Delta Sav. & Loan Ass'n, Inc. v. I.R.S., 87-3165

• Decision Date: 17 June 1988
• Docket Number: No. 87-3165,87-3165
• Citation: 847 F.2d 248
• Parties: -5051, 88-2 USTC P 9398, Bankr. L. Rep. P 72,391 DELTA SAVINGS & LOAN ASSOCIATION, INC., Plaintiff-Appellant, v. INTERNAL REVENUE SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 248

847 F.2d 248

62 A.F.T.R.2d 88-5051, 88-2 USTC P 9398,

Bankr. L. Rep. P 72,391

DELTA SAVINGS & LOAN ASSOCIATION, INC., Plaintiff-Appellant, v. INTERNAL REVENUE SERVICE, Defendant-Appellee.

No. 87-3165.

United States Court of Appeals, Fifth Circuit.

June 17, 1988.

Ronald J. Vega, Metairie, La., for plaintiff-appellant.

Eneid Francis, Asst. U.S. Atty., New Orleans, La., Howard M. Soloman,

Michale L. Paup, Chief Appellate Section, Tax Div., Dept. of Justice, Wynette, J. Hewett, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, GARWOOD, and JONES, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Delta Savings & Loan Association, Inc. (Delta) appeals the district court's grant of the motion of defendant-appellee Internal Revenue Service (IRS) for summary judgment on Delta's claim that the IRS tendered an inadequate amount to Delta when it redeemed certain property from Delta pursuant to 26 U.S.C. Sec. 7425(d). We determine that jurisdiction of this case is proper under 28 U.S.C. Sec. 1346(f), ¹ and we affirm.

Facts and Proceedings Below

The facts of this case are undisputed. The IRS held two tax liens on a house owned by Guy and Joanne Olano. The tax liens were junior to a mortgage held by Delta. During 1985, involuntary petitions under Chapter Seven of the Bankruptcy Code, 11 U.S.C. Secs. 701-766, were filed by others against both Guy and Joanne Olano. Subsequently, on October 31, 1985, Delta obtained relief from the automatic stay of 11 U.S.C. Sec. 362(a) and began foreclosure proceedings against the property. At the foreclosure sale, which was held on March 5, 1986, Delta purchased the property for $50,667 credited on the debt. On April 3, 1986, the IRS sent a letter notifying Delta that it was considering redemption of the property pursuant to 26 U.S.C. Sec. 7425(d). On June 20, 1986, the IRS exercised its right of redemption by tendering to Delta a check in the amount of $51,660.21, which reflected the price that Delta paid for the property at the foreclosure sale plus statutory interest. Delta refused to accept the check, claiming that the IRS owed it $85,312.52, a figure that represented the full amount of the debt that the Olanos owed Delta (plus interest). On August 22, 1986, Delta commenced this lawsuit by filing its complaint. On that same day, Delta also filed a lis pendens. Three days later, at the public auction held by the IRS, Delta repurchased the property from the IRS for $92,000.

The district court granted the motion of the IRS for summary judgment, holding that because section 362 did not preclude Delta from pursuing its deficiency claim against the Olanos, the amount that the IRS tendered to Delta was proper. 653 F.Supp. 664. This appeal by Delta followed.

Discussion

Delta's sole contention on appeal is that the redemption amount which the IRS tendered to it was inadequate under section 7425(d). Section 7425(d) incorporates by reference 28 U.S.C. Sec. 2410(d), which provides that the redemption price shall be "the actual amount paid by the purchaser at such sale (which, in the case of a purchaser who is the holder of the lien being foreclosed, shall include the amount of the obligation secured by such lien to the extent satisfied by reason of such sale)." Interest at six percent per annum and certain expenses are also allowed. Id. Focusing on the language within the parentheses, Delta reasons that because involuntary petitions had been filed against the Olanos under Chapter Seven, Delta was prevented from pursuing its deficiency claim against the Olanos due to the section 362(a) automatic stay, and hence the obligation secured by Delta's lien was in effect fully "satisfied" by reason of the foreclosure sale. Therefore, the amount that the IRS was required to pay Delta in order to redeem the property had to include the entire amount of the debt and not merely the amount that Delta paid to purchase the property at its foreclosure sale.

The basic premise of Delta's argument is that the automatic stay prevented Delta from pursuing its deficiency claim against the Olanos. Delta does not question the generally accepted interpretation of section 2410(d) first set forth in Equity Mortgage Corp. v. Loftus, 504 F.2d 1071 (4th Cir.1974). In that case, the Fourth Circuit stated:

"Where the purchaser at the sale is the person whose lien is being foreclosed, the amount paid by him includes the amount of the debt underlying his lien to the extent that the lien is satisfied by the sale. Where the lien is fully satisfied, the purchaser is not to receive less than the amount due him at the time of the sale. Where the lien attaches to other property, however, or where, after the sale, the purchaser still has the right to sue for the unpaid balance of the amount due him, the amount paid does not include this unpaid balance." Id. at 1076 (quoting S.Rep. No. 1708, 89th Cong., 2d Sess. 34, reprinted in 1966 U.S.Code Cong. & Admin.News 3722, 3756).

Accord Mikulec v. United States, 705 F.2d 599, 601 (2d Cir.1983); see also 26 C.F.R. Sec. 301.7425-4(b)(2)(ii) (stating that "[w]here, after the sale, the holder of the lien being foreclosed has the right to the unpaid balance of the amount due him, the amount legally satisfied by reason of the sale does not include the amount of such lien to the extent a deficiency judgment may be obtained therefor"). Nor does Delta dispute the fact that, as a general proposition, a lienholder that has not been fully paid after foreclosing on the property subject to the lien has a right under Louisiana law to pursue the debtor personally for the deficiency. See First Guaranty Bank v. Ratcliff, 424 So.2d 289, 290 (La.Ct.App. 1st Cir.1982), writ denied, 432 So.2d 265 (La.1983); La.Code Civ.Proc. art. 2771. Delta simply contends that the section 362(a) automatic stay prevented it from pursuing a deficiency against the Olanos and therefore it should have received the entire amount of its debt (plus statutory interest) from the IRS when the IRS attempted to redeem the property. We disagree.

The problems with Delta's argument are essentially twofold. First, Delta is simply wrong when it contends that the automatic stay prevented it from pursuing its deficiency claim against the Olanos. All that the automatic stay does is to force creditors and other interested parties to seek the bankruptcy court's approval before taking certain types of action against a debtor or against property of the estate. See In re Doan's Truck Repair, Inc., 34 B.R. 180, 183 (Bankr.D.Wyo.1983). Nothing in section 362(d) expressly limits the ability to obtain relief from the automatic stay to secured creditors seeking only to foreclose on specific property. See In re Holtkamp, 669 F.2d 505, 508 (7th Cir.1982); 2 Collier on Bankruptcy p 362.07, at 362-53 (15th ed. 1987). More importantly, Delta's argument would fail even if it had been denied relief from the automatic stay in respect to a suit against the Olanos personally on the debt or even if section 362(d) never allowed a lift of stay for such purposes. Delta's foreclosure did not relieve the Olanos of their remaining obligation on their debt to Delta. Assuming there were sufficient assets in the Olanos' bankruptcy estate, Delta could still ultimately receive some further payment on its obligation, ² and its failure to receive any such payment would be the result not of its foreclosure, but rather of the degree to which the Olanos were insolvent and the debt was...