Miranda v. TLB 2019 LLCMiranda v. TLB 2019 LLC
MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT SETTING ASIDE A TAX LIEN SALE AS A FRAUDULENT TRANSFER
Issues Before the Court and Summary of Ruling
This dispute arises out of a tax lien sale of debtor Sonia M. Miranda‘s (“Debtor” or
Pending before this Court are cross-motions for summary judgment filed by Miranda and TLB (the “Cross Motions“). Miranda‘s motion (“Miranda‘s Motion“) seeks a determination that the transfer of her residence to TLB through a tax lien sale and a subsequent quiet title action was a fraudulent transfer under
For the reasons to follow, this Court will grant Miranda‘s Motion and deny TLB‘s Motion in part.
Jurisdiction
This Court has jurisdiction over this core proceeding under
Factual and Procedural History1
Miranda is an individual that currently resides and at all pertinent times herein resided at 300 Pennsylvania Avenue, Mineola, NY 11501 (the “Property“). TLB is a limited liability corporation formed and existing undеr the laws of the State of New York, having an address at 175 East Shore Road, Ste. 220, Great Neck, NY 11023.
On December 6, 2000, Miranda and her now deceased husband acquired title to the Property. The deed to them was subsequently recorded in the Nassau County Clerk‘s Office on January 10, 2001.
Miranda failed to make property tax payments due to the Village of Mineola (the “Village“) for the tax years of 2018 and 2019. This failure resulted in a tax lien being placed on the Property in the amount of $1,841.48 (the “Tax Lien“). On March 14, 2019, TLB purchased the Tax Lien at a рublic auction held by the Village.
[I]n order to redeem [the Property], the total amount due must be paid to the collecting officer of the Village of Mineola within six (6) months from the date of service of this notice, and that in the event the failure to redeem within the time limited, the Treasurer of the Village of Mineola shall upon proper written application, execute and deliver to [TLB] a convеyance of the [Property].
Miranda did not pay her taxes due to the Village within the prescribed period of redemption. Accordingly, on February 7, 2022, the Treasurer of the Village executed and delivered a Treasurer‘s Deed conveying title to the Property to TLB (respectively, the “Treasurer‘s Deed” and the “Transfer“).
The value of the Property was last assessed at $650,178.00 at the time of the Transfer. [Adv. Pro. Dkt. 1].2
On February 9, 2022, TLB commenced a quiet title action in New York State Supreme Court, Nassau County (the “State Court“) seeking judgment declaring that it was the record holder and owner of the Property (the “Quiet Title Action“). Upon Miranda‘s default, the State Court declared TLB to be the “record holder and owner” of the Property, free and clear of all liens, claims, and encumbrances, by judgment dated May 11, 2022 and entered on May 16, 2022.
TLB subsequently commenced a holdover action in Nassau County District Court (the “State District Court“) to acquire possession of the Property and evict Miranda from the Property (the “Eviction Action“).
On April 4, 2023, the State District Court hеld a trial on the Eviction Action.
On April 18, 2023, the State District Court ordered that a judgment of possession and a warrant of eviction be entered in favor of TLB against Miranda and others, with a stay of execution until August 15, 2023. The Judgment of Possession and Warrant of Execution were issued by the State District Court on May 1, 2023.
On an unspecified date after the stay of execution expired, TLB caused a 14-Day Eviction Notice to be served on Miranda.
On September 12, 2023, prior to being evicted, Miranda filed a petition for relief under Chapter 13 of Titlе 11 of the United States Code (the “Bankruptcy Code“) (case no. 23-73373-AST). [Dkt. 1].
On September 20, 2023, Miranda‘s counsel inquired of the Chapter 13 Trustee, Krista M. Preuss, Esq. (the “Chapter 13 Trustee“), whether her office would seek to avoid the Transfer and recover the Property. On September 21, 2023, the Chapter 13 Trustee‘s office stated that she would not pursue an avoidance action to recover the Property.
