tax saleIn In re Jimerson, Ch. 13 Case No. 16-60838, 2017 WL 393675 (Bankr. N.D. Ga. January 26, 2017 (Basier, J.) (click here for .pdf of opinion), the debtor’s property had been sold at a tax sale for non-payment of Fulton County property taxes.  The purchaser at the tax sale sent the appropriate Barment Notice providing that the debtor had until June 27, 2016 to redeem the property pursuant to O.C.G.A. §44-4-40. On June 20, 2016, Debtor filed a Chapter 13 case and a Chapter 13 plan, in which he proposed to redeem the property and pay the redemption amount (then $22,045.75) over the term of the plan.  The purchaser objected to confirmation of the plan.

The two (2) issues before the Court regarding the confirmation of the Plan both relate to the right of redemption that the Debtor seeks to exercise in his Plan. They are (1) whether the Debtor, having been transferred an interest in the Property after the tax sale and after the delivery of the Barment Notice, has a right of redemption under Georgia law and, if so, (2) whether the Debtor can pay the Redemption Amount over the term of his Plan.

The Court first held that the Debtor had a right to redeem the property pursuant to the plain language of O.C.G.A. §44-4-40:

Whenever any real property is sold under or by virtue of an execution [fi fa] issued for the collection of state, county, municipal, or school taxes or for special assessments, the defendant in fi. fa. or any person having any right, title, or interest in, or lien upon such property may redeem the property from the sale by the payment of the amount required for redemption, as fixed and provided in Code Section 48-4-42:

(1) at any time within 12 months from the date of the sale; and
(2) At any time after the sale until the right to redeem is foreclosed by the giving of the notice provided for in Code Section 48-4-45.

The second, and more complicated, issue was whether the debtor may pay the redemption amount over the term of his Chapter 13 plan.  Judge Basier noted that there was a split of authority in the Northern District on this issue.

The first case in this District to answer that question, Francis v. Scorpion Group, LLC (In re Francis), 489 B.R. 262 (Bankr. N.D. Ga. 2013) (Hagenau, J.)(“Scorpion”), held, on facts very similar to this case, that the debtor can pay the redemption amount over the term of a Chapter 13 plan. More recently, Chief Judge Mullins decided two (2) such cases and held in each case that a debtor cannot pay the redemption amount over the term of a plan. Callaway v. Harvest Assets, LLC (In re Callaway), Bankr. Case No. 14-64446-CRM, Docket No. 36 (Bankr. N.D. Ga. February 6, 2015), aff’d Case No. 1:15-cv-00570-ODE (N.D.Ga. Oct. 30, 2015) (“Callaway”); 15 and In re Edwards, Bankr. Case No. 14-51366-CRM, Docket No. 35 (Bankr. N.D. Ga. Nov. 13, 2014) (“Edwards”).

The first issue was whether the property was property of the estate pursuant to 11 U.S.C. §541(a), since the purchaser, and not the debtor, held legal title to the property.

Like a lender, a tax purchaser’s title is subject to divestment if the delinquent taxpayer pays a certain amount, and until that right of redemption expires, the delinquent taxpayer retains all the remaining rights in the “bundle of rights,” including, inter alia, the right to possession, use, and proceeds…

As noted above, Deed Co argues that, because it holds legal title, the Property is not property of the estate. This argument ignores the rest of the rights that are included in the “bundle” of rights that make up the Property, all of which belonged to the Debtor as of the Petition Date. These are the same rights that a borrower would hold against a lender under a deed to secure debt in Georgia, and property subject to a security deed would, without a doubt, be considered property of the estate. Bearing in mind all of the rights in the Property that the Debtor possessed on the Petition Date,  this Court finds that the Property is property of this Debtor’s Chapter 13 estate.

The Court next held that the purchaser’s claim should be treated as a secured claim in the case and plan, based on the broad definition of “claim” in the §101(5) of the Code.

From the Debtor’s perspective, the Debtor holds the Property subject to an obligation to pay the Redemption Amount or forfeit all of its remaining rights to the Property, and therefore, as the court in Scorpion found, Deed Co has a claim secured by a lien. See Scorpion, 489 B.R. 269 (quoting the definition of lien in 11 U.S.C. §101(37)). If a claim is secured by a lien on property with a value equal to or exceeding the claim value, then such claim is a secured claim pursuant to 11 U.S.C. § 506. Deed Co has a claim of approximately $22,000 for the Redemption Amount. Other claims to the Property do not exceed $30,000. The Property has a value of $169,200. Consequently, the value of the Property is equal to or exceeds the value of all claims secured by it, and Deed Co. holds a fully secured claim in this case.

The final issue was whether the purchaser’s claim could be modified pursuant to 11 U.S.C. §1322(b).  Again, courts in the Northern District and other districts were split as, ordinarily, a secured claim not secured by a lien on the debtor’s principal residence could be modified in a plan.  Importantly, in this case, the debtor did not reside in the property.

As set forth above, Deed Co possesses a claim secured by a lien (in the form of conditional title) on the Property. The Debtor does not reside in the Property. Consequently, Deed Co’s claim can be modified under 11 U.S.C. § 1322(b)(2) unless the application of 11 U.S.C. § 1322(b)(2) is somehow foreclosed by 11 U.S.C. § 108(b)…  In this case, it is possible to interpret these two statutes to avoid any conflict; however, if there is a conflict, the more specific statute (11 U.S.C. § 1322(b)) should govern over the more general one (11 U.S.C. § 108(b)).

11 U.S.C. §§ 108 and 1322 are not actually in conflict in this case. The Debtor proposed a Chapter 13 plan prior to the expiration of 11 U.S.C. § 108(b)’s sixty-day period that proposes to pay the redemption amount in full, albeit over time pursuant to 11 U.S.C. § 1322, thus exercising the right of redemption timely. That exercise takes 11 U.S.C. § 108 out of the equation… Although the applicable state law might require a lump sum payment, Chapter 13 of the Bankruptcy Code allows a debtor to pay debts over time, and the Bankruptcy Code supersedes state law.

In the case at bar, the Debtor proposed an extension plan prior to the date the Right of Redemption would have expired under state law, without regard to the extension provided by 11 U.S.C. § 108(b). The Plan will pay the Redemption Amount in full, plus interest. This Court finds that the filing of an extension plan to be the timely exercise of the Right of Redemption within the extension granted by 11 U.S.C. § 108(b). Having found that the Debtor’s Right of Redemption has been properly and timely exercised and that Deed Co has a secured claim not secured by the Debtor’s principal residence, Deed Co’s claim can be paid over the length of the Plan pursuant to 11 U.S.C. § 1322(b)(2). Thus, the Court gives full effect to both 11 U.S.C. §§ 108(b) and 1322(b)(2).

Alternatively, if proposing a plan to pay the Redemption Amount in full is not sufficient to exercise the Debtor’s Right of Redemption during the period provided by 11 U.S.C. § 108(b), 11 U.S.C. § 1322(b)(2) nonetheless controls over 11 U.S.C. § 108(b) and permits the treatment of the Redemption Amount as proposed in the Plan.

Based on the above reasoning, the Court confirmed the Chapter 13 plan.  This order has been appealed, so given the conflicting authority in the District, as well as other districts, it is possible we eventually get a ruling by the Eleventh Circuit Court of Appeals.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.