Hon. Elizabeth W. Magner, U.S. Bankruptcy Judge.
The Motion for Relief from Stay filed by AP Direct L.L.C. ("AP") and the Objection filed by debtors, James and Wanda Curley (collectively "Debtors") came before the Court on May 9, 2017. At the conclusion of the hearing, the Court took the matter under advisement.
On October 6, 2014, Debtors filed a Voluntary Petition for Relief under Chapter 13 of the Bankruptcy Code ("Petition Date"). At the time of their filing, Debtors claimed an ownership interest in real property located at 5824 Providence Place, New Orleans, Louisiana ("Providence"). Prior to filing for relief, Providence was sold at tax sale for nonpayment of 2012 property taxes ("Tax Sale"). AP purchased the property after paying $3,381.35. A Tax Certificate was issued on October 15, 2013, and recorded on October 25, 2013. Debtors listed the City of New Orleans ("City") as
On October 20, 2014, the City filed six (6) proofs of claim totaling $27,728.27:
On January 30, 2015, Debtors' Amended Chapter 13 plan of reorganization was confirmed ("Plan"). The Plan proposed to pay the City $27,728.27 in priority claims over five (5) years without interest. Neither the City nor AP filed an Objection to confirmation. The City was noticed of the Plan, period to object to confirmation, confirmation hearing date and entry of the confirmation order. AP did not receive notice of either Debtors' filing for bankruptcy relief, the Plan, objection deadline, confirmation hearing date, or entry of the confirmation order.
On February 10, 2017, AP filed a Petition to Confirm Tax Sale in the Civil District Court for the Parish of Orleans. It was then that Debtors' counsel informed AP of Debtors' pending bankruptcy case. AP has filed the instant Motion for Relief to prosecute its Petition to Confirm Tax Sale.
AP asserts that the period to redeem Providence has lapsed and it is entitled to quiet title. It argues that under Louisiana law the redemption period may not be interrupted, suspended or extended. As a result, Debtors' Plan may not extend or suspend the running of the redemptive period. It also asserts that to the extent the Plan seeks to bind it to repayment over a five (5) year period, Debtors' failure to notice it of the Plan's contents, objection deadline for confirmation, confirmation hearing, and confirmation order violates due process.
Debtors counter that the Plan provides for repayment to the City over five (5) years, and the confirmation hearing and objection deadline were properly noticed to the City. It asserts AP's rights are derivative from the City's. As a result, because the City did not object to confirmation, AP is bound by the terms of the Plan.
Louisiana law provides that property sold at tax sale is:
The three (3) year redemption period is peremptive under Louisianan law.
Section 108(b) of the Bankruptcy Code provides in pertinent part:
Thus, under the Bankruptcy Code, if a debtor holds an unexpired right of redemption on the petition date, the debtor has until the period allowed under state law or sixty days from the petition date, whichever is later, to redeem.
Whether or not Debtors timely redeemed, they also contend that they had the right to "cure" any failure to satisfy their obligation to pay property taxes by confirming a plan that extends the period of redemption beyond the statutory period.
A plan repays a creditor on a pre-existing debt over time. A plan may force a creditor to accept payment to cure a default over time. However, it may not adjust the rights of a third party who is not a creditor of the estate except in very limited circumstances not applicable in this case.
By virtue of the Tax Sale, AP became the 70% owner of Providence.
A "creditor" is a person who "has a claim against the debtor"
On the Petition and confirmation dates, Debtors held an asset, a right of redemption, which enabled them to salvage Providence under set conditions. Those conditions included payment of the amounts paid by AP, plus interest and penalties, within a prescribed period of time. Failure to exercise this right did not result in any liability to Debtors, merely a lost opportunity. In re Richter
In Richter, Marrakesh Community Association ("MCA") initiated a foreclosure proceeding on the debtor's principal residence. Rustling Oaks, L.L.C. ("Oaks") purchased the debtor's residence at a prepetition foreclosure sale on October 10, 2013. Under California law, the debtor had a right to redeem the property within 90 days of the sale. On the final day to redeem, the debtor filed a Voluntary Petition for Relief under Chapter 13. The debtor then confirmed a plan that provided for redemption of the property. After confirmation, Oaks filed a Motion for Relief from the Automatic Stay in order to take possession.
The Richter Court noted that 11 U.S.C. § 1322(c)(1) provides that default on a principal residence may be cured "until such residence is sold at a foreclosure sale conducted in accordance with nonbankruptcy law." As the foreclosure sale had been properly conducted, debtor could not cure the default to MCA though the plan.
The debtor also argued that he could modify his redemption right by paying over the length of the plan. The Court found that Oaks was not the holder of a claim, so its rights could not be modified under section 1322(b). The Richter Court concluded that since the debtor had no obligation to pay the redemption price, Oaks had no "right to payment" under section 101(5)(A). It also found that failure to redeem would not entitle a tax purchaser to a money judgment.