On October 11, 2023, Miranda commenced this adversary proceeding requesting that the Court enter judgment against TLB avoiding the Transfer under
On October 17, 2023, Miranda filed Schedule C, claiming a homestead exemption in the Property pursuant to
On February 13, 2024, TLB filed its Motion. [Adv. Pro. Dkt. 12].
On February 13, Miranda filed her Motion. [Adv. Pro. Dkt. 13].
On February 23, TLB filed opposition to Miranda‘s Motion. [Adv. Pro. Dkt. 14].
On February 23, Miranda filed opposition to TLB‘s Motion. [Adv. Pro. Dkt. 15].
On April 16, the Court held a hearing on the Cross Motions and directed the parties to file supplemental briefs on the issues of standing, federalism concerns, and unconstitutional takings by May 15. On May 17, the Court approved a stipulation between the parties extending the time to file the supplemental briefing to May 22. [Adv. Pro. Dkt. 22].
On May 22, TLB filed its supplemental brief. [Adv. Pro. 23].
On May 22, Miranda filed her supplemental brief. [Adv. Pro. Dkt. 25].
Discussion
A. The Standard for Summary Judgment
The Second Circuit has repeatedly noted that, “[a]s a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party.” Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex Corp., 477 U.S. at 330 n.2 (1986) (Brennan, J., dissenting)); see also Tomka v. Seiler Corp., 66 F.3d 1295, 1304 (2d Cir. 1995). “If, when viewing the evidence produced in the light most favorable to the non-movant, there is no genuine issue of material fact, then the entry of summary judgment is appropriate.” Pereira v. Cogan, 267 B.R. 500, 506 (S.D.N.Y. 2001).
B. Miranda has Standing to Bring a Fraudulent Transfer Action
The debtor may avoid a transfer of property of the debtor ... to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if—
(1) such transfer is avoidable by the trustee under sectiоn 544, 545, 547, 548, 549, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and
(2) the trustee does not attempt to avoid such transfer.
Debtor did claim the Property as exempt under
Critical here is that New York State law provides that “no homestead exemption shall be exempt from taxation or from sale for non-payment of taxes or assessments.”
This Court has long required a debtor whо seeks to void a judgment lien under section 522(f) to be entitled to and
TLB also asserts that Miranda‘s ability to exempt her property under federal law should be foreclosed by CPLR Rule 5206. This argument also fails. The Bankruptcy Clause of the U.S. Constitution gives Congress the power “[t]o establish ... uniform Laws on the subject of Bankruptcies throughout the United States ....”
TLB‘s application of section 5206 of the CPLR would require this Court to conclude that a state law may expressly limit the applicability of
As noted, Miranda could have claimed a federal exemption in the Property under
homestead exemption claims, as it provides that “no homestead exemption shall be exempt from taxation or from sale for non-payment of taxes or assessments.” Thus, TLB‘s argument would lead to disparate results for similarly situated New York resident debtors as to the very same real property where one claims state and the other federal exemptions.
C. Section 548 Fraudulent Transfer
“The Bankruptcy Code empowers debtors to set aside a transfer of property if (1) the debtor had an interest in property; (2) a transfer of that interest occurred on or within two years of the bankruptcy petition; (3) the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer; and (4) the debtor received ‘less than a reasonably equivalent value in exchange for such transfer[.]‘” Gunsalus v Cnty. of Ont., 37 F.4th 859, 864 (2d Cir 2022) (citing
In determining whether a transfer is for “reasonably equivalent value,” cоurts consider “whether the debtor has received value that is substantially comparable to the worth of the transferred property.” BFP v. Resol. Tr. Corp., 511 U.S. 531, 548 (1994). This standard does not require a property to be transferred for market value; for example, a foreclosure sale “properly conducted under applicable state law, conclusively establishes reasonably equivalent value for purposes of § 548(a).” In re Zerbo, 397 B.R. 642, 653 (Bankr. E.D.N.Y. 2008); see also BFP, 511 U.S. at 538-39.
