Estate plans rarely fail at the signing table. They fail in the follow-through: the deed that never got recorded, the promissory note that never got endorsed, the mortgage assignment that sat in a drawer. A July 2026 decision from the Eleventh Circuit shows how expensive that gap can be: a family-owned company watched three secured claims evaporate — not because anyone doubted the underlying debts, but because the notes and mortgages behind the claims were never actually transferred into the company before the owner died.
The case is Bay United Holdings, LLC v. INXS 7, LLC (In re Aegis Asset Management, LLC), No. 25-10331, 2026 WL 2131679 (11th Cir. July 24, 2026). It arose in Florida, but the rule it applies comes straight out of the Bankruptcy Code, and it should prompt every New Mexico family that holds seller-financed real estate notes “for the LLC” or “for the trust” to pull the file and check whose name is actually on the paper.
What happened in Bay United Holdings v. INXS VII?
Margaret Mitchell owned two entities, Bob Mitchell Associates and a company called Cloud 9. In 2015, she moved a portfolio of promissory notes, along with the mortgages securing them, into Cloud 9. Most of them, anyway. At least three notes — some in Ms. Mitchell’s own name, some in Bob Mitchell Associates’ — never made the trip. She died in 2022 with that paperwork unfinished.
Meanwhile, a borrower-side bankruptcy was unfolding. Aegis Asset Management, LLC filed Chapter 11 in 2019, the case converted to Chapter 7, and the trustee recovered several parcels of real estate that Aegis had shuffled off to related entities for nothing. The bankruptcy court approved a sale of those parcels, free and clear of liens, to a buyer, INXS VII, and set a thirty-day deadline for claims against the sale proceeds.
On the final day of that window, Cloud 9 filed three proofs of claim — one per property — attaching the mortgages. The problem was visible on the face of the attachments: the mortgagee on one was Ms. Mitchell, and on the other two it was Bob Mitchell Associates. Cloud 9’s name appeared nowhere. The buyer objected, and the evidence showed that two of the mortgages were not assigned to Cloud 9 until March 2023 — nearly two years after the deadline — while the third had passed into Ms. Mitchell’s probate estate at her death.
The family answered with intent: affidavits swearing Ms. Mitchell had meant to include these notes in the 2015 transfer, and that they had never left family hands. It did not matter. All three claims were disallowed, and both the district court and the Eleventh Circuit affirmed.
Why must a creditor own its claim on the day it files?
The court’s reasoning starts with the mechanics of claims allowance. When a claim is based on a written instrument, Federal Rule of Bankruptcy Procedure 3001(c) requires that the instrument be attached to the proof of claim. A properly documented claim enjoys a presumption of validity, but once a party in interest lodges a substantive objection, the claimant must prove it holds an enforceable right to payment. Under 11 U.S.C. § 502(b), the court then determines whether and in what amount the claim is allowed, and the substance of that right is measured by state law — the principle the Supreme Court laid down in Butner v. United States, 440 U.S. 48 (1979).
Florida law, like New Mexico law, lets only a note’s owner or holder enforce it. An entity that has not yet acquired the note therefore has nothing to assert — and assignments executed after the filing deadline cannot reach back to validate a claim that was hollow when filed.
Fairness arguments fared no better. Disallowance did mean the buyer took the properties free of mortgages securing real debts, but bankruptcy courts, though courts of equity, cannot rewrite the state-law rules of ownership. However tight the family ties, the mother and her two companies were three distinct legal persons, and the wrong one showed up to claim the money.
What does this mean for New Mexico families and family LLCs?
New Mexico runs on exactly the kind of paper that sank the Mitchell family. Owner-carried financing is everywhere here: a seller carries back a note on a tract in Valencia County, or a family finances the sale of a small commercial building on Fourth Street in Albuquerque. Families then form an LLC “to hold the notes,” or a revocable trust “to avoid probate,” put the assets on a schedule, and stop. The endorsements never happen. The mortgage assignments never get recorded with the county clerk. The operating agreement says one thing; the county records say another.
That gap is fatal in any fight where ownership matters — a foreclosure, a payoff dispute, or, as in Bay United, a claims bar date that waits for no one. A signed intent to transfer is not a transfer. A schedule attached to a trust is not an endorsement. New Mexico families have more reason than ever to get the bankruptcy side of this right, because the state recently rebuilt its exemption law, including a homestead exemption of $150,000 — protections that matter only if the family’s assets and claims are documented well enough to assert.
What happens when a bar date arrives while probate is still pending?
Run the scenario at home. An Albuquerque family’s matriarch sold two commercial lots near the I-40/Coors interchange and a rental in the South Valley, carrying seller-financed notes in her own name. The family formed an LLC that was always “supposed to” hold the notes. She dies in the spring; no probate has been opened. In the fall, one of the borrowers files Chapter 11 in the United States Bankruptcy Court for the District of New Mexico, and the notice that arrives in the mail sets a claims bar date ninety days out.
