A new Nebraska bankruptcy court opinion (In re Torres) answers the question of whether a debtor may hold a vehicle title in trust for another person who provided the funds to purchase the vehicle.
In Torres, the debtor’s sister lived in Mexico and she transferred $42,970 to the debtor’s bank account to purchase a 2020 Hyundai Palisade. The vehicle was titled only in the debtor’s name.
The chapter 7 trustee demanded a turnover of the vehicle, but the debtor objected claiming that he merely held the vehicle in trust for his sister.
There was no written agreement between the debtor and his sister. The parties stipulated that the sister did not intend to make a gift to her brother but that the funds were transferred to purchase a vehicle for the sister’s use. Apparently the sister intended to come to Nebraska for medical treatment but was unable to due to Covid-19 travel restrictions. It’s not clear why the sister’s name was left off the title.
Nebraska statute 60-140 governs the ownership and acquisition of motor vehicles:
No person acquiring a vehicle from the owner thereof . . . shall acquire any right, title, claim, or interest in or to such vehicle until the acquiring person has had delivered to him or her physical possession of such vehicle and (a) a certificate of title or a duly executed manufacturer’s or importer’s certificate with such assignments as are necessary to show title in the purchaser, (b) a written instrument as required by section 60-1417, (c) an affidavit and notarized bill of sale as provided in section 60-142.01, or (d) a bill of sale for a parts vehicle as required by section 60-142.
That seems very conclusive. No person shall acquire any “right, title claim or interest” without possession of the vehicle and a title, a written instrument, or a bill of sale. Something must be in writing.
Judge Kruse ruled that “any equitable interest Ms. Torres asserts in the vehicle cannot defeat the trustee’s powers under 11 U.S.C. § 544. This court previously refused to recognize the equitable ownership interest of a non-debtor whose name is not noted on a motor vehicle’s certificate of title. See In re Farrell, Case No. BK19-80282, 2019 Bankr. LEXIS 1949 (Bankr. D. Neb., June 28, 2019).”
The court focused on Nebraska Statute 60-140. “No person shall acquire any right title claim or interest of any person in or to a vehicle . . . unless there is compliance with this section.”
In Torres there was no writing between the debtor and his sister. Case closed. The sister had no interest recognized under Nebraska motor vehicle title law.
In re Farrell
In the Farrell opinion Judge Saladino relied on the Strong Arm power of Section 544 to allow the chapter 7 trustee to void the interest of a non-debtor spouse in a motor vehicle. In Farrell the debtor’s mother purchased a vehicle for the debtor and his wife, but the title was only recorded in the debtor’s name. On the bankruptcy schedules the debtor claimed a one-half interest in the vehicle and stated that his wife held an equitable interest in the other half.
Bankruptcy Code Section 544 is called the Strong Arm Power because it allows a chapter 7 trustee to avoid any interest in a judicial or unrecorded lien in property of the debtor.
Importantly, in the Farrell opinion Judge Saladino ruled that Nebraska case law does recognize an ownership interest in a motor vehicle not listed on the vehicle title.
“Nebraska case law makes clear that “while the certificate of title act provides the exclusive method for the transfer of title to a vehicle, it is not conclusive on the issue of ownership[.]” Hanson v. Gen. Motors Corp., 486 N.W.2d 223, 225 (Neb. 1992) (citing Alford v. Neal, 425 N.W.2d 325 (Neb. 1988)). The bankruptcy court has observed that the certificate of title statute’s applicability may not be as broad as initially appears: “The Nebraska Supreme Court recognized that the purpose of § 60–105 is to prevent fraud or misrepresentation, and recognized that there are circumstances where, although § 60–105 would apply by its terms, the circumstances may not be within the intended purview of the statute.” In re Mueller, 123 B.R. 613, 615 (Bankr. D. Neb. 1990) (interpreting the predecessor statute to § 60-140).”
How can we reconcile Judge Saladino’s opinion in Farrell which does recognize an ownership interest in a motor vehicle that does not appear on the vehicle’s title with Judge Kruse’s opinion in Torres that “no right, title, claim or interest” may exist without compliance with 60-140?
Judge Saladino, quoting Hanson v Gen Motors Corp says an ownership interest may exist apart from the vehicle title. Judge Kruse says it does not. We have a conflict of opinions here.
In Farrell the debtor did not argue that he held his wife’s interest in trust. (“Mr. Farrell has not suggested that he holds the vehicle in trust for his wife, so § 541(d) need not be addressed further here.”)
Why is that significant? It is significant because if the vehicle was held in trust then it would not be part of the bankruptcy estate and the Strong Arm power of Section 544 would not apply.
It is clear under the Hanson v Gen Motor Corp opinion that Nebraska recognizes that an ownership interest may exist even if it is not recorded on a vehicle title. Nebraska statute 60-140 is not conclusive. Judge Saladino says exactly that in Farrell.
In Torres Judge Kruse specifically finds that Nebraska law recognizes resulting trusts, but he finds that Nebraska that statute 60-140, however, does not allow a resulting trust in a motor vehicle. What Judge Kruse does not explain is why the Hanson v Gen Motors Corp case does not apply. We are left to wonder.
Burden of Proving Existence of Resulting Trust:
Judge Kruse explains that the existence of a resulting trust must be established by clear and convincing evidence. That is a high standard.
In Torres there was no written trust agreement between the debtor and his sister. There was no writing of any type at all to prove the existence of a trust.
Based on the evidence presented, I think the Court got it right in Torres, but we now have a conflict in case law about whether Nebraska law allows a resulting trust in a motor vehicle that will have to be resolved in a future case.
Image courtesy of Flickr and Greg Gjerdingen