In this case, the City foreclosed on a tax lien encumbering Providence and securing the tax obligations Debtors owed to the City for 2012 taxes. The Tax Sale was completed prior to the Petition Date. Because the Tax Sale was complete, the tax obligation was satisfied. What remained was Debtors' right of redemption. That
Debtors argue that Richter is wrongly decided and cite this Court to In re LaMont
In December 2008, the LaMonts filed for bankruptcy relief and confirmed a plan. The plan provided for payment of the redemption amount directly to the taxing authority. After the redemption period expired, the purchaser asked the state court for an order directing the county clerk to issue a tax deed, but the state court refused citing the existence of the automatic stay. The purchaser then sought relief from the stay from the Bankruptcy Court.
After rulings by the Bankruptcy and District courts, the Seventh Circuit held:
The Court found that the purchaser's right to title was only vested after the filing of a petition in state court, notice to the debtor, and the issuance of a tax deed. Prior to that, the Court found that the purchaser held a right to payment, or alternatively a right to an equitable remedy against the debtors' property. The property sold at tax sale was still the property of the debtor and property of the estate. As a result, the Court held that a tax purchaser held a claim against the estate.
In Louisiana as in Illinois, purchase at tax sale does not immediately transfer ownership. La. R.S. 47:2121 provides:
Debtors are the record owners of Providence, and it is property of the estate. However, as the Court has previously explained, AP has no "right to payment" from Debtors or "claim" pursuant to section 101(5) because under Louisiana law, Debtors had the right, but not the obligation, to redeem Providence. Upon the passage of time and failing the exercise of redemption, AP's title vests and neither state nor Federal law permits an extension, modification, or suspension of AP's rights in this circumstance. In short, on the Petition Date, AP had an ownership interest held in suspense awaiting a resolutory condition, the passage of time.
Because AP was not a creditor but held an interest in property of the Debtors' estate, it was a party in interest to this case. Under Bankruptcy law, parties in interest retain their rights after filing with limited exceptions. For example, under 11 U.S.C. § 363, property held in co-ownership with a debtor may be sold without the nondebtor's consent, but the nondebtor is entitled to receive his proportionate share of the sale proceeds. Actions by a creditor of a debtor against officers, directors, managers, co-obligors, or insurers may be temporarily stayed, pending the reorganizational effort, but those rights may not be permanently affected by a plan.
Despite LaMont's holding, this Court can find no support for the permanent modification of a third party noncreditor's rights under state law through a plan. Instead, the Bankruptcy Code provides only one exception:
The exception does not apply here. For this reason, Debtors may not modify AP's rights through a Plan.
Debtors argue that by filing multiple proofs of claim, the City admitted that it was owed taxes on Providence for 2012 and was, therefore, a creditor of the estate.
The City filed six (6) proofs of claim in this case. Three (3) claims, Claims 6, 7, and 8, are claims for taxes due on other properties owned by Debtors. Claims 9, 10, and 11 provide calculations for redemption on Debtors' properties sold prepetition at tax sales. None of the claims specify the physical address of the properties affected. Debtors allege that Claim 9 provides the calculation for redemption of Providence. They also assert that because the City filed this claim, it admitted that a debt was due to it.
The attachment to the City's Claim 9 shows that it is for the amount necessary to redeem Providence for 2013 property taxes paid at a tax sale conducted in 2014. Therefore, Claim 9 does not show that it is the calculation of amounts due to redeem Providence following the Tax Sale on 2012 taxes.
Debtors argue that the Plan provided distributions to the City in an effort to redeem Providence. Even if the Plan improperly affects AP's rights, Debtors assert that the Plan's confirmation is res judicata as to the City and AP.
A Chapter 13 plan is an "exchanged for bargain between the debtor and the debtor's creditor[.]"
While Debtors maintain that they were only obligated to notify the City, they fail to appreciate that AP, not the City, was the real party in interest. AP is the party affected by Debtors' attempt to extend repayment. In this circumstance, the City is merely the conduit through which payments pass.
AP's interest was easily ascertainable through the public records. In this case, not only did Debtors fail to give AP notice of their Plan, the Plan did not indicate a desire to redeem Providence. The contents of the Plan referred to the repayment of priority claims as a lump sum owed to the City. Even if AP had received notice, there was no way for it to discern what was being repaid or for which tax bill or property.
Notice under Bankruptcy Rule 2002 is designed to provide the widest possible notice to any party in interest whose rights may be affected by the plan. "Due process requires notice "reasonably calculated, under all circumstances, to apprise interested
Redemption is a right created by state law. Generally, it permits a debtor to retain title with a lump sum payment of the amount due. The time period to redeem and the conditions of redemption are defined by state law with one (1) minor exception. Under 11 U.S.C. § 108(b), if the time to redeem has not expired on the petition date, the debtor has the longer of the remaining period under state law or sixty (60) days whichever is later.
