In re Breakwater Shores Partners, L.P.
| Decision Date | 05 April 2012 |
| Docket Number | Case No. 10-61254 |
| Parties | In re: BREAKWATER SHORES PARTNERS, L.P. f/k/a Lighthouse Landing Partners, L.P. xx-xxx9375 P.O. Box 1150, Mabank, TX 75147 Debtor |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
The Court has heard and considered the Debtor's Amended Motion to Determine Ad Valorem Tax Liabilities Under 11 U.S.C. §505 (the "Motion") filed by the Debtor and Debtor-in-Possession, Breakwater Shores Partners, L.P. f/k/a Lighthouse Landing Partners, L.P. ("Debtor"), seeking a valuation of certain real property for the purpose of creating a foundation for the proper assessment of ad valorem taxes against the above-referenced bankruptcy estate. Despite proper notice, the Motion and the relief it seeks was not contested by the Kaufman County Appraisal District ("KCAD" or the "District"), the entity that is statutorily authorized under state law to value property for use by appropriate taxing authorities, nor did KCAD make any appearance at the duly-noticed hearing.1 However, one of those affected taxing authorities, Kaufman County (the "County"), asserted an objection to the Motion. The Motion seeks a determination of thevaluation of the real property inventory held by the bankruptcy estate for the tax years 2007 through 2011. The County asserts that the assessments made by KCAD should be upheld by this Court on various grounds. After hearing, the Court took the matter under advisement. This memorandum of decision disposes of all issues pending before the Court.2
The Debtor, Breakwater Shores Partners, L.P., owns a residential real estate development known as Lighthouse Landing that is located on Cedar Creek Lake, in Mabank, Kaufman County, Texas. Lot sales to individual owners began in 2004 based upon the platting of 61 lots in Phase I of the development and, because the Debtor believed that the development would eventually be annexed into the City of Mabank, it met all of the requirements of that municipality in terms of engineering as it developed the streets and utilities for the development. Thus, considerable expense was advanced by the Debtor in the early 2000's for acquisition and engineering work in Phase I.
Today, 20 of the original 61 lots platted in Phase I have been sold, but only two in the last two years, both of which were off-water lots. Thus, the Debtor owns the remaining 41 platted, but unimproved, residential lots in Phase I, most of which are off-water lots, as well as two undeveloped tracts to the west, consisting of 65.22 acres and8.91 acres respectively, known as Phase II. The Debtor owns no improved realty. The Debtor owns no property for commercial use. The Debtor holds the residential real property for sale and realizes no income until such time as a parcel is sold.
In 2007, KCAD assumed responsibility for appraising the Debtor's real property for the purposes of ad valorem tax assessments. Since the Phase I lots were platted in 2004, the lots available for sale in Phase I have always been listed and valued on KCAD's appraisal rolls as separate lots with separate appraised values being assigned to each particular Phase I lot. They have never been singularly listed on KCAD's appraisal roll as a bulk inventory. The aggregate taxable values of the Debtor's property on January 1 as appraised by KCAD have been as follows for the past five years: 2007: $2,168,390; 2008: $2,869,320; 2009: $2,510,320; 2010: $2,354,980; and 2011: $2,354,980.
For a number of years the Debtor took no affirmative action to protest the listings and valuations of its property on the KCAD appraisal rolls.3 That changed as to the 2010 tax year and the 2011 tax year. The Debtor timely filed a motion for correction with theDistrict in January 2011 for the tax year 2010.4 It subsequently tendered on a timely basis a rendition of its property for tax year 2011.5 The present motion for determination filed in this Court was also filed in a timely manner consistent with the prescribed state law schedule.
In its motion, the Debtor seeks a determination that its real property in both phases of its development has not ever been properly valued as inventory by KCAD as required by Texas Property Tax Code §23.12 and that such errors, encompassing tax years 2007, 2008, 2009, 2010 and 2011, resulted in dramatically inflated appraisal values for the Debtor's residential real estate inventory. According to the Debtor, those inflated values correspondingly resulted in dramatically inflated tax bills issued to the Debtor from various taxing authorities in those years, including that of Kaufman County.
Section 505(a) of the Bankruptcy Code provides, in relevant part, that:
Thus, the exercise of jurisdiction by this Court to determine a tax liability may be statutorily precluded because one of the subsections of §505(a)(2) has been properly invoked. Internal Revenue Serv. v. Teal (In re Teal), 16 F.3d 619, 622 (5th Cir. 1994). Even if such statutory preclusions are not properly invoked, the exercise of jurisdiction under §505 is discretionary with this Court.
Congress added §505(a)(2)(C) in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). On its face, it seems to be astraightforward preclusion of the invocation of the jurisdiction of a bankruptcy court under §505 to determine the amount of an ad valorem tax claim "if the applicable period for contesting or determinating that amount under applicable nonbankruptcy law has expired." The case law interpreting this new subsection is sparse, but every case notes the failure of the statute to delineate the specific point in time from which the "expiration" is to be judged and the lack of any legislative history to provide assistance in determining congressional intent. Each court therefore is forced to make its best judgment as to the operative date. Should it be the commencement of the case, or the filing of the §505 motion, or the date of the §505 hearing, or the date of the entry of an order regarding the valuation? See, e.g. In re The Village at Oakwell Farms, Ltd., 428 B.R. 372 (Bankr. W.D. Tex. 2010) []; In re ATA Airlines, Inc., 2010 WL 3955574 at *2 (Bankr. S.D. Ind., Oct. 4, 2010) []; but see In re Read, 442 B.R. 839, 844 (Bankr. M.D. Fla. 2011) [].
As to the valuations of the Debtor's real property arising for tax years 2007, 2008, and 2009 in this case, such case law distinctions make no difference. Under the comprehensive scheme existing under the Texas Property Tax Code for the determinationand appeal of property tax appraisals in Texas,7 the redetermination of an appraised value for a tract of real property must be initiated by the filing of a notice of protest by the property owner by June 1 or the 30th day after the date that the notice of appraised value issued under §25.19 was delivered to the property owner, whichever is later. 2 TEX. PROP. TAX CODE §41.44(a)(2) (Vernon 2008). Without the timely filing of a notice of protest and the exhaustion of that administrative remedy, the taxpayer forfeits the right to further challenge. 2 TEX. PROP. TAX CODE §42.09(a) (Vernon 2008); Houston Independent School Dist. v. Morris, 355 S.W.3d 668, 675 (Tex. App.- Houston [1st Dist.] 2011, pet. filed) (citing Robstown Independent School Dist. v. Anderson, 706 S.W.2d 952, 953 (Tex. 1986)).
There is no evidence in the record that the Debtor timely tendered protests or motions for correction with the applicable appraisal review board for the valuations appraised for tax years 2007, 2008, and 2009. As to the proper interpretation of §505(a)(2)(C), the Court is persuaded by the rationale expressed in Oakwell Farms decision that the statute is properly construed as requiring that a determination requestmust be prior to the expiration of the deadline established for review under state law without possibility of extension under Bankruptcy Code §108. Thus, it would appear that, because the applicable period for contesting or determinating the appraisals for tax years 2007, 2008, and 2009 expired pursuant to §41.44(a)(2) of the Texas Property Tax Code, this Court is deprived of jurisdiction to make the determination of value as to those tax years.
However, the Debtor contends that for those tax years the period has not expired because of the provisions of TEX. PROP. TAX CODE §25.25(c), which provides that:
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