BFP v. Resolution Trust Corp. (1994)

Citation: 511 U.S. 531 (1994); 114 S. Ct. 1757 · Court: Supreme Court of the United States, No. 92-1370 · Decided: May 23, 1994 · Vote: 5–4

The controlling federal authority on whether a regularly conducted, non-collusive mortgage foreclosure sale can later be unwound in bankruptcy as a constructively fraudulent transfer. A 5–4 Court (opinion by Justice Scalia) held that the price actually fetched at a foreclosure sale that complied with state foreclosure law is “reasonably equivalent value” under 11 U.S.C. § 548 as a matter of law — even if that price is far below fair market value — so the sale cannot be avoided on a “too cheap” theory.

Scope

Federal. Binding on all 56 jurisdictions in bankruptcy proceedings. Expressly limited to mortgage foreclosures of real estate — the Court reserved whether the same rule governs other forced sales such as tax-lien foreclosures (see Good-law status and Why it matters, below).

Facts

BFP, a California partnership, took title to a home in Newport Beach subject to a deed of trust securing a roughly $356,000 loan held by Imperial Savings Association. After the loan went unserviced, Imperial recorded a notice of default and the property was sold at a properly noticed non-judicial foreclosure sale. Respondent Osborne bought it for $433,000.

BFP then filed for bankruptcy and sued to set the sale aside as a constructively fraudulent transfer under 11 U.S.C. § 548(a)(2) (now § 548(a)(1)(B)), alleging the home was actually worth more than $725,000 when sold and therefore had not been exchanged for “reasonably equivalent value.” The Bankruptcy Court, the Ninth Circuit BAP, and the Ninth Circuit all rejected the claim; the Supreme Court affirmed. (Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02; facts corroborated at https://supreme.justia.com/cases/federal/us/511/531/ , retrieved 2026-06-02.)

The statute at issue

Section 548 lets a bankruptcy trustee avoid a transfer the debtor made while insolvent “on or within 2 years before the date of the filing of the petition” if the debtor “received less than a reasonably equivalent value in exchange for such transfer or obligation.” “Value” is defined as “property, or satisfaction or securing of a present or antecedent debt of the debtor.” (Source, exact statutory text: https://www.law.cornell.edu/uscode/text/11/548 , 11 U.S.C. § 548(a)(1)(B), (d)(2)(A), retrieved 2026-06-02.) BFP turned on what “reasonably equivalent value” means when the “transfer” is a forced foreclosure sale.

Holding

“We deem, as the law has always deemed, that a fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with.”

— BFP v. Resolution Trust Corp. (Scalia, J.)

Put plainly: the foreclosure-sale price, by itself, conclusively satisfies § 548’s “reasonably equivalent value” requirement, provided the sale was a regularly conducted, non-collusive sale that complied with state foreclosure law. A trustee cannot avoid such a sale merely by proving the property was worth more.

Reasoning

• Fair market value is the wrong yardstick in a forced-sale setting. “Market value cannot be the criterion of equivalence in the foreclosure sale context,” because the market conditions that “fair market value” presumes “by definition[] simply do not obtain in the context of a forced sale.” The only legitimate evidence of the property’s value at the moment of a forced sale is what the sale itself produced. (Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

• Rejection of the Durrett 70% rule and the Bundles approach. The Fifth Circuit’s Durrett line had suggested any foreclosure sale yielding less than 70% of fair market value should be invalidated; the Seventh Circuit’s Bundles approach favored a case-by-case inquiry. The Court declined both: “we decline to read the phrase ‘reasonably equivalent value’ in § 548(a)(2) to mean, in its application to mortgage foreclosure sales, either ‘fair market value’ or ‘fair foreclosure price’ (whether calculated as a percentage of fair market value or otherwise).” (Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

• Compliance and non-collusion are the operative conditions. A “noncollusive and regularly conducted nonjudicial foreclosure sale … cannot be challenged as a fraudulent conveyance.” Conversely, the price loses that conclusive force when the sale was defective: “Any irregularity in the conduct of the sale that would permit judicial invalidation of the sale under applicable state law deprives the sale price of its conclusive force under § 548(a)(2)(A).” (Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

• Federalism / security of real-estate titles. “It is beyond question that an essential state interest is at issue here” — the security of titles to real estate. Reading § 548 to federalize a minimum-price floor would, in the Court’s view, cloud the title of every property sold at foreclosure and disrupt long-settled state foreclosure regimes. Absent a clear statement, the Court would not read the Bankruptcy Code to displace that state interest. (Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

• Dissent (Souter, J.). Justice Souter, joined by Justices Blackmun, Stevens, and Ginsburg, dissented, arguing the majority effectively wrote the “reasonably equivalent value” inquiry out of § 548 for foreclosure sales and that the statutory text required an independent value comparison rather than treating compliance with state procedure as conclusive. (Source, panel lineup: https://supreme.justia.com/cases/federal/us/511/531/ , retrieved 2026-06-02; dissent characterization corroborated by the majority opinion’s responses at https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

Practical impact

• A compliant foreclosure sale is largely bankruptcy-proof on a “low price” theory. A purchaser at a regularly conducted, non-collusive foreclosure sale need not fear that a later bankruptcy filing by the former owner will unwind the sale simply because the price was low relative to market value. The avoidance attack must instead target a defect in the sale process that would let a state court invalidate the sale.

• The vulnerability is procedural, not pricing. Because BFP ties conclusiveness to full compliance with state foreclosure law, the live question in any avoidance dispute is whether the notice, advertising, bidding, and conduct of the sale satisfied the relevant state statute. Defects that would support state-law invalidation (improper notice, chilled bidding, collusion) also strip the price of its § 548 safe harbor.

