502 B.R. 186
Bankr. D.N.J.2013Background
- Debtors Guy and Kathleen Varquez filed Chapter 13 on Sept. 19, 2013; residence listed at $135,735 and Mantua Township tax claim of ~$36,000.
- Prior tax sale: certificate purchased (Dec. 2009), assigned to Sparrow (May 29, 2013); final judgment of foreclosure entered June 20, 2013 vesting fee simple title in Sparrow; writ of possession executed Sept. 18, 2013.
- Sparrow moved for relief from the automatic stay (Oct. 1, 2013) to proceed with sale; Sparrow contends debtors lost all interest prepetition and thus property is not estate property.
- Debtors oppose, alleging lack of notice, claiming they can avoid the prepetition transfer as a preferential (11 U.S.C. §547) or fraudulent/constructive transfer (11 U.S.C. §548) and propose to cure taxes via their Chapter 13 plan.
- Court found no stay violation (title transferred prepetition) but considered whether debtors could bring an avoidance action under §548 for the tax-foreclosure transfer; court denied stay relief without prejudice to allow adversary filing.
Issues
| Issue | Debtors' Argument | Sparrow's Argument | Held |
|---|---|---|---|
| Whether automatic stay applies to post-petition acts regarding the property | Stay should bar Sparrow from selling/locking out debtors | Title vested in Sparrow prepetition by final judgment and writ; no estate interest remained | No stay violation — debtors had no legal/equitable interest at filing |
| Whether debtors can collaterally attack state foreclosure judgment in bankruptcy | Judgment void for lack of notice; foreclosure can be challenged | Rooker–Feldman bars federal review of state-court foreclosure | Collateral attack rejected under Rooker–Feldman; bankruptcy court cannot relitigate state judgment |
| Whether debtors have standing to seek avoidance of the transfer | Debtors (Chapter 13) can avoid transfers under §§522(g)/(h) if trustee could have | Sparrow contends debtors lack standing to avoid transfer | Debtors have standing under §522(h) if statutory conditions met |
| Whether transfer is avoidable as preferential (§547) or constructive fraudulent (§548) | Transfer avoidable as preference or fraudulent conveyance; value received was only tax debt satisfaction | Transfer not a preference (outside 90-day window); BFP compels that foreclosure sale price constitutes reasonably equivalent value | Preference claim fails (transfer outside 90 days). Constructive-fraud claim under §548 may be viable because BFP’s rule for mortgage foreclosure sales does not automatically apply to NJ tax-foreclosures; transfer may have been for less than reasonably equivalent value. Court denied stay relief without prejudice pending adversary proceeding |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (1979) (state law defines debtor’s property interests for bankruptcy estate purposes)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (Rooker–Feldman doctrine bars federal review of state-court judgments)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (properly conducted mortgage foreclosure sale price is conclusive evidence of reasonably equivalent value under §548)
- In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir. 2006) (elements and presumption framework for constructive fraud under §548)
- In re Dickson, 655 F.3d 585 (6th Cir. 2011) (Chapter 13 debtor’s standing under §522(h) to avoid transfers when trustee did not act)
- In re T.F. Stone Co., 72 F.3d 466 (5th Cir. 1995) (applied BFP where tax resale procedure exposed property to public auction and market)
- In re Grandote Country Club, Ltd., 252 F.3d 1146 (10th Cir. 2001) (state tax-sale procedures requiring competitive public auction can supply reasonably equivalent value)