As previously explained, neither AP nor the City were creditors of this debt as the debt to the City had been extinguished through the Tax Sale and Debtor was under no obligation to redeem by paying AP. Therefore, it was improper for Debtors to list redemption payment to the City as a Plan term. Instead, Debtors were obligated to perform as required by law.
Debtors argue that although the process of redeeming property sold for taxes must be initiated within a three (3) year period, the process need not be completed within the three (3) years. They cite Mississippi Land Co. v. S & A Properties II, Inc.
In 1998, S & A requested and Lafayette supplied it with the amounts necessary to redeem both parcels. S & A paid the amount due, but unbeknownst to it, Lafayette had miscalculated the necessary amounts owed and payment to the third party purchaser was short. Miss. Land imputed the payment it received to reimbursement of 1997 taxes rather than the amounts it paid Lafayette for 1996 taxes. As a result, a portion of the 1996 redemption amount remained outstanding. In 2000 Miss. Land filed a Petition to quiet title, alleging that the property had not been redeemed.
The Louisiana Supreme Court ruled that S & A's payment should be imputed first to the redemptive option, or the 1996 taxes paid at tax sale. Of particular concern to the Court was the fact that Lafayette had miscalculated the amounts necessary to satisfy redemption of the parcels. For this reason, the Court ruled S & A's attempt to redeem within the three (3) year period perempted the statutory lapse.
Mississippi Land relied on a prior case, Becnel v. Woodland.
Becnel subsequently filed suit to confirm the sale. The lower court ruled in favor of Becnel, stating that the redemptive period expired prior to Woodland's payment. However, the appellate court found that Woodland's attempt to redeem the property within the three (3) year period was sufficient to initiate the redemptive process, "[W]hile the redemptive process must be initiated within the three year period, it need not be completed within that time period."
The Court in Burns v. Harris
Burns' default judgment was obtained while Mrs. Harris was impaired with a brain tumor. After default was entered, Ms. Harris' curatrix filed a Petition to Annul the Default Judgment. The curatrix alleged that $3,135.65 was paid on March 28, 1996, overpaying the amounts necessary to redeem. However, no tax redemption deed was ever issued.
The Court found that the payment was made to Caddo Parish, rather than Shreveport. "Mr. Harris did not send the payment to the correct taxing authority or make clear that the payment or part thereof was to redeem [the property] through [Shreveport]."
In discussing Louisiana jurisprudence, the Burns Court acknowledged that some Louisiana cases, including Mississippi Land and Becnel, provide that a redemption must be instituted, but need not be completed, during the three (3) year redemptive period. However, the Burns Court noted:
The Court held:
In Mississippi Land, the Court found that the buyer wrongly imputed the redemption payment to later taxes. In Becnel, Woodland attempted to redeem the property within the three (3) year period but was unable to get the correct amount needed from the city. In both cases, the party seeking to redeem property initiated redemption within the three (3) year period, and failure to complete the redemption during the three (3) year period was caused by a governing authority.
There are no such equitable considerations in this case. Partial payments were made under Debtors' Plan to the City before the redemptive period expired. However, the Plan evidences no intent to redeem Providence. Nor does it state that payments to the City should be imputed to redeem Providence before payment of outstanding obligations to the City. In fact, there is no evidence that AP received any payments during the case. Because this failure is not the fault of the taxing authority or tax purchaser, but rather an attempt by Debtors to extend the period of redemption beyond that statutorily allowed, the legal precedent cited by Debtors is inapplicable.
Bankruptcy jurisprudence differs as to whether debtors may utilize plan payments toward the satisfaction of redemptive options. For example, in In re Bolton,
Bolton then filed another bankruptcy case on June 3, 2009, which was dismissed on September 27, 2011. Bolton made three (3) payments to the loan company during this case totaling $174.76. On October 10, 2011, Bolton's vehicle was repossessed. On October 11, 2011, Bolton filed a third case.
Although Bolton had failed to redeem the loan in the prior two (2) cases, under Mississippi Code Ann. § 75-67-411, a pledgor of collateral has three (3) days after repossession to redeem. Since Bolton filed her third case within three (3) days of repossession, 11 U.S.C. § 108(b) extended her right to redeem for sixty (60) days following the petition date. However, the Court found Bolton's right was only exercisable by full payment on or before the expiration of the sixty (60) day period, not as she proposed by extension and through her plan. The Court held:
On the other hand in In re Prado,
After finding that title was still in the debtor's name and the debt was still outstanding, the Prado Court found that the redemptive limitation was inapplicable and the plan could cure the creditor's default over time.
