Debtor May Not Modify Rights of Tax Purchaser

Posted by NCBRC - February 13, 2018

By operation of state law, a tax sale purchaser has title to the purchased property and cannot have its rights modified in chapter 13 to permit the debtor to redeem over the course of the plan. Deed Co. v. Jimerson, No. 17-513 (N.D. Ga. Jan. 23, 2018).

Over the tax buyer’s objection, the bankruptcy court confirmed Clarence Jimerson’s chapter 13 plan providing for him to redeem over the course of the plan property sold in a pre-petition tax sale. On appeal, the district court noted a split among other courts in the district concerning the treatment of tax sale redemption in chapter 13 plans. Specifically, the courts differed in their determination of the nature of the interest the debtor brings to the estate when he files for bankruptcy after the sale but prior to the lapse of the redemption period. Those cases finding that the redemption amount may be paid over the course of the chapter 13 plan reason that the debtor retains an interest in the property and the debt buyer holds an inchoate interest comparable to a secured debt. Courts finding that the debtor must redeem within section 108(b)’s 60 day redemption deadline, or the remainder of the state redemption deadline if longer, base their conclusion on the finding that the debtor enters bankruptcy with an interest in the right to redeem rather than in the underlying property. In that case, at the time of the petition, the debt buyer has the title interest in the property and its rights are not subject to modification under section 1322(b).

The district court agreed with the reasoning of those courts finding that debtors do not have the right to modify the debt buyer’s rights. Looking at the nature of the competing interests, the court found that operation of the state tax sale statute had the effect of transferring title to the debt buyer leaving the debtor with a statutory right to redemption. The debt buyer was not a creditor to whom Mr. Jimerson had an obligation. Rather, the debt buyer was the titleholder with an obligation to turn over the property to Mr. Jimerson upon his exercise of the option to redeem.

As a practical matter, the court expressed concern over the potential that permitting debtors to modify the rights of debt buyers would make buyers leery of purchasing such debts and negatively impact the prices the tax entity can recover.

The court declined to address the factual issue of whether the tax debt buyer had waived its objection to confirmation by filing a claim and accepting a distribution.

Jimerson ND Ga opinion Jan 2018

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