511 B.R. 34
N.D.N.Y.2014Background
- Debtor John W. Martin, II owned real property in Clinton County, NY subject to in rem tax foreclosure for 2008-2009 taxes.
- Martin did not answer or pay the delinquent taxes; title transferred to Clinton County by judgment (March 18, 2011) and quitclaim deed filed March 30, 2011.
- County sold the property at auction to a bona fide purchaser for $25,500 (June 2011); BFP deed recorded June 28, 2011.
- Martin filed a Chapter 7 petition December 20, 2011; Trustee filed adversary proceeding June 28, 2012 seeking avoidance of transfer under § 548(a)(1) and recovery under § 550.
- Bankruptcy Judge Littlefield denied the County’s motion for summary judgment and granted the Trustee’s partial summary judgment, ruling the tax foreclosure is avoidable and allowing recovery of value under § 550, but limited to the auction proceeds minus taxes and costs (approx. $21,259.55).
- County appealed arguing BFP foreclosure is not an avoidable conveyance under § 548; Trustee cross-appealed challenging the § 550 value measurement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the tax foreclosure transfer is avoidable under § 548(a)(1)(B). | County argues tax foreclosures are not constructively fraudulent transfers. | Wolinsky contends § 548(a)(1)(B) applies to avoid such transfers. | Yes; § 548(a)(1)(B) applies to avoid the transfer. |
| If avoidable, proper § 550 measure of recovery. | County argues $25,500 auction value is appropriate. | Trustee argues market value at transfer ($42,000) minus debt; auction value unreliable. | Auction value $25,500 is the proper § 550 measure. |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (mortgage foreclosures generally yield reasonably equivalent value)
- Van Buren, 496 B.R. 278 (Bankr. N.D.N.Y. 2013) (reserved ruling on applying BFP to tax foreclosures; supports avoidance of tax foreclosures under § 548)
- In re Murphy, 331 B.R. 107 (Bankr. S.D.N.Y. 2005) (differences between tax forfeiture and mortgage foreclosure; validates § 548 analysis)
- In re Kerwin, 996 F.2d 552 (2d Cir. 1993) (value/clear error standard in § 550 context)
- In re Colonial Realty Co., 226 B.R. 513 (Bankr. D. Conn. 1998) (valuation under § 550; market value at transfer, less any consideration)