In the Matter of James D. Bailey, Georganna Bailey, Debtors. Appeal of State Bank of Arthur

ILANA DIAMOND ROVNER, Circuit Judge.

The State Bank of Arthur (“Arthur”) appeals from the bankruptcy court’s determination that Citizens National Bank of Decatur (“CNB”) 1 was entitled to first priority to the proceeds from a sale of real property. The bankruptcy court found that CNB holds a valid mortgage on the property that gives it priority over Arthur’s unsecured claim. The district court agreed. However, Arthur asserts priority on the ground that it pursued a fraudulent conveyance action that brought the property into the bankruptcy estate. Arthur acknowledges that this priority status…