588 B.R. 394
D.N.J.2018Background
- Frank and Dawn Stelze-Hackler owned residential property as tenants by the entireties; a 2013 municipal tax sale certificate was purchased (with a premium) and later assigned to Arianna.
- Phoenix Funding (certificate purchaser) paid Debtors’ unpaid municipal taxes and charged 18% interest; Phoenix assigned the certificate to Arianna in May 2016.
- Debtors filed Chapter 13 on June 17, 2016 (later dismissed); after failing to redeem, a Final Judgment Foreclosure vested title in Arianna on October 6, 2016.
- Debtors filed a second Chapter 13 petition on December 14, 2016 and an adversary complaint seeking to avoid the October 2016 transfer as either a constructively fraudulent transfer under 11 U.S.C. § 548 or a preference under 11 U.S.C. § 547(b).
- Bankruptcy Court granted Debtors’ summary judgment and avoided the transfer under § 547(b), concluding all five § 547(b) elements were met and that BFP did not bar avoidance; the district court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of BFP v. RTC to avoiding tax-sale title transfers | BFP inapplicable; §547(b) governs preferences and permits avoidance here | BFP precludes federal undoing of state foreclosure-based title transfers because of federalism/stability-of-title concerns | BFP is distinguishable; bankruptcy may avoid tax-sale transfer under §547(b) because §548 (at issue in BFP) differs and NJ tax-sale procedure differs from mortgage foreclosure |
| Whether transfer is avoidable under 11 U.S.C. §547(b) | Transfer was to a creditor, for antecedent municipal tax debt, while Debtors were insolvent, within 90 days, and resulted in creditor receiving more than in Chapter 7 | Arianna did not dispute most facts but argued federalism/state-law primacy and stability of title | Court held all five §547(b) elements satisfied and avoidance appropriate; creditor keeps lien claim (with interest) but not title |
| Applicability of the Tax Injunction Act (28 U.S.C. §1341) | N/A (Debtors proceeded in bankruptcy court) | TJ Act bars federal courts from restraining tax collection/foreclosure | TJ Act not implicated: sale of tax certificate satisfied the tax obligation and federal avoidance does not impair state’s ability to assess/collect taxes |
| Section 505 and newly raised dismissal-based defense | N/A | Arianna contended (at argument) that earlier dismissal of Debtors’ initial Chapter 13 precludes §547(b) relief; also claimed §505 barred review | §505 inapplicable (it addresses tax liability); the late-raised dismissal argument was waived and not considered |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (Sup. Ct.) (federal courts should respect state foreclosure procedures when evaluating fraudulent-transfer claims under §548)
- Simon v. Cebrick, 53 F.3d 17 (3d Cir.) (Tax Injunction Act does not bar federal consideration where tax certificate purchaser satisfied the tax obligation)
- In re Friedman's, Inc., 738 F.3d 547 (3d Cir.) (summarizes §547(b) preference elements and chapter 7 comparison)
- In re Rocco, 255 Fed. Appx. 638 (3d Cir.) (discusses §547(b)(5) and that creditors should not be better off by prepetition transfers than in liquidation)