Thanks to all who commented on my earlier post on the interaction of §§ 544(a)(3) and 551 and homeownership in bankruptcy; as hoped, CreditSlip readers helped me frame the questions that I continue to have about Traverse and the larger policy questions it raises. Some readers emphasized the importance of variations in state mortgage law to the trustee’s strong-arm powers; others questioned whether these distinctions should affect the trustee’s power to sell the residence (or the avoided lien) following avoidance.
Clearly, the trustee had the power to avoid the unrecorded mortgage in Traverse; let’s assume for purposes of argument that he also had the power to sell full title to the debtor’s home after avoidance. For me the more interesting question is whether the trustee should have exercised these powers, and also whether the exercise might be viewed as an abuse of discretion.
Another way to think about this question is from an even broader angle: What position should a trustee play in a individual borrower’s chapter 7 case? Is a trustee’s role to maximize distributions to unsecured creditors, full stop? Or might the trustee’s fiduciary obligations to the estate sometimes sit in tension with an interest in maximizing creditors’ interests?