In re Hammond

• Decision Date: 15 December 2009
• Docket Number: Bankruptcy No. 08-26968.,Adversary No. 09-2008.
• Citation: 420 B.R. 633
• Parties: In re JoAnn C. HAMMOND, Debtor(s) JoAnn C. Hammond, Plaintiff(s) v. The Allegheny County Treasurer, The Wilkinsburg Penn Joint Water Authority, The Borough of Wilkinsburg, and The Wilkinsburg Borough School District, Defendant(s).
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

Page 633

420 B.R. 633

In re JoAnn C. HAMMOND, Debtor(s) JoAnn C. Hammond, Plaintiff(s) v. The Allegheny County Treasurer, The Wilkinsburg Penn Joint Water Authority, The Borough of Wilkinsburg, and The Wilkinsburg Borough School District, Defendant(s).

Bankruptcy No. 08-26968.

Adversary No. 09-2008.

United States Bankruptcy Court, W.D. Pennsylvania.

December 15, 2009.

Mary Ellen Droll, Neighborhood Legal Services, Pittsburgh, PA, for Plaintiffs.

Jordan Tax Serv. The Allegheny County Treasurer, pro se.

Wilkinsburg-Penn Joint Water Authority, pro se.

Kevin H. Buraks, Portnoff Law Associates, Norristown, PA, for Defendants.

MEMORANDUM OPINION¹

JUDITH K. FITZGERALD, Bankruptcy Judge.

The central issue before the court in this § 506 action to determine the secured status of certain tax liens is whether the Debtor may redeem real property that was sold at a sheriff's sale prepetition. Debtor wants to retain the property free and clear of tax liens other than those held by the purchaser at the sale. Defendants Wilkinsburg School District and Borough of Wilkinsburg contend that the Debtor has no standing to pursue this Adversary. For the reasons which follow, we conclude that the Debtor has standing and may exercise her statutory right of redemption through her chapter 13 plan.

Certain facts are undisputed. Debtor is a widow who resides at 1531 Foliage Street in Pittsburgh, Pennsylvania. She is the heir to the real property that is subject to the tax liens. The property is titled in the name of her deceased husband. It was sold at a sheriff's sale in August, 2008, because real estate taxes had been unpaid for many years.² GLS Capital, one of the tax claim holders, was the successful purchaser. The sale price was $2,090.62, representing GLS Capital's costs. The sheriff acknowledged the deed to GLS Capital on September 23, 2008. Debtor filed her chapter 13 bankruptcy on October 20, 2008.³ She plans to pay GLS Capital $12,623.00 for delinquent real estate taxes and to divest the other taxes as unsupported by value in the collateral. Whether she can do so, however, depends on the value of the property. Debtor obtained an appraisal in November of 2008 that determined the fair market value of the property to be $10,000. The Wilkinsburg taxing authorities do not agree with that value, contending that because the tax assessment roll and Debtor's bankruptcy schedules list the fair market value at $28,500, she is estopped from asserting a different value. The value of the real estate itself is not before the court at this time. The court is of the view that, absent agreement of the parties to the value, an evidentiary hearing will be needed to determine the matter.

Courts disagree as to whether tax assessments are hearsay, although the majority of cases reviewed by this court indicate that tax assessments can constitute an agency records exception to the hearsay rule. See Fed.R.Evid. 803. Compare In re Chen, 2009 WL 3754672 (Bankr. E.D.Va., Nov.3, 2009)(tax assessments are admissible regarding value under the agency records exception to Fed.R.Evid. 803), with In re Digby, 47 B.R. 614 (Bankr. Ala.1985)(tax assessments are hearsay). However, in the matter before us, Debtor's appraisal is more recent than the assessment and represents an expert opinion of value which has yet to be presented through testimony.⁴ Assuming without deciding that Debtor's use of the tax assessed value in her schedules is evidence of her opinion of value (and we note that Debtor is competent to testify to the value of her realty),⁵ expert testimony is also evidence of value. Here, the recently appraised value does not coincide with the scheduled value. Further proceedings will be set to address valuation.