In BFP, the subject property was sold via a judicial foreclosure sale resulting in a sale price of $433,000. 511 U.S. at 533-34. Months later, the debtor filed a bankruptcy petition under chapter 11 and filed a complaint seeking to avoid the transfer as fraudulent under section 548, claiming the property was actually worth $725,000 at the time of the foreclosure sale. Id. at 534. The Supreme Court recognized that “[n]o one would pay as much to own [foreclosed] property as he would pay to own real estate that could be sold at leisure and pursuant to normal marketing techniques.” Id. at 538-39. The Court held that in the context of a foreclosure sale, the reasonably equivalent value under
Similarly, in Zerbo, the chapter 7 trustee sought to avoid a prepetition transfer of debtor‘s marital property to his former spouse as fraudulent pursuant to section 548(a). 397 B.R. at 645. There, the transfer was the result of a settlement agreement incorpоrated by reference into a state court judgment of divorce. Id. at 646. This Court held that “absent extrinsic fraud or collusion among the divorcing parties, the division of marital assets which is agreed to by the parties, and is contemporaneously or subsequently approved by a matrimonial court, and incorporated into a divorce decree, conclusively establishes reasonably equivalent value.” Id. at 654.
Here, there was no judicial oversight for the Tax Deed or the Transfer. Although TLB did file the Quiet Title Action, that only sought to declare the Tax Deed and Transfer were undertaken in accordance with the administrative tax procedures. Based exclusively on mechanically applied administrative requirements, TLB, a private party, was granted title to a Property worth an estimated $650,178.00 for the price of a $1,841.48 Tax Lien. The State Court Action only required the State Court to consider the validity of the Treasurer‘s Deed, and not the fairness of the value Miranda received. The State Court declared TLB by default judgment to be the “record holder and owner” of the Property, free and clear of all liens, claims, and
This Court is not seeking to minimize the enforceability of a state court default judgment, nor reward Miranda for her multiple inactions. But this tax deed transfer was an administrative act without judicial oversight. Miranda did not have the protections of market forces as did the debtor in BFP, nor the protections of judicial oversight as did the debtor in Zerbo.
Thus, Miranda received less than reasonably equivalent value for the Property as a matter of law. The only evidence in the summary judgment record demonstrates that her $650,000 house was transferred for nonpayment of a de minimus amount of taxes ($1,841.48).
Further, the Bankruptcy Code defines insolvent, in relevant part, as meaning that
(A) ... financial condition such that the sum of such entity‘s debts are greater than all of such entity‘s property, at a fair valuation, exclusive of –
(i) property transferrеd, concealed or removed with intent to hinder, delay or defraud such entity‘s creditors; and
(ii) property that may be exempted from property of the estate under Section 522 of that title ....
Here, there is no dispute that prior to the Transfer, Miranda had an interest in the Property; that the Transfer occurred within two years of the petition date; and that the Transfer left Miranda unable to pay her debts.
TLB argues in circular fashion that Miranda was not rendered insolvent by the Transfer within the meaning of
Therefore, because Miranda had an interest in the property, the transfer occurred within two years of the bankruptcy petition, the transfer rendered Miranda insolvent, and Miranda did not receive reasonably equivalent value, the Transfer is a fraudulent transfer as defined by
D. The Doctrines of Res Judicata, Laches, Unclean Hands, and Equitable Estoppel Do Not Bar Miranda‘s Section 548 Claim
TLB argues, inter alia, that Miranda‘s claim is barred by the doctrines of res judicata, laches, unclean hands, and/or equitable estoppel as Miranda could have brought her fraudulent transfer claims during the pendency of the Quiet Title Action or Holdover Action. TLB is incorrect.
