Texas Tax Purchaser’s Rights Cannot Be Modified

Posted by NCBRC - August 10, 2017

Where the chapter 13 debtor failed to redeem property sold in a tax sale within the time period laid out in section 108(b)(2), the tax purchaser had an ownership interest in the property rather than a lien and was, therefore, entitled to relief from stay to take possession. In re Millington, No. 17-31290 (Bankr. S.D. Tex. Aug. 8, 2017).

Derron Millington filed for chapter 13 bankruptcy three days before expiration of the Texas deadline for redeeming property sold through tax foreclosure. When he failed to redeem after filing his petition, Gulf States, the tax purchaser, moved for relief from stay.

In addressing Mr. Millington’s objections to the motion, the court began with section 108(b) which provides in part: “if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor . . . may . . . cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, . . .(2) 60 days after the order for relief.” Under that section, the court found Mr. Millington had an additional fifty-seven days post-petition to redeem the property.

Mr. Millington, however, failed to redeem within that time, arguing instead that under the reasoning of In re Jimerson, 564 B.R. 430 (Bankr. N.D. Ga. Jan. 26, 2017), the tax sale gave Gulf States a lien rather than an ownership interest in the property and that, under section 1322(b)(2), Gulf States’ rights could be modified to permit redemption over the course of the chapter 13 plan.

The court disagreed. It distinguished Jimerson, where, under Georgia law, to divest the tax debtor of his right to redeem, a tax purchaser must take affirmative action within twelve months of purchase. Therefore, in Jimerson, the debtor was found to have retained a property interest in the property until such time as the purchaser exercised his termination right. In Texas, on the other hand, the property vests in the tax purchaser in “good and perfect title” subject only to the debtor’s redemption rights. Therefore, the court concluded, Gulf States was the owner of the property rather than a mere lienholder and its rights could not be modified under section 1322(b)(2).

Mr. Millington next argued that Texas property law conflicted with the federal definition of the debtor’s estate and the federal interest in allowing reorganization of debts, and that such conflict violated the U.S. Constitution’s elevation of federal law over conflicting state law. The court rejected this argument finding that Congress addressed the balance between rights of creditors and those of debtors in section 108(b) without redefining state property concepts.

Nor could Mr. Millington avail himself of the court’s broad powers under section 105. That section does not permit a court to do that which the Code prohibits. Where the Code is clear on the time extension for redemption rights and Gulf States is not a lienholder whose rights are subject to modification, the court could not use its authority under section 105 to create a new substantive right to redeem beyond the Code’s sixty-day extension.

Millington Bankr SD Tex opinion August 2017


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