In re Sean Doolan And Nicole Doolan

• Decision Date: 14 March 2011
• Docket Number: Bankruptcy No. 09–14300–JMD,07–12763–JMD.Adversary No. 10–1053–JMD.
• Parties: In re Sean DOOLAN and Nicole Doolan, Debtors.In re Lori J. Gaff, Debtor.Lori J. Gaff, Plaintiffv.Town of Pembroke, New Hampshire, Defendant.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire

447 B.R. 51

2011 BNH 001

In re Sean DOOLAN and Nicole Doolan, Debtors.In re Lori J. Gaff, Debtor.Lori J. Gaff, Plaintiff

v.Town of Pembroke, New Hampshire, Defendant.

Bankruptcy No. 09–14300–JMD

07–12763–JMD.Adversary No. 10–1053–JMD.

United States Bankruptcy Court, D. New Hampshire.

March 14, 2011.

Michelle Kainen, Esq., Kainen Law Office, P.C., White River Junction, VT, for Debtors, Sean & Nicole Doolan.

Steven A. Clark, Esq., Londonderry, NH, for Respondent, Town of Derry.James F. Raymond, Esq., Upton & Hatfield, LLP, Concord, NH, for Intervener, Town of Nottingham.Mary F. Stewart, Esq., Mary Stewart Law Firm, PLLC, Concord, NH, for Debtor/Plaintiff, Lori Gaff.Peter N. Tamposi, Esq., The Tamposi Law Group, Nashua, NH, for Defendant, Town of Pembroke.Bernard H. Campbell, Esq., Beaumont & Campbell Prof. Ass'n., Salem, NH, for Intervener, New Hampshire Tax Collectors' Association.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.I. INTRODUCTION

On May 4, 2010, Lori J. Gaff (“Gaff”) filed a complaint against the Town of Pembroke (“Pembroke”) claiming a violation of the automatic stay by Pembroke in sending various notices of impending tax liens and executing such liens. On May 25, 2010, Sean and Nicole Doolan (“Doolans”) (the “Debtors” when referred to collectively with Gaff) filed a Motion for Contempt and Sanctions for Violation of the Automatic Stay by the Town of Derry (“Derry”) (the “Towns” when referred to collectively with Pembroke) based upon similar conduct by Derry with respect to real estate tax liens. In response to the Doolans' motion, the Town of Nottingham (“Nottingham”) moved to intervene in the matter and the Court granted its motion. On August 25, 2010, this Court granted a motion to join the Doolans' contested matter with Gaff's adversary proceeding regarding common issues of law and fact. On September 18, 2010, Gaff filed a Motion for Summary Judgment in her adversary proceeding, and after argument, the Court took the motion under advisement. On October 8, 2010, the New Hampshire Tax Collectors' Association (“NHTCA”) moved to intervene and be heard under Bankruptcy Rule 2018 and the Court granted the motion. The facts in these cases, pertaining to delinquent property taxes and the tax lien procedures followed by the Towns, are not in dispute.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. THE LEGAL LANDSCAPE

These cases arise at the intersection of state law regarding the assessment and collection of real estate taxes and federal bankruptcy laws for the protection of debtors and the equitable payment of claims.

A. Applicable Non-bankruptcy Law

The assessment and collection of real estate taxes in New Hampshire is governed by state law. Real estate taxes are assessed on an annual basis where “[t]he property tax year [is] April 1 to March 31 and all property taxes [are] assessed on the inventory taken in April of that year.” NH RSA 76:2. The obligation to pay the property taxes falls not on the owner's equity in the property, but on the property itself. NH RSA 80:19; First NH Bank v. Town of Windham, 138 N.H. 319, 321, 639 A.2d 1089 (1994). Accordingly, on April 1 of each year, an inchoate lien to secure property taxes arises on real estate by operation of law. Id. The lien has priority over all other prior or subsequent liens on the property, but only continues for eighteen months, and expires on October 1 of the calendar year following the beginning of the tax year. Id.; NH RSA 80:19.

Real estate taxes are assessed against the owner of record on April 1. NH RSA 76:10. The tax is generally collected over two semi-annual payments. NH RSA 76:15–a. The first partial payment, which is 50% of the previous year's tax, is payable July 1 and the final payment is due December 1. ¹ Id. If the payment of either installment is not made on or before the due date, interest at the rate of twelve percent is charged.² NH RSA 76:13. Where a property owner does not make payments by the due date of the final installment, state law provides specific procedures for converting the statutory lien into an equitable interest and ultimately a legal interest. Windham, 138 N.H. at 321–22, 639 A.2d 1089.