Res judicata, or claim preclusion, “prevents parties from raising issues that could have been raised and decided in a prior action—even if they were not actually litigated.” Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp., Inc., 500 U.S. 405, 412 (2020). Courts must apply principles of
New York uses the transactionаl approach to res judicata, meaning parties are prevented “from raising in a subsequent proceeding any claim they could have raised in the prior one, where all of the claims arise from the same underlying transaction.” In determining whether two claims involve the same transaction, New York courts look to whether the two claims are “related in time, space, origin, or motivation.” Typically, principles of res judicata require that “once a claim is brought to a final conclusion, all оther claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy.” Falardo v. N.Y.C. Police Dep‘t, 566 F. Supp. 2d 283, 285-86 (S.D.N.Y. 2008) (internal citations omitted).
The first issue, then, is what claims Miranda is bringing here, and whether those claims could have been asserted in the Quiet Title Action. First, Miranda is barred from challenging the Transfer as an unconstitutional taking of her equity in the Property. In Tyler v. Hennepin Cty., a county sold a taxpayer‘s home valued at $40,000 to satisfy a $15,000 tax debt pursuant to state law. 598 U.S. 631, 634 (2023). The county then retained the $25,000 excess funds from the salе. Id. The taxpayer filed an action against the county alleging a Takings Clause violation as the county had “unconstitutionally retained the excess value of her home above her tax debt.” Id. at 635. The district court granted the county‘s motion to dismiss for failure to state a claim, and the circuit court affirmed. Id. at 636. The Supreme Court reversed, holding that the taxpayer had “plausibly alleged a taking under the Fifth Amendment.” Id. at 647. Miranda could have raised the unconstitutional takings claim in the underlying Quiet Title Action but failed to do so.
In the alternative, Miranda is barred from raising a constitutional challenge based on her failure to so do in the Eviction Action.
Here, although Miranda states a fraudulent transfer claim under
The doctrine of laches is also inapplicable. “[L]aches cannot bar [a] claim ... where the statute contains an express limitations period within which the action is timely.” In re Jemal, 496 BR 697, 703 (Bankr. E.D.N.Y. 2013) (quoting United States v. RePass, 688 F.2d 154, 158 (2d Cir.1982)). The Bankruptcy Code sets forth express limitations periods for actions under section 548. First,
As such, the affirmative defenses raised by TLB are inapplicable as a matter of law.
E. TLB‘s Additional Requests for Relief
Finally, TLB‘s request that the Court award TLB payment for Miranda‘s use and occupancy of the residence after TLB took title must be denied as the Transfer has been avoided. TLB cannot be awarded use and occupancy for Miranda‘s use of the Property after TLB took title based on a fraudulent transfer.
However, TLB is entitled to satisfaction of the value of its Tax Lien, plus applicable interest. New York state law provides fоr 9% per annum post-judgment interest; that is an appropriate rate to be applied here, commencing from the date of the Transfer (February 7, 2022). That amount will be a secured claim under Miranda‘s chapter 13 plan, to be treated as any other secured claim would under, inter alia,
Conclusion
For the reasons set forth herein, Miranda is entitled to judgment as a matter of law. As such, it is hereby
ORDERED, that Miranda‘s Motion is granted; and it is further
ORDERED, that TLB‘s Motion is denied in part; and it is further
ORDERED, that the February 7, 2022 Transfer is avoidable as matter of law pursuant to
ORDERED, that Miranda‘s chapter 13 plan must provide for full payment to TLB of $1,841.48 plus per аnnum interest at 9% from February 7, 2022 until finally paid in satisfaction of TLB‘s Tax Lien; and it is further
ORDERED, that pursuant to Federal Rules of Bankruptcy Procedure Rule 7070, TLB is divested of title in 300 Pennsylvania Avenue, Mineola, NY 11501; and it is further
A judgment consistent herewith shall be issued.
Dated: January 17, 2025
Central Islip, New York
Alan S. Trust
Chief United States Bankruptcy Judge