What the family cannot do is have the LLC file the proof of claim. The LLC owns nothing; the notes sit in the decedent’s estate. What the family can do is move quickly under New Mexico’s Uniform Probate Code, NMSA 1978, Chapter 45, which allows informal probate and informal appointment of a personal representative by application — often a matter of weeks when the family is not fighting. Once letters issue, the personal representative files the proof of claim on the estate’s behalf, attaching the note, the recorded mortgage, and the letters. If the plan is still to move the notes into the LLC, the estate can assign them later and the LLC can step into the claim under Rule 3001(e)’s transfer procedure. The sequence matters: enforceable ownership first, proof of claim second, restructuring third. Filing in the LLC’s name and papering the gap with affidavits about intent is precisely what failed in Bay United.
How do you actually finish funding an LLC or trust?
Funding is a title exercise, not a drafting exercise. For each promissory note, that means an endorsement — on the note itself or on an allonge firmly attached to it — or a written assignment running to the LLC or trustee. For each mortgage or deed of trust, it means an assignment recorded with the clerk of the county where the land sits, whether that is Bernalillo, Santa Fe, or Doña Ana. Real property moves by recorded deed, LLC interests by written assignment reflected in the company’s records, accounts by retitling at the institution. And because portfolios drift, the discipline that saves families is an annual reconciliation: compare the trust or LLC asset schedule against county records and the originals in the fire safe, and fix every mismatch while everyone who signed is still alive to sign again.
What is the lesson for creditors facing a bar date?
For creditors of any kind, Bay United is a documentation case. Before filing a proof of claim, confirm that the filing entity owns the debt today — not an affiliate, and not after a cleanup assignment — and attach the paper that proves it. A bar date is among the least forgiving deadlines in American law, and a cure executed afterward does not relate back.
New Mexico sits in the Tenth Circuit, so the Eleventh Circuit’s decision is persuasive rather than binding here. But nothing in the opinion turns on circuit law: the claims-allowance framework of § 502(b), Rule 3001’s documentation requirements, and the Butner principle apply in Albuquerque exactly as they do in Atlanta, and a New Mexico bankruptcy court should be expected to reach the same result.
| Asset the plan says the LLC or trust owns | What the plan or intent letter accomplishes | What actually completes the transfer |
|---|---|---|
| Promissory note | Nothing enforceable | Endorsement on the note or an allonge, or a written assignment, delivered to the new owner |
| Mortgage or deed of trust | Nothing of record | Written assignment recorded with the county clerk where the property sits |
| Real estate | Nothing of record | Deed to the LLC or trustee, signed and recorded |
| LLC membership interest | Intent only | Written assignment plus updated company records and operating agreement |
| Bank and brokerage accounts | Intent only | Retitling completed at the institution |
Frequently Asked Questions
Can our family LLC file a bankruptcy claim on a note still titled in a deceased parent’s name?
No. Until the note is validly assigned or distributed, it belongs to the decedent’s estate, and the personal representative — not the LLC — is the party with an enforceable right to payment. A claim filed by the LLC is vulnerable to disallowance no matter how genuine the underlying debt is.
Can a transfer completed after the bar date fix a defective claim?
Under the reasoning of Bay United, no. The claimant must already own an enforceable right to payment at the moment of filing, and an assignment signed after the deadline does not retroactively validate a claim the filer did not own. The time to fix ownership is before the claim goes in.
How quickly can a personal representative be appointed in New Mexico?
New Mexico’s Uniform Probate Code allows informal probate and informal appointment by application, without a court hearing in uncontested cases. When the family acts promptly and no one objects, letters can often issue within weeks — usually fast enough to beat a bankruptcy bar date if the family starts immediately.
Does the Eleventh Circuit’s decision bind New Mexico courts?
No. New Mexico is in the Tenth Circuit, so the decision is persuasive authority only. But the rule rests on the Bankruptcy Code’s claims-allowance provisions and on state-law ownership principles that New Mexico shares, so the practical takeaway is the same here.
What documents move a note and mortgage into an LLC or trust in New Mexico?
The note moves by endorsement, allonge, or written assignment; the mortgage or deed of trust moves by a written assignment recorded with the clerk of the county where the property is located. Both pieces should be completed, and the originals kept together, before anyone relies on the entity as the owner.
Does it matter that no one disputes the debt itself?
Not to the claims-allowance question. In Bay United, the mortgages were real and the debts were real, but the claims failed because the wrong entity asserted them. Bankruptcy claims practice punishes ownership defects even when the dollars are undisputed.
How North Star Law Firm Can Help
North Star Law Firm works both sides of this problem for New Mexico families and closely held businesses: pursuing and defending claims in bankruptcy cases, and cleaning up the entity-funding and titling gaps that create these disputes in the first place. Because the firm is led by an attorney-CPA, it can coordinate the bankruptcy, tax, and succession pieces as one project rather than three. Families holding seller-financed notes, and creditors staring down a bar date, can contact the firm for a free analysis by phone or video before the deadline makes the decision for them.