Opinion
NOT FOR PUBLICATION
Argued and Submitted at Phoenix, Arizona: June 18, 2010
Appeal from the United States Bankruptcy Court for the District of Arizona. Bk. No. 09-01148-JMM. Hon. James M. Marlar, Chief Bankruptcy Judge, Presiding.
Before KIRSCHER, JURY, and MARKELL, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Appellants-Debtors, James C. Snodgrass (" Snodgrass") and Maria J. Serino (collectively " Debtors"), appeal from the bankruptcy court's order determining that certain real estate commissions were earned by Snodgrass prepetition and were property of the estate subject to turnover to Appellee-Chapter 7 trustee, Beth Lang (" Trustee"). Because the bankruptcy court did not err in concluding that the commissions were property of the estate and subject to turnover, we AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The facts in this case are not in dispute. Debtors filed a chapter 7 petition on January 23, 2009 (" Petition Date"). Prior to the Petition Date, Snodgrass was a licensed Arizona real estate agent, employed by Tierra Antigua Realty.
On July 27, 2009, Trustee filed an Amended Motion to Compel Turnover by Debtors in which she sought turnover of 25% of real estate commissions earned by Snodgrass prepetition and paid to him postpetition. Snodgrass had acted as real estate agent for the " short sale" of two real properties for which purchase contracts were executed prior to the Petition Date, but lender approvals, closings, and payment of commissions occurred postpetition.
The parties agree that 75% of Snodgrass's commissions are exempt under Arizona law.
One purchase contract was executed by the buyer and seller on October 4, 2008, for real property located on North Steamboat Drive (" Steamboat Contract"). In conjunction with the Steamboat Contract, the seller executed a " Short Sale Addendum to Listing Contract." The Steamboat Contract contained contingencies for lender approval of the short sale, financing, appraisal, and other contingencies. In the " Additional Terms And Conditions" portion of the Steamboat Contract it states:
" Buyer shall have first right of refusal for the purchase of this home. All subsequent offers will be in a back-up position until buyer short sale is negotiated with buyers [sic] lender."
" Buyer is aware property is a short sale and agrees to [illegible] the terms and conditions of this offer until the sellers [sic] lender approves the offer."
Postpetition, on March 25, 2009, the buyer and seller executed " Addendum #1" to the Steamboat Contract. It states that the lender approved the short sale with the condition that the price be changed to $156, 500.00, up from the accepted offer of $155, 000.00. Buyers agreed to this price increase. The sale closed on March 31, 2009. The buyer and seller did not change. Snodgrass's commission on the Steamboat Contract was $6, 881.00.
The other purchase contract was executed by the buyer and seller on November 25, 2008, for real property located on North Regulation Drive (" Regulation Contract"). A few weeks prior to execution of the Regulation Contract, on November 3, 2008, the seller executed a " Short Sale Addendum to Listing Contract." The Regulation Contract contained contingencies for lender approval of the short sale, among others. In the " Additional Terms And Conditions" portion of the Regulation Contract it states:
" Buyer to have first right of refusal upon lender approval."
Postpetition, on February 18, 2009, the buyer and seller executed " Addendum #1" to the Regulation Contract. It states that the lender approved the short sale with the condition that the price be changed to $330, 000.00, up from the accepted offer of $325, 000.00, and noted various other conditions. Buyers agreed to the price increase. The sale closed on March 2, 2009. The buyer and seller did not change. Snodgrass's commission on the Regulation Contract was $13, 200.00.
In response to Trustee's turnover motion, Debtors agreed that under Arizona law a real estate commission is earned when the agent produces a ready, willing, and able buyer and a binding contract is signed. However, Debtors argued that neither contract was binding due to their " short sale" nature and, therefore, no commissions were earned until after the Petition Date. As a result, they contended the short sale commissions were not estate property subject to turnover. Debtors and Trustee agreed that if the $20, 081.00 in commissions were considered property of the estate, then Trustee is entitled to the non-exempt 25% portion, which is $5, 020.25.
The bankruptcy court held a hearing on the matter and took it under advisement. On September 28, 2009, it entered an order determining that the real estate commissions were property of the estate. The court reasoned that despite the lender approval contingency, Snodgrass held a contingent interest in the commissions on the Petition Date, and therefore they were sufficiently rooted in his pre-bankruptcy past to render them property of the estate. Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966). Debtors appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 157(b)(2)(E)and 1334. We have jurisdiction under 28 U.S.C. § 158.