The tax collector is required to notify the owner of record as of April 1 of all uncollected and unredeemed real estate taxes on his property with the bill for the final installment, or within ninety days of the due date for the final tax bill. NH RSA 76:11–b. Eventually, if the property tax is not paid, state law requires the tax collector to follow certain procedures to execute a tax lien or else the inchoate lien will expire on October 1 of the year following assessment of the tax. Notice of the impending tax lien must be sent at least thirty days prior to executing the lien. NH RSA 80:60. The notice must be sent by certified or registered mail with a return receipt requested to the last known post office address of the current owner, if known, or to the person against whom the tax was assessed. Id. The notice must also contain the name of the current owner or the person against whom the tax was assessed, a description of the property, the date and time on which the last payment shall be accepted, and the amount of the tax, interest, and costs owed up to the date of execution. Id.

On the day following the last date for the payment of taxes stated in the notice, the tax collector must deliver to the municipality an affidavit of the execution of the tax lien. NH RSA 80:61. No less than thirty days after the execution of a tax lien to the municipality, the tax collector shall deliver to the registry of deeds for the county in which the real estate is located the facts stated in the notice of lien and the details regarding the execution of the lien, as required by law. NH RSA 80:64. The municipality is required, within forty-five days after the execution of the lien, to identify and notify all persons holding mortgages of record against the property. NH RSA 80:65. After two years from the date of execution of the tax lien, the tax collector may execute a tax deed for the property subject to the tax lien. NH RSA 80:76. Any time prior to the delivery of a tax deed, a person with a legal interest in the property subject to the lien may redeem the property by paying the amount of the tax lien plus interest and costs prescribed by law. NH RSA 80:69. Failure to notify a mortgagee of record of the execution of the tax lien results in the interests of the mortgagee surviving the delivery of the tax deed. Id.; Windham, 138 N.H. 319, 639 A.2d 1089.

Compliance with the execution and notification requirements of the statutory tax lien procedure has two significant results for the municipality holding the lien. First, the first priority lien for real estate taxes does not expire on October 1 following the tax year, but continues indefinitely, even if a tax deed is not delivered. Id.; NH RSA 80:76. Second, upon execution of the tax lien, the interest on the delinquent taxes increases from twelve to eighteen percent. NH RSA 80:69.

B. Federal Bankruptcy Law

Upon the filing of a bankruptcy petition, § 362(a) of the Bankruptcy Code imposes an automatic stay against the commencement or continuation of any action or proceeding against a debtor to collect a prepetition debt. The automatic stay provision of the Bankruptcy Code, § 362(a), has been described as “one of the fundamental debtor protections provided by the bankruptcy laws.” Midlantic Nat'l Bank v. New Jersey Dep't of Env't Protection, 474 U.S. 494, 503, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). Its purpose is to give debtors breathing room and stop collection efforts on the day of filing. Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 398 (1st Cir.2002); In re 229 Main St. Ltd. P'ship, 262 F.3d 1, 3 (1st Cir.2001).

Specifically, § 362(a) of the Bankruptcy Code imposes a stay against:

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; [and]

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.

11 U.S.C. § 363(a)(4), (5), and (6).

Despite the importance of the automatic stay, Congress has enacted several exceptions to the stay that allow governmental units to take actions that protect the public interest in the collection of taxes. Id. Exceptions to the automatic stay are read narrowly. Hillis Motors, Inc. v. Hawaii Auto. Dealers' Assoc., 997 F.2d 581, 590 (9th Cir.1993). However, exceptions to the stay may not be narrowly construed when they pertain to the exercise of police powers to protect public health and safety. See Cournoyer v. Town of Lincoln, 790 F.2d 971, 976 (1st Cir.1986). The present cases involve protection of the pecuniary interest of a governmental unit, not the protection of public health or safety. In re McMullen, 386 F.3d 320, 325 (1st Cir.2004). Accordingly, this Court shall construe exceptions to the automatic stay narrowly to effectuate the fundamental public policy of federal bankruptcy law to grant broad relief to the debtor. Id.; Stringer v. Huet (In re Stringer), 847 F.2d 549, 552 (9th Cir.1988).

The exceptions involved in these cases are provided in § 362(b) of the Bankruptcy Code:

(b) The filing of a petition ... does not operate as a stay—

(3) under subsection (a) of this section, of any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and...