National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

tax sale

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Tax Debt Strict Foreclosures as Takings Clause Violations

Does a state law permitting the government to take and sell a debtor’s home to satisfy a tax debt, and keep the surplus value as a windfall, violate the Takings Clause? That is the question before the Supreme Court in two separate cert. petitions. Fair v. Continental Resources, No. 22-160 (filed Aug. 19, 2022) and Tyler v. Hennepin Cty, No. 22-166 (filed Aug. 19, 2022). It is also the question that was recently answered affirmatively by the Sixth Circuit in the case of Hall v. Meisner, No. 21-1700 (6th Cir. Oct. 13, 2022). These cases could have significant consequences in the bankruptcy context where debtors often challenge tax sales under avoidance principles (the issue raised in another Supreme Court cert petition, County of Ontario v. Gunsalus, No. 22-294). Certainly, the Sixth Circuit case adds ammunition to the Michigan bankruptcy debtor’s arsenal.

[Read more…] about Tax Debt Strict Foreclosures as Takings Clause Violations

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Debtor May Avoid Tax Sale under 548 but Loses Equity

The debtor has standing to avoid a tax sale under section 548 but only to the extent of her exemption and allowed claims. She may not recover her equity in the property. Morawski v. Effect Lake, LLC., No. 20-1125 (Bankr. D.N.J. April 11, 2022).

On October 3, 2016, Effect Lake purchased a tax sale certificate encumbering the debtor’s home. In January, 2019, Effect Lake filed a tax sale foreclosure action in the state court and a lis pendens for the foreclosure action with the Essex County Register’s Office. The state court entered final judgment on September 30, 2019. The debtor filed her chapter 13 bankruptcy petition on February 7, 2020. Effect Lake filed a proof of claim for $141,947.88. At the time the debtor filed for bankruptcy, the redemption amount for the tax sale certificate was $90,323.88 and the property was valued at between $544,000 and $600,000.

The debtor filed an adversary proceeding seeking a finding that the tax sale was a fraudulent conveyance under section 548. The parties filed cross-motions for summary judgment. The bankruptcy court held a hearing and issued the following findings. [Read more…] about Debtor May Avoid Tax Sale under 548 but Loses Equity

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Debtor May Avoid County Tax Foreclosure Sale

A county’s tax sale of the debtor’s farm was avoidable as constructively fraudulent under section 548, where the debtor was insolvent at the time of the title transfer and the tax debt was substantially less than the fair market value of the property. DuVall v. County of Ontario, No.19-20179, Adv. Proc. No. 19-2011 (Bankr. W.D. N.Y. Feb. 18, 2021). [Read more…] about Debtor May Avoid County Tax Foreclosure Sale