Berley Associates, Ltd. v. Eckert (In re Berley Associates, Ltd.)
492 B.R. 433
Bankr. D.N.J.2013Background
- Debtor owns a vacant lot at 62 Speedwell Avenue, Morristown, NJ; tax delinquency led to a 2000 tax sale by the township to Phoenix Funding, which then assigned its lien to Eckert.
- Eckert filed a state foreclosure action on January 19, 2010, to foreclose the tax sale certificate under N.J.S.A. 54:5-1, et seq.
- Redemption amount as of January 10, 2011 was $244,195.99; redemption deadline was November 1, 2011; Debtor did not redeem.
- Final judgment in the tax foreclosure was entered on September 4, 2012, transferring title to Eckert.
- Debtor filed voluntary Chapter 11 on September 5, 2012 and later initiated adversary proceedings seeking avoidance of the final judgment as fraudulent transfer under § 548 and/or a preferential transfer under § 547.
- Court denied the motions for summary judgment without prejudice, finding disputes of fact, including the value of the Property relative to Eckert’s claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfer of title to Eckert constitutes a fraudulent conveyance under § 548(a)(1)(B). | Debtor argues lack of reasonably equivalent value due to tax-sale mechanics; lack of competitive bidding negates BFP rationale. | Eckert relies on BFP and NJ tax-foreclosure structure to argue transfer complies with state law and is not fraudulent. | Disputed; court denied summary judgment, finding factual questions on reasonably equivalent value due to lack of bidding. |
| Whether the transfer is an avoidable preference under § 547(b). | Debtor contends value of Property may exceed Eckert’s claim, suggesting windfall to Eckert. | Eckert asserts no preference if sale complied with statute and value matched or exceeded claim. | Disputed; court denied summary judgment pending valuation to determine excess over Eckert’s claim. |
| Whether BFP governs tax-sale foreclosures for purposes of § 548 analysis. | Debtor distinguishes tax sale from mortgage foreclosure and challenges BFP applicability. | Eckert argues BFP applies in all foreclosures, including tax sales. | Court declines to apply BFP to tax-sale foreclosures; substantial dispute remains on value and fairness. |
| What relief, if any, should be granted if avoidance is shown? | Debtor seeks restoration of property or monetary value. | Eckert contends avoidance would unduly chill tax-sale market. | Court notes discretion to order return of property or monetary value and may tailor relief; not decided on record. |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (foreclosure sale value not tied to market value; required value at foreclosure under state law)
- In re McGrath, 170 B.R. 78 (Bankr.D.N.J.1994) (tax foreclosure analyzed like mortgage foreclosure; BFP-like reasoning considered)
- In re 2435 Plainfield Ave., Inc., 72 F.Supp.2d 482 (D.N.J.1999) (tax sale foreclosure and fraudulent conveyance; later appellate treatment under UFTA)
- City of Milwaukee v. Gillespie, 487 B.R. 916 (E.D.Wis.2013) (rejects automatic equivalence of value from foreclosure statutes; considers fair value after sale)
- In re Andrews, 262 B.R. 299 (Bankr.M.D.Pa.2001) (protects value exceeding secured claim under § 547 analysis in foreclosures)
- Wentworth v. Town of Acton (In re Wentworth), 221 B.R. 316 (Bankr.D. Conn.1998) (tax foreclosure context; discusses lack of bidding impact on value)
- Chorches v. Fleet Mortg. Corp. (In re Fitzgerald), 255 B.R. 807 (Bankr.D.Conn.2000) (strict foreclosure value viability under Fraudulent Transfer Act)