• Personal liability and preference theories survive. BFP addressed constructive fraud under § 548 only. It did not foreclose avoidance on other grounds (e.g., a sale that is itself collusive, or — in some courts — a preference under § 547 where the transfer occurred within the preference window), and it expressly did not reach forced sales other than real-estate mortgage foreclosures.

Why it matters for foreclosure / surplus

BFP is the reason a low foreclosure bid is generally not, by itself, a basis to undo a completed mortgage foreclosure sale once state procedure was followed. That makes it the mirror image of tyler-v-hennepin-county: BFP says the process validates the price for bankruptcy-avoidance purposes, while Tyler says that even a validly conducted sale cannot let the government keep the surplus above the debt. The two doctrines operate on different questions — BFP on whether the sale itself stands, Tyler on who owns the excess proceeds — and a sale can be valid under BFP yet still generate a surplus-funds entitlement the former owner may claim.

The Court expressly cabined BFP to mortgage foreclosures of real estate:

“We emphasize that our opinion today covers only mortgage foreclosures of real estate. The considerations bearing upon other foreclosures and forced sales (to satisfy tax liens, for example) may be different.”

(Source: https://www.law.cornell.edu/supct/html/92-1370.ZO.html , retrieved 2026-06-02.)

That reservation is consequential for tax-sale practice: several bankruptcy courts have declined to extend BFP’s conclusive-price rule to tax-lien foreclosures, reasoning that a tax sale transferring title for only the taxes and interest owed — often with no competitive public bidding to establish the property’s value — does not share the features BFP relied on. The precise post-BFP treatment of tax sales (and its interaction with Tyler) varies by circuit and is needs_verification per jurisdiction; it is tracked on the jurisdiction pages rather than asserted here.

▸ For Investors / Operators. BFP is the federal backstop for a foreclosure acquisition: a property bought at a regularly conducted, non-collusive mortgage foreclosure sale that complied with state law is not avoidable in the prior owner’s bankruptcy merely because the price was below market. Diligence should therefore focus on process compliance — proper notice, advertising, bidding, and absence of collusion — because a sale defect that would let a state court set the sale aside also strips the § 548 safe harbor. Note BFP does not cover tax-lien foreclosures, where avoidance exposure can be higher.

▸ For Former Owners. BFP makes it hard to undo a completed mortgage foreclosure sale just because the home sold cheaply, but it does not touch the separate right to any surplus-funds above the debt, which tyler-v-hennepin-county protects. If the sale process was defective under state law (bad notice, chilled bidding, collusion), that is a distinct avenue; the low price alone is not.

Good-law status

Still good law. Decided 5–4 on May 23, 1994; not overruled. It remains the controlling construction of “reasonably equivalent value” under 11 U.S.C. § 548 for real-estate mortgage foreclosures. Its application outside that context — most importantly to tax-lien foreclosures — was expressly reserved by the Court and has been read narrowly by some lower courts; that downstream development does not disturb BFP’s core holding but limits its reach. (Verified 2026-06-02 against the majority opinion at https://www.law.cornell.edu/supct/html/92-1370.ZO.html .)

Related authorities

• tyler-v-hennepin-county — 598 U.S. 631 (2023). Even a validly conducted tax foreclosure cannot let the government retain surplus equity above the debt; the constitutional counterpart to BFP’s process-validates-price rule.
• surplus-funds — the doctrine governing who owns the excess proceeds after a sale, unaffected by BFP.
• mullane-v-central-hanover — the notice floor a foreclosure sale must satisfy; notice defects are exactly the kind of state-law irregularity that strips BFP’s safe harbor.

Applies in →

Federal — binding in bankruptcy proceedings in all 56 jurisdictions for real-estate mortgage foreclosures. See each jurisdiction page’s Module 5 (Sale Procedure) and Module 7b (Lien Survival & Purchaser Exposure) for how local foreclosure-compliance requirements feed the BFP analysis.

Sources

• {case, https://www.law.cornell.edu/supct/html/92-1370.ZO.html, retrieved 2026-06-02} — BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), majority opinion (Scalia, J.): holding (“price in fact received … so long as all the requirements of the State’s foreclosure law have been complied with”); “Market value cannot be the criterion of equivalence in the foreclosure sale context”; rejection of Durrett/Bundles; “Any irregularity … deprives the sale price of its conclusive force under § 548(a)(2)(A)”; “essential state interest”; footnote limiting holding to “mortgage foreclosures of real estate,” reserving tax liens; affirmance of the Ninth Circuit.
• {statute, https://www.law.cornell.edu/uscode/text/11/548, retrieved 2026-06-02} — 11 U.S.C. § 548: § 548(a)(1) 2-year lookback; § 548(a)(1)(B) “received less than a reasonably equivalent value in exchange for such transfer or obligation”; § 548(d)(2)(A) definition of “value.”
• {case, https://supreme.justia.com/cases/federal/us/511/531/, retrieved 2026-06-02} — corroborates facts (BFP, California home, Imperial Savings, Osborne $433,000 purchase, alleged >$725,000 value) and the panel lineup (Scalia for the Court with Rehnquist, O’Connor, Kennedy, Thomas; Souter dissenting with Blackmun, Stevens, Ginsburg).

Legal information, not legal advice. This page summarizes a court decision for educational purposes and does not create an attorney-client relationship. Verify against the primary opinion and consult a licensed attorney in the relevant jurisdiction before acting. Last verified 2026-06-02.