Debtors cite In re Pittman
The Pittman Court found that Pennsylvania law did not require the payment of the redemption within the nine (9) month period. Less critical to the reasoning of the opinion was the Court's finding that in this case, a conflict existed between §§ 108 and 1322 of the Bankruptcy Code. Perhaps because the purchaser had filed a secured claim, the Court reasoned:
The holding of the Pittman case was supported by the Court's finding that Pennsylvania law allowed for payment of the redemption amount beyond the nine (9) month period to elect redemption. The second rationale is unnecessary to the findings.
Pittman's finding of conflict between §§ 108(b) and 1322(b) rests in large part on its determination that a right of redemption is really an obligation of the holder subject to a future action. By characterizing the debtor's redemptive right as a debt rather than an asset, the Pittman Court provides the party subject to the right with a potential enforceable obligation for payment. All that is needed is the exercise of the right, and voila, a contingent claim under 101(5) is created.
With all due respect to the Pittman Court, this Court can find no conflict between the operation of §§ 108(b) and 1322(b)(2) and, therefore, no reason to ignore the plan reading of § 108(b). Section 1322(b)(2) governs the repayment of prepetition defaults to creditors in an effort to assist a debtor in his reorganizational effort. It allows a debtor to cure defaults to creditors over time through plan payments. Section 108(b) recognizes the distinction between creditors of the debtor and those with whom the debtor may have a redemptive right. For this reason, the Code treats those with a redemptive relationship differently than those with a debtor/creditor relationship. Section 108(b) deals with the former, while section 1322(b)(2) the latter. But even if one were to consider these two (2) Codal provisions in conflict, a basic tenant of statutory interpretation demands a result different than provided by Pittman.
Congress is presumed to know the effect its statutes have on the operation of the reorganizational scheme.
By conflating an enforceable debt with a right of redemption, the Pittman Court determines that the distinct treatment provided for the two (2) conditions creates an irreconcilable conflict only resolved by eliminating the application of section 108(b) altogether. Carried to its logical conclusion, Pittman's reasoning makes every right of redemption into a contingent debt and, therefore, a general claim. In resolving its dilemma, Pittman fails to consider another principle of statutory interpretation: when two (2) statutes conflict, the more specific governs over the general.
Debtors also cite In re Jimerson
The Jimerson Court found that Deed Co. was a secured claimant whose claim could be modified under section 1322(b)(2). The Court found, "the Debtor holds the Property subject to an obligation to pay the Redemption Amount or forfeit all of its remaining right to the Property, and therefore, ...Deed Co. has a claim secured by a lien."
What Jimerson, Prado, and Pittman all have in common is the fact that the property remained property of the estate, and the right to redeem was against each of the debtors' creditors. This Court believes that these facts lead the courts to conclude that a "cure" of the default or extension of the redemptive period was justified. For the reasons explained above, this Court respectfully disagrees. It is not the purview of this Court to ignore a specific directive of the Code. Whatever the Court's preference, section 108(b) is clear and provides a distinct and separate treatment for those holding redemptive rights. AP is such a party and is entitled to enforcement of the Code as provided. Therefore, section 1322(b)(2) is simply inapplicable to the facts of this case.
Louisiana law provides that a property sold at tax sale may be redeemed within three (3) years from the date the tax sale is recorded.
The filing of a Petition for Relief under the Bankruptcy Code:
Pursuant to section 362, AP is stayed from taking any further action, specifically the filing of a Petition to Confirm Tax Sale, without relief from this Court. AP seeks relief from the automatic stay to continue the Petition to Confirm Tax Sale that it filed prior to receiving notice of the bankruptcy.
While the automatic stay prevents AP from taking steps to quiet title, it does not stay the redemptive period.
Because the redemptive period expired without Debtors redeeming Providence, the Court will grant AP's Motion for Relief from the Automatic Stay so that it may proceed to confirm the Tax Sale.
AP is not a creditor of the estate and did not receive notice of the Plan, confirmation hearing, or confirmation order. AP is not bound by the terms of the Plan because any attempt to materially change AP's rights is not sanctioned by the Bankruptcy Code or jurisprudence. Further, the Plan fails to specify that Debtors intended through payment to the City to exercise a right of redemption affecting AP. Finally, Debtors' failure to notify AP of this filing, the contents of the Plan, objection deadline, or confirmation order violates due process. Debtors' interpretation of the Plan amounts to a taking.
Based on the City's proofs of claim, the Plan distributions to the City are not for redemption of the Tax Sale to AP.
Debtors failed to redeem Providence within the time allowed by La. Const. Art. VII, § 25(B)(1) and 11 U.S.C. § 108. The redemptive period has now expired. The Court will grant the Motion for Relief from the Automatic Stay filed by AP so that it may proceed to confirm the Tax Sale. A separate Order will be entered in accord with this ruling.
