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Michigan Court – Release of a Security Interest and Receipt of Payment By the Defendant is a Contemporaneous Exchange, Even though the Release Occurred Weeks Before the Payment was Made

In re Rosich, 558 B.R. 199 (Bankr. W.D. Mich. 2016)

Defendant Christopher Rosich made a loan to his mother, Carol K. Rosich (Debtor) which he secured by obtaining a security interest in a vehicle titled in her name. After a few years, the Debtor decided to sell the car and instructed her son, the Defendant to get the certificate of title ready to be delivered to a buyer. The Defendant signed the certificate of title for the release of liens on August 12, 2012. Subsequently, a few weeks later, the Debtor closed the sale of a vehicle to Mr. King, who paid the Debtor $6,000.00.The Debtor deposited the $6,000.00 in her daughter’s savings account for the Defendant’s benefit on September 14, 2012, and asked the Defendant to send the certificate of title. The Trustee sought to avoid this transfer as a preference. The Defendant asserted that the alleged transfer was a contemporaneous exchange under §547(c)(1).

The Court agreed with the Defendant and found that the Debtor and her son intended the transaction to be a contemporaneous exchange. The Defendant and his mother decided that the Defendant would release the lien upon the sale of the car, which is in fact what happened. So, when the Defendant released his security interest, he gave “new value” to the Debtor as defined in §547(a)(2) and received payment (via the deposit into the savings account for his benefit) a few days later. The Court stated that although the Defendant signed the certificate of title for the release of liens on August 12, 2012, he did not release his interest until he delivered the certificate of title several weeks later after his mother sold the vehicle to Mr. King. However, the Court stated that this doesn’t mean that the transfer cannot be a contemporaneous exchange because it was the nature and the mechanics of this particular transaction, which prevented the exchange from being simultaneous. The Court added that the contemporaneous exchange defense is flexible enough to protect certain substantially contemporaneous exchanges like the one that occurred here between family members in different parts of the country at the time of the transaction. Thus, the Court held that the exchange in the present case, though not simultaneous, was intended to be substantially contemporaneous and thus, the Court ruled for the Defendant.