568 B.R. 231
Bankr. D.N.J.2017Background
- GGI Properties, LLC acquired ~18-acre former Wheaton Glass Works property and defaulted on taxes; City purchased the tax sale certificate and obtained an in rem foreclosure judgment vesting fee simple title on December 31, 2015.
- Taxes, interest and fees owed to City at foreclosure were about $429,767; GGI filed chapter 11 on March 8, 2016 and this adversary on March 15, 2016 seeking avoidance under 11 U.S.C. §§ 548, 547 and recovery under § 550.
- GGI alleges the property was worth roughly $700,000 (pointing to pre- and postpetition sale contracts and assessments); City’s appraisal (post-transfer) valued the property as nominal after remediation/demolition costs.
- Procedural history: mandatory mediation failed; City moved for summary judgment asking dismissal of GGI’s counts; court took matter on the papers.
- Core factual disputes: (a) whether the tax-foreclosure transfer provided "reasonably equivalent value" under § 548; (b) whether the transfer was a preferential transfer under § 547 because it enabled the City to receive more than in a hypothetical chapter 7; (c) the proper remedy under § 550 (return of property vs. value).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an in rem tax-foreclosure transfer can be avoided as a constructive fraudulent transfer under § 548(a)(1)(B) | GGI: transfer extinguished ~$429k tax debt but property was worth ≈$700k, so GGI received less than reasonably equivalent value and was insolvent | City: BFP makes foreclosure sale amount conclusively reasonably equivalent value; state tax-foreclosure procedures should be respected | Court: BFP does not apply to New Jersey’s interest-rate tax-certificate system (no competitive bidding); § 548 claim may proceed; summary judgment denied due to factual disputes on value and good faith |
| Whether the transfer is avoidable as a preference under § 547(b) | GGI: transfer occurred within 90 days, on account of antecedent tax debt, debtor was insolvent, and City received more than it would in Chapter 7 (because of debtor equity) | City: a secured creditor’s foreclosure is not a preference; sale amount reflects reasonable equivalent value | Court: BFP-based conclusiveness rejected for NJ tax procedure; whether City received more than in Chapter 7 depends on equity/value—genuine dispute of material fact; summary judgment denied |
| Whether the City must return the property or pay its value under § 550(a) | GGI: prefers return of property but will accept monetary value as of the transfer date | City: argues no benefit to estate because secured claims exceed value; resists being required to pay cash | Court: remedy is discretionary; value vs. property depends on facts (value determinable, diminution, benefit to estate); cannot decide on summary judgment |
| Whether state statutes or BFP preclude federal avoidance | GGI: seeks relief under Bankruptcy Code §§ 547/548 despite NJ statutes shielding tax foreclosure from collateral attack under UFTA | City: BFP and state law protect foreclosure finality and municipal tax-collection process from collateral attack | Held: Federal Bankruptcy Code governs avoidance; BFP limited to mortgage foreclosures with competitive sales and does not bar § 548/§ 547 challenges to NJ tax-foreclosure transfers; no preemption/intrusion problem sufficient to nullify bankruptcy remedies at this stage |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (Sup. Ct.) (foreclosure sale amount deemed conclusive reasonably equivalent value in mortgage foreclosure sales conducted under state procedures)
- In re Smith, 811 F.3d 228 (7th Cir.) (BFP's conclusive rule does not apply to tax-certificate systems that bid on interest rates; sale price not correlated to property value)
- Matter of Varquez, 502 B.R. 186 (Bankr. D.N.J.) (NJ tax-certificate foreclosure: foreclosure judgment is not equivalent to market-value sale; BFP inapplicable)
- Berley Assocs. Ltd. v. Eckert (In re Berley Assocs. Ltd.), 492 B.R. 433 (Bankr. D.N.J.) (denying summary judgment on similar § 548 challenge to tax-certificate foreclosure; absence of competitive bidding undermines conclusive-value argument)
- Pension Transfer Corp. v. Beneficiaries (In re Fruehauf Trailer Corp.), 444 F.3d 203 (3d Cir.) (framework for reasonably equivalent value: totality of circumstances—fair market value, arm’s-length, transferee good faith)
- Rocco v. J.P. Morgan Chase Bank (In re Rambo), 297 B.R. 418 (Bankr. E.D. Pa.) (preference analysis examines whether creditor received more than it would in hypothetical chapter 7; costs of sale and liens considered in valuation)