GLS Capital has not objected to redemption of the property through Debtor's chapter 13 plan which calls for Debtor to pay the full amount of GLS Capital's claim. The Wilkinsburg School District and the Borough of Wilkinsburg⁶ contend that Debtor cannot escape liability for their tax liens by paying only the redemption price because otherwise any debtor could use the Bankruptcy Code to avoid tax obligations. In their view, the applicable redemption statute in Pennsylvania requires the redeeming owner to make all of the required payments. Debtor contends that the liens are actually unsecured claims because the property value of $10,000 will be paid in full through the plan to GLS Capital in order to satisfy the tax lien it holds as the inchoate owner of the property. Because GLS Capital's claim exceeds the appraised value of the collateral, Debtor's position is that there is no equity to support payments to other taxing bodies, despite their liens.

There are several related issues before the court. The first is a determination of the nature of the tax sale purchaser's claim. It is not disputed that upon the death of her husband in May of 2008, Debtor became the legal owner of the property. As of the date of the tax sale, Debtor was still the owner. Under Pennsylvania law, a purchaser at a tax sale acquires an inchoate, defeasible title which does not change the status or title of the property owner until the redemption period has passed. Appeal of Singer, 7 A. 800, 801 (Pa.1887). See also City of Philadelphia. v. Woodside, 10 Pa. D. & C. 565 (Pa.Com.Pl., 1928). See also 72 P.S. § 5941.3 (a tax sale purchaser takes real estate free and clear of delinquent taxes subject to the right of redemption). The purchaser's only absolute interest in the property until the redemption period expires is to receive the money paid on redemption. Shalemiller v. McCarty, 55 Pa. 186, 188 (Pa.1867). The purchaser has no claim to possession or ejectment against an owner during the redemption period. Easton v. Sulkin, 19 Pa. D. & C. 152 (Pa.Com.Pl., 1933). See also 72 P.S. § 6071 (right of redemption).

The Wilkinsburg taxing bodies challenge Debtor's standing to bring this adversary action, asserting that standing does not exist until she has paid the full redemption amount.⁷ Their contention is without merit. The Debtor's interest in property is determined by state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); In re Rickel Home Centers, Inc., 209 F.3d 291, 297 (3d. Cir.), cert. denied 531 U.S. 873, 121 S.Ct. 175, 148 L.Ed.2d 120 (2000). Because under Pennsylvania law the purchaser's title is not absolute until the redemption period has passed without payment, the Debtor's interest in the property is property of the bankruptcy estate under § 541(a)(1) of the Bankruptcy Code. Thus, Debtor has standing to address claims against her interest in the property that is her residence and that she seeks to retain by paying creditors through her plan.

Notwithstanding the foregoing, the question remains whether Debtor can use the Bankruptcy Code to stretch out payments as a means of redemption. Debtor is not the first to use chapter 13 in this fashion. In In re Kasco, 378 B.R. 207 (Bankr.N.D.Ill.2007), the court permitted redemption through a chapter 13 plan where debtors filed their chapter 13 prior to the expiration of the redemption period following a sale of their property in a prepetition tax sale. The court found that, pending redemption, the purchaser had a claim against the debtors for purposes of bankruptcy law and the claim encompassed the right to obtain the real property if no redemption occurred. However, while the redemption was in progress, the purchaser had something less than title in fee. Id. at 214. The court determined that even though the tax sale purchaser's claim is enforceable in rem, the claim could still be addressed in the chapter 13 plan because, under § 1322(b)(2) of the Bankruptcy Code,⁸ a debtor has the ability to modify secured tax claims in the plan.

Another case in Illinois followed suit. In Salta Group, Inc. v. McKinney, 380 B.R. 515, 521 (C.D.Ill.), affirmed 380 B.R. 515 (C.D.Ill., 2008), the court concluded that the tax sale purchaser possessed a claim that could be modified in bankruptcy and that § 1322(b)(2) enables a debtor to make payments in installments over the life of the plan. Id. at 518, 524. We agree with the Illinois courts. Debtor's proposed use of chapter 13 to accomplish the redemption is permissible.

The next question is whether the tax liens can be stripped down to the value of the collateral. This court has previously...