The trustee and the debtors filed a complaint seeking to avoid the defendant’s alleged interest in the debtors’ real property and disallowance of the defendant’s proof of claim under section 502.  The defendants asserted a counterclaim and a third party claim seeking six grounds of equitable relief, namely: declaratory judgment, equitable subrogation, specific performance, constructive trust, equitable lien, and relief under 11 U.S.C. § 105.  The court thus considered whether a chapter 13 trustee’s strong arm powers under section 544(a)(3) may defeat an unrecorded deed of trust or whether equitable remedies may block the trustee’s powers.  Both sides moved for summary judgment.

            The court found that the defendant was without an interest in the debtors’ real property and was thus an unsecured creditor.  The defendant’s proof of claim was not timely filed, and thus the court disallowed the claim. The court thus granted the plaintiffs’ motion for summary judgment and denied the defendant’s motion for summary judgment.