The Bankruptcy Trustee sued to invalidate the mortgage lien of a lender, recorded outside the "safe harbor" provisions of the bankruptcy code, and within the preference period. While the case was pending, the parties stipulated to the sale of the real property, creating a fund of approximately $170,000. The lender argued that state law concepts of "lis pendens" and "equitable subrogation" operated to defeat the strong arm powers of the Trustee, as a bona fide purchaser without notice, to invalidate the claimed mortgage lien. In a case of first impression, Judge Kier ruled in favor of the lender. Judge Kier's decision permitted the lender to take the fund. The Trustee appealed to the U.S. Court of Appeals for the Fourth Circuit. The case was settled before appellate briefs were filed.
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