449 B.R. 7
Bankr. W.D.N.Y.2011Background
- Donald Johnson defaulted on residential real property taxes due January 1, 2006, leading the County of Chautauqua to file a tax foreclosure petition on February 8, 2010.
- Notice of foreclosure was sent by ordinary and certified mail; Johnson signed a receipt acknowledging delivery on February 11, 2010.
- A May 12, 2010 deadline to redeem or respond was set, with a warning that failure would transfer title by court judgment.
- A default judgment of foreclosure was entered on June 21, 2010, and a deed to the County was recorded on August 4, 2010, before Johnson filed for Chapter 13 relief on July 6, 2010.
- Johnson sought to reverse the foreclosure via an adversary proceeding initiated July 14, 2010, and separately moved in August 2010 to stay title transfer.
- State court denied Johnson’s motion to reopen and found no reasonable excuse or meritorious defense; Johnson then pursued this bankruptcy-based challenge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtor retains a redeemable property interest for plan cure | Johnson retained an interest despite default, enabling cure under 11 U.S.C. §1322(b)(3). | Tax foreclosure extinguished property interest upon default, so no cure right exists post-judgment. | Debtor had no property interest to protect at filing; foreclosure sale terminated title prior to bankruptcy. |
| Whether debtor can avoid tax foreclosure as a fraudulent conveyance | Foreclosure transfers property for less than value; trustee could avoid and debtor exemption could apply. | Trustee cannot avoid here because debtor lacks exempt property and exemption is unavailable under NY law. | No exempt interest; 522(g) relief unavailable; complaint dismissed as to fraudulent conveyance. |
| Whether the court may independently adjudicate tax disputes under §505 and stay implications | §505 provides independent authority to challenge taxes related to the sale. | §505 does not permit revisiting foreclosure outcomes where property is no longer estate; stay not violated. | Section 505 provides no independent authority to revisit foreclosure; automatic stay not violated by deed. |
Key Cases Cited
- Wisotzke v. Ontario County, 409 B.R. 20 (W.D.N.Y.2009) (default in tax foreclosure can strip title prior to deed; plan may not cure)
- Wisotzke v. Ontario County, aff'd, 382 Fed.Appx. 99 (2d Cir.2010) (affirmation of Wisotzke rule)
- Owen v. Owen, 500 U.S. 305 (1991) (baseline for exemptions; difference between 522(f) and 522(g))