In In re Francis, Ch. 13 Case No. 12-73183, 2013 Bankr. LEXIS 923 (Bankr. N.D. Ga. March 13, 2013) (J. Hagenau) (click here for opinion), the issue before the Court was whether a Debtor can pay the redemption price from a tax sale through a Chapter 13 plan, where her petition was filed on the eve of the expiration of her right to redeem. The Purchaser at the tax sale objected on the grounds that the Debtor could not pay the redemption price through the plan and the real property at issue was not property of the estate. The Court held that the Debtor’s rights in the property were property of the estate and the Purchaser’s claim could be treated in the Chapter 13 plan. This case clarifies that debtors who have lost their property in a tax sale have a second option (other than state law redemption) in getting their property back.
The Purchaser bought Debtor’s property at a tax sale on August 11, 2011 for $9500.00. At the time Wells Fargo held a lien on the property in the amount of $155,000, but that was subsequently released. The property was rental property worth approximately $40,700.00. On August 3, 2012, Purchaser served the Debtor with a Notice of Foreclosure of Equity of Redemption (“Barment Notice”) stating that Debtor’s right to redeem the property would expire on September 18, 2012. On September 17, 2012, Debtor filed a Chapter 13 petition and a plan that proposed to pay the Purchaser in full over the 60 month plan period. As of the Petition Date, the Purchaser was owed $14,382.19.
Debtor’s right to redeem the property after a tax sale is governed by O.C.G.A. §48-4-42, which states the following:
The amount required to be paid for redemption of property from any sale for taxes as provided in this chapter, or the redemption price, shall with respect to any sale made after July 1, 2002, be the amount paid for the property at the tax sale, as shown by the recitals in the tax deed, plus any taxes paid on the property by the purchaser after the sale for taxes, plus any special assessments on the property, plus a premium of 20 percent of the amount for the first year or fraction of a year which has elapsed between the date of the sale and the date on which the redemption payment is made and 10 percent for each year or fraction of a year thereafter. If redemption is not made until more than 30 days after the notice provided for in Code Section 48-4-45 has been given, there shall be added to the redemption price the sheriff’s cost in connection with serving the notice and the cost of publication of the notice, if any. All of the amounts required to be paid by this Code section shall be paid in lawful money of the United States to the purchaser at the tax sale or to the purchaser’s successors.
The parties disagreed on the expiration date for the right to redeem. Debtor argued that the expiration date was September 18, 2012 (the deadline in the Barment Notice and the day after the Petition Date), and the Purchaser argued it was at 11:59 pm September 17, 2012. However, under either argument, it had not expired prior to the filing of the Petition.
The Court held that the Debtor’s rights in the property were property of the estate pursuant to 11 U.S.C. §541.
Under Georgia law, a tax sale purchaser holds an inchoate or defeasable title to the property purchased…The tax sale purchaser is not entitled to rent or possession during the period of redemption…The Georgia Supreme Court has held that a tax deed purchaser has no more right to go on or use property purchased at a tax sale than a stranger to the title…
[The Purchaser] emphasizes it already holds legal title to the Property as a result of the tax sale and therefore the Property is not property of the estate. Holding legal title is an important factor, but not the determinative factor as to whether the Property or any interest therein is property of the estate. For example, the holder of a security deed in Georgia holds legal title to the property. O.C.G.A. § 44-14-60. The interest retained by the grantor is an equitable title with a right of redemption, Citizens & Southern Bank v. Realty Savings & Trust Co., 167 Ga. 170 (1928), much like an owner after a tax sale… If Scorpion were a debtor, Section 541(d) provides that the Property itself would not be property of Scorpion’s estate. This is further proof that bare legal title alone is not enough to eliminate the debtor’s rights in the Property. So, as of the petition date, the Debtor had all the rights to the Property other than legal title. She had possession, use, the right to bar access, and the right to redeem. The rights the Debtor had as of the petition filing were property of the estate. The question though is, what can she do with them?
The Purchaser argued that Debtor’s only right was to redeem with a lump sum pursuant to 11 U.S.C. §108. Debtor did not tender the full price pursuant to that section, instead filing a plan that proposed to pay the Purchaser in full. The first question was whether the Purchaser held a “claim” in the case since only claims could be paid in a plan (11 U.S.C. §1322(b)).
First, under Georgia law, it is the rights the debtor retains after the tax sale that [Purchaser] claims. [Purchaser] wants the Debtor’s remaining equitable rights to be eliminated, and it was attempting to foreclose those rights. It wants the right to possession of the Property, the right to use the Property, the right to rent the Property, and the full 100 percent fee interest in the Property. The foreclosure process, however, was not completed at the time the bankruptcy petition was filed. The Debtor is in much the same position as the owner of property subject to a non-recourse lien. Even if the Debtor is not personally liable to [Purchaser] in a civil proceeding, the Debtor’s underlying obligation remains enforceable against her property. Consequently, [Purchaser] holds a claim for the Debtor’s equitable interest remaining in the Property, including her right to use it and to possess it, or the monetary value thereof (the redemption price)… [T]he law provides that [Purchaser’s] right to foreclose can be eliminated by the payment of the redemption price. [Purchaser] holds a claim because it wants the Debtor’s interest in the Property and state law defines in monetary terms what it takes to eliminate or satisfy [Purchaser’s] right to obtain that interest in Property. There is no question this claim can be translated into monetary terms because the state law sets out those terms.
The Court holds that [Purchaser] holds a claim as defined in 11 U.S.C. § 101. Moreover, the claim is a secured claim under 11 U.S.C. § 506(a), because [Purchaser’s] claim is secured by a lien. A “lien” is defined as a “charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). As discussed above, [Purchaser] holds legal title to the Property to secure performance of the Debtor’s obligation to pay the redemption price or lose all interests in the Property. It holds a secured claim.
The next issue was the treatment of the claim in the plan pursuant to 11 U.S.C. §1322(b). The Court reviewed the interplay between Section 108 and Section 1322 and concluded that section 108 was meant to expand the state law rights of debtors and not to limit the rights the Bankruptcy Code otherwise provides debtors. Therefore, the Purchaser’s claim can be treated in the Chapter 13 plan.
The facts of this case are important to the Court in reaching this conclusion and in distinguishing this decision from other decisions, in this Circuit and elsewhere, and other cases that may come before the Court in the future. First, the redemption period had not expired at the time the petition was filed. Second, within the original redemption period, the Debtor filed a plan proposing to pay [Purchaser’s] claim in full. Third, although the Debtor seeks to “modify” the claim in terms of the period of time over which it is paid, the Debtor is not seeking and has not sought to modify [Purchaser’s] claim in terms of the amount due or payable. Fourth, this Property is not a personal residence and is therefore not subject to the considerations of 11 U.S.C.§ 1322(c). Finally, Purchaser is not proceeding under the tax foreclosure process outlined in O.C.G.A. § 48-4-75, but as a purchaser at a tax sale… the foreclosure process had begun but had not been completed, much like a bankruptcy petition being filed immediately before a sale is cried out on the courthouse steps to foreclose a security deed. As such, the Court has found that the Debtor retained rights which were property of the estate and Purchaser holds a claim which is subject to being treated under a Chapter 13 plan.