On December 9, 2009, we issued an order informing Appellants of two potential issues that precluded jurisdiction over their appeal. First, the order on appeal did not appear to address all issues needing determination. Specifically, while it disposed of the property of the estate issue, it did not dispose of Trustee's objection to Debtors' exemption claim. Second, the order on appeal contained findings and conclusions and did not comply with the separate judgment requirement of Rule 9021. Thus, the order appeared to be interlocutory. Appellants were ordered to file and serve a response explaining why the order was final and immediately reviewable on appeal.
III. ISSUE
Did the bankruptcy court err when it determined that the " short sale" real estate commissions were earned prepetition and thus constituted property of the estate subject to turnover?
IV. STANDARD OF REVIEW
Whether a particular asset is estate property is a conclusion of law reviewed de novo. Groshong v. Sapp (In re MILA, Inc.), 423 B.R. 537, 542 (9th Cir. BAP 2010).
V. DISCUSSION
A. Applicable Law.
Section 541(a) provides that " all legal or equitable interests of the debtor in property as of the commencement of the case" are property of the estate. The scope is broad, and the estate includes all attributes of the Debtor's interest, whether contingent or not. In re Ruetz, 317 B.R. 549, 551 (Bankr. D. Colo. 2004), citing In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993), citing Segal, 382 U.S. at 379.
" Property interests are created and defined by state law." Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Under Arizona law, a real estate broker is entitled to a commission when he or she produces a ready, willing, and able buyer and a binding contract is signed. Manning v. Blackwelder, 146 Ariz. 411, 412, 706 P.2d 737 (Ct. App. 1985).
" [W]here the debtor receives a commission post-petition but essentially fulfilled all of his obligations for that commission pre-petition, the commission will be deemed property of the estate." Tully v. Taxel (In re Tully), 202 B.R. 481, 483 (9th Cir. BAP 1996). " The debtor's commission is property of the estate " 'if all the acts of the debtor necessary to earn it are rooted in the pre-bankruptcy past.'" Id., citing Segal, 382 U.S. at 380.
Therefore, the question here is did Snodgrass perform the acts necessary to entitle him to a real estate commission under Arizona law prior to the Petition Date. We believe he did.
B. The Bankruptcy Court Did Not Err When It Determined That The " Short Sale" Commissions Were Earned Prepetition And Thus Constituted Property Of The Estate Subject To Turnover.
1. Debtors' Contentions.
Debtors contend that the bankruptcy court erred when it determined that Snodgrass's real estate commissions were property of the estate and subject to turnover. They argue that Snodgrass did not earn his commissions until there was a binding contract, which occurred postpetition.
Debtors assert several reasons why the Steamboat Contract and the Regulation Contract were not binding. First, Debtors claim that in both contracts the sellers executed a " Short Sale Addendum" in which the seller reserved the right to not go forward with the sale, but rather pursue other options. Additionally, in both contracts, the sellers had the right to accept other offers and the buyers were granted a right of first refusal at such time the lender approved the short sale.
Moreover, Debtors assert, that due to the unique nature of short sales, the exact price at which the sale is consummated is not determined until after lender approval. Therefore, they contend that without a definite price on the Petition Date, the contracts were nothing more than " agreements to agree."
Finally, Debtors contend that neither contract was binding until the contingency of lender approval was fulfilled and the parties executed further documents agreeing to the lender's terms which, in both cases, occurred postpetition and only because of Snodgrass's postpetition efforts.
2. Analysis.
Debtors assert that in the " Short Sale Addendum" each seller specifically reserved the right to not go forward with the sale but rather pursue other options. We disagree. The addendums signed by the sellers do not say that seller can walk away from a signed contract with a buyer. In fact, each Short Sale Addendum signed in this case does not appear to be the document Debtors assert it to be. Sellers only, not buyers, signed an addendum to a " listing agreement, " not a purchase contract, and it merely informs sellers that they have other options than to pursue short sales, such as loan modifications and the like, and provides general information about short sales. Moreover, the Regulation Contract Short Sale Addendum was signed by seller three weeks prior to the purchase contract. At best, the Short Sale Addendums only allow a seller the right to terminate the listing agreement with the broker/agent. They have no bearing on whether the purchase contracts were binding on the buyers and the sellers.
