 30 days under the facts in this case. In so doing, the Third Circuit agreed with the lower court that the asset Debtors' claimed as exempt under section 522(d) was separate and distinct from the proceeds from the sale of the residence.
The Third Circuit further concluded that the defective First Mortgage was still valid as to Debtors, but not as to subsequent bona fide purchasers or junior lienholders. See, e.g., In re Buchholz, 224 B.R. 13 (Bankr. N.J. 1998)(ruling that an improperly recorded mortgage was unsecured as of the date of bankruptcy filing, but that the debtor was still obligated to pay it under New Jersey law).
Ralph T. Wutscher
McGinnis Wutscher LLP
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