Ditto v. Delaware Savings Bank, No. E2006-01439-COA-R3-CV (Tenn. App. 2/14/2007)
| Decision Date | 14 February 2007 |
| Docket Number | No. E2006-01439-COA-R3-CV.,E2006-01439-COA-R3-CV. |
| Parties | CARLTON J. DITTO v. DELAWARE SAVINGS BANK, ET AL. |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Hamilton County; No. 03-1234; Howell N. Peoples, Chancellor.
Judgment of the Chancery Court Vacated; Cause Remanded.
Melinda Meador, Matthew M. Scoggins III, and Edward C. Meade, Knoxville, Tennessee, for the appellants Delaware Savings Bank, F.S.B.; IMC Mortgage Company; Delta Funding Corporation; and Deutsche Bank NTC.
Hudson Owen Maddux and Jason S. Mangrum, Chattanooga, Tennessee, for the appellee Carlton J. Ditto.
Sharon G. Lee, J., delivered the opinion of the court, in which Charles D. Susano, Jr., and D. Michael Swiney, JJ., joined.
This case involves the validity of a delinquent tax sale which occurred while the property owner had a bankruptcy petition pending and the bankruptcy court's automatic stay was in effect. The issues presented are: did a creditor of the bankruptcy estate have standing to challenge the tax sale, and if so, should the tax sale conducted in violation of the automatic stay be declared void? The trial court ruled that the creditor did not have standing to challenge the tax sale. After careful review of the record and applicable authorities, we hold that the creditor did have standing to challenge the validity of the tax sale, and because the sale violated the automatic stay, the sale is void and of no effect to transfer title of the real property to the purchaser.
The real property1 involved in this case was purchased by Samevelyn Rock in 1983. She executed a deed of trust on the property in 1997, in favor of Delaware Savings Bank, F.S.B., to secure the repayment of a loan. This deed of trust was subsequently assigned to various other entities and as of the filing of this action, was held by Deutsche Bank. For purposes of convenience, Delaware Savings Bank, F.S.B. and all of these assignees are referred to herein as "the Bank."
In January of 1998, Ms. Rock filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Ms. Rock's real estate property taxes were unpaid and delinquent; and on June 7, 2001, while her bankruptcy case was still pending, her real property was sold to Carlton J. Ditto by the Hamilton County clerk and master pursuant to court order. Neither Hamilton County nor Mr. Ditto had notice of Ms. Rock's pending bankruptcy case at the time of the tax sale. A decree confirming the sale to Mr. Ditto was entered by the Chancery Court on June 15, 2001.
In October of 2003, Mr. Ditto filed a complaint against the Bank to quiet title to the real property. The Bank answered and asserted that its mortgage lien on the property was still valid because the tax sale and subsequent decree confirming the sale were void ab initio because Ms. Rock's bankruptcy case was still pending when the property was sold, and the sale violated the automatic stay that arises under 362 of the United States Bankruptcy Code which prohibits the liquidation of property of a bankruptcy estate without prior authorization of the bankruptcy court. Later, the Bank filed a motion for summary judgment, arguing that the tax sale to Mr. Ditto be declared void upon these same grounds.
Mr. Ditto also filed a motion for summary judgment, arguing that the Bank was without standing to challenge the tax sale and stating in pertinent part, as follows:
The tax sale and subsequent decree confirming the tax sale did not automatically violate the automatic stay under Bankruptcy law and therefore does not apply in that neither the Bankrupt, Mrs. Rock, nor her Trustee ever filed any type of action to void the back tax sale.
11 U.S.C. 549 gives the Trustee or the Debtor only two years within which to attack the sale of the Bankrupt's property even if no notice was given. In addition, Federal Bankruptcy case Law and 11 U.S.C. 522(h) provides that only the Bankrupt and/or her trustee can bring an action to set aside, in this case the back tax sale. Therefore, the Defendants not fitting this definition have no standing to challenge this Court's back tax sale to a bona fide purchaser for value, which occurred on June 7, 2001.
After a hearing on the parties' motions for summary judgment, the trial court granted summary judgment in favor of Mr. Ditto and ruled that the Bank did not have standing to contest the tax sale. The Bank appeals the judgment of the trial court.