As for Debtors' argument that the purchase contracts were not binding because sellers had the right to accept other offers and buyers were granted a right of first refusal upon lender approval of the short sale, nothing in the Regulation Contract states that seller can accept other offers, and the faulty addendum Debtors rely upon does not help them. The Steamboat Contract provides that subsequent offers will be in a back-up position, but this does not mean that seller did not have a binding contract with this buyer. Again, the faulty addendum does not help Debtors.
Debtors' argument that an indefinite price made the contracts merely " agreements to agree" has some appeal. However, we are not persuaded. For example, most real estate purchase contracts contain appraisal contingencies. Buyer and seller agree on a price, but due to a later appraisal the parties may opt to negotiate a new price. This does not mean that the original contract was not binding when signed by buyer and seller. The new price was simply a modification to the original, binding contract in light of the appraisal contingency. Here, the postpetition addendums executed by the lenders with price changes were merely modifications to the original purchase contracts.
We also reject Debtors' argument that neither purchase contract was binding until the lender approved the short sale and the parties executed further documents agreeing to the lender's terms. Unfortunately no published decisions exist on this issue. Nonetheless, we believe that lender approval of the short sale was merely one of many contingencies in both the Steamboat Contract and the Regulation Contract, and a short sale contingency, like any other contingency, does not alter the binding nature of executed purchase contracts or negate a broker's or agent's contingent interest in a commission. See Ruetz, 317 B.R. at 551-53 (rejecting debtor's argument that unfulfilled financing and insurance contingencies made her entitlement to commission uncertain and not property of the estate, and holding, " [t]he contingent or inchoate nature of [a right to a commission] certainly does not negate the broker or agent's right to receive a commission if the contingencies are satisfied; " contingent right to commission was property of the estate). The lender in a short sale is simply approving the " short" payoff, not approving the purchase contract, as the lender does not own the property and is not a party to the contract.
Finally, we reject Debtors' contention that without Snodgrass's postpetition efforts of corresponding with the lenders he would not have earned his commissions. Snodgrass's postpetition act of corresponding with lenders is not an act that entitles a broker or agent to a real estate commission under Arizona law. Obtaining a ready, willing, and able buyer, and a signed, binding contract earns the commission. In addition, no provision in either the purchase contracts or the addendums required Snodgrass to perform those postpetition acts in order to earn the commissions. Tully, 202 B.R. at 484. Other courts have rejected Debtors' argument for the same reasons. See Parsons v. Union Planters Bank (In re Parsons), 280 F.3d 1185, 1187-88 (8th Cir. BAP 2001), aff'd 280 F.3d 1185 (8th Cir. 2002) (commissions earned prepetition despite fact that agent scheduled inspections, worked on title issues, and negotiated contract changes between buyers and sellers); Smith v. Hanrahan (In re Smith), 402 B.R. 887, 890 (8th Cir. BAP 2009)(commission earned even though agent negotiated amendments to a contract and assisted buyer with obtaining desired zoning); In re Snowcrest Dev. Group, 200 B.R. 473, 477-78 (Bankr. D. Mass. 1996)(whether broker performs some postpetition services to finalize the closing or financing is not relevant to the inquiry).
Here, the prepetition acts of producing a ready, willing, and able buyer and obtaining a binding contract were all that was necessary for Snodgrass to earn the commissions or, as the bankruptcy court observed, entitle him to a contingent interest in the commissions. These acts were fulfilled prepetition when the binding contracts were signed by the buyer and seller in the Steamboat Contract on October 4, 2008, and in the Regulation Contract on November 25, 2008. Accordingly, Snodgrass earned the commissions prepetition. These commissions are sufficiently rooted in his pre-bankruptcy past and are property of the estate, subject to turnover. We see no error here.
VI. CONCLUSION
For the foregoing reasons, we AFFIRM.
Upon considering Appellants' response, on January 27, 2010, we issued an order determining that Trustee's subsequent withdrawal of her objection to Debtors' exemption claim resolved the remaining issues in the dispute. In light of no objections filed, we also granted Appellants' request to waive the separate judgment requirement of Rule 9021. Bankers Trust Co. v. Mallis, 435 U.S. 381, 384, 98 S.Ct. 1117, 55 L.Ed.2d 357 (1978). Thus, the order was final and immediately reviewable on appeal.