The issues we review are:
1) Did the Bank, as a pre-bankruptcy petition mortgage holder of the property, have standing to challenge the sale of the property to Mr. Ditto, an innocent purchaser, at a delinquent tax sale that was conducted in violation of the automatic stay of the United States bankruptcy court?
2) If the Bank did have standing, should the sale to Mr. Ditto be declared void?
There is no disputed question of fact in this case and therefore, it is an appropriate case for summary judgment. Owner-Operator Independent Drivers Ass'n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 69 (Tenn. 2001) (citing Cowden v. Sovran Bank/Central South, 816 S.W.2d 741, 744 (Tenn. 1991)
The first issue we address is whether the Bank had standing to challenge the sale of the property to Mr. Ditto at a delinquent tax sale conducted in violation of the United States bankruptcy court's automatic stay.
The trial court's final order included the following findings and conclusions:
The Court further finds that Samevelyn Rock was the registered owner of the property at the time of the back tax sale, that she had filed a Chapter 13 Bankruptcy on January 7, 1998, which was converted to a Chapter 7 Bankruptcy, and that she was discharged from that Bankruptcy on September 26, 2002. Further, that the tax sale and subsequent decree confirming the tax sale did not automatically violate the automatic stay under the Bankruptcy law; that the Bankrupt Mrs. Samevelyn Rock, nor her Bankruptcy Trustee, have ever filed any type of action to void the back tax sale, and that only she or her Trustee in Bankruptcy had standing to file an action to set aside the back tax sale. Thus based upon the facts and the law as applied to those facts, the Court finds that Delta Funding Corporation and Deutsche Bank National Trust Company neither owned the property at the time of the back tax sale, nor were they the Trustee, and therefore they have no standing to contest Carlton J. Ditto's ownership of said property at this time.
When Ms. Rock filed her bankruptcy petition, the petition acted as an automatic stay of all judicial proceedings against her. Jones v. Cain, 804 A.2d 322, 325 (D.C. Ct. App. 2002) (citing Corto v. National Scenery Studios, Inc., 705 A.2d 615, 620 (D.C. 1997)). The stay extended to all "formal and informal actions against property of the bankrupt estate." In re Smith, 876 F 2d. 524, 525-526 (6th Cir.1989), and continued until the property was no longer part of the bankruptcy estate. 11 U.S.C. 362(c)(1). The sale of Ms. Rock's property at a delinquent tax sale was prohibited by the stay and therefore, the sale of Ms. Rock's property by the clerk and master constituted a violation of the bankruptcy court's automatic stay. Although Mr. Ditto and the clerk and master had no notice of Ms. Rock's bankruptcy, notice of the bankruptcy filing is not necessary for the automatic stay to take effect. National Mortg. Co. v. Brengettcy, 223 B.R. 684, 695 (W.D. Tenn. 1998) (citing In re Holman, 92 B.R. 764, 768 (Bankr. S.D. Ohio 1988)). While 362 provides that a party may obtain relief from the automatic stay upon application to the bankruptcy court, in this case no such relief was granted or requested.
On appeal, both parties agree that the sale violated the automatic stay and therefore, the question becomes: does the Bank, as a creditor of Ms. Rock's bankruptcy estate, have standing to challenge the tax sale as a violation of the automatic stay?
In order to challenge a violation of the automatic stay, a party such as the Bank must prove that it has both constitutional standing and prudential standing. In re Pointer, 952 F.2d 82, 85 (5th Cir. 1992). "Constitutional standing" is established by showing that the plaintiff has suffered a personal injury as the result of the allegedly illegal conduct of the defendant and that the injury suffered is likely to be remedied by the relief requested. United States v. Miller, No. Civ.A.5:02-CV-0168-C, 2003 WL 23109906, at *5 (N.D. Texas, filed December 22, 2003). "Prudential standing" is established upon a determination that "the plaintiff is a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers." Id. at *6 (citing Proctor & Gamble Co. v. Amway Corp., 242 F.3d 539, 560 (5th Cir. 2001)). In determining whether a plaintiff has prudential standing, a court must consider: "(1) whether the complaint raises abstract questions or a generalized grievance more properly addressed by the legislative branch; (2) whether the plaintiff is asserting his or her own legal rights and interest rather that the legal rights and interests of third parties; and (3) whether a plaintiff's grievance arguably falls within the zone of interests protected by the statutory provision invoked in the suit." Id. At trial, Mr. Ditto did not argue that the Bank was...
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