In re Paro
| Decision Date | 10 April 2007 |
| Docket Number | No. 4:03-bk-23353.,4:03-bk-23353. |
| Citation | 362 B.R. 419 |
| Parties | In re Charlene Ann PARO. |
| Court | U.S. Bankruptcy Court — Eastern District of Arkansas |
Ms. Phyllis McKenzie, attorney for LandNPulaski.
Mr. Jack Dickerson, Hot Springs, AR, attorney for Debtor.
Ms. Joyce Bradley Babin, U.S. Trustee, Little Rock, AR.
On March 13, 2007, the Court heard the Motion for Relief From Stay Filed by LandNPulaski, LLC ("Motion for Relief"). Phyllis McKenzie appeared on behalf of LandNPulaski, LLC ("LandNPulaski"); Jack Dickerson appeared on behalf of the Debtor, who was also present; and Jeffrey Ellis appeared on behalf of the standing Chapter 13 Trustee, Joyce Bradley Babin. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G), and the Court has jurisdiction to enter a final judgment in this case.
LandNPulaski seeks relief from the automatic stay so that it may pursue possession of certain real property located at 4014 Vision Road, Little Rock, Arkansas (the "Property") which it purchased at a public auction of tax-delinquent properties held by the State of Arkansas's Commissioner of State Lands (the "State"). The Debtor resides in a mobile home on the Property, and contends that she has an equitable interest in the Property by virtue of an oral rent-to-own contract entered into in 1999 with the record owner, Ms. Rose Davis (formerly Rose Marie Jones and hereinafter referred to as "Jones-Davis" unless otherwise noted). At the hearing on this matter, Debtor's counsel requested that the Court continue the automatic stay as to the Property to allow the Debtor to challenge LandNPulaski's title to the Property in State Court. In response, LandNPulaski maintained that it believes the evidence showed it properly obtained title to the Property, but that in the event the Debtor were allowed to pursue a challenge in State Court, LandNPulaski's counsel requested that the stay be lifted to allow LandNPulaski to defend itself against Debtor's challenge in State Court.
Debtor filed bankruptcy on November 5, 2003. In her schedules, she listed the Property as exempt real property with a value of $39,000 with a $9,000 secured debt owed to Rose Davis, 3606 Vinson Road, Little Rock, Arkansas. Debtor's chapter 13 plan did not propose to pay this debt; however, Debtor continued to make the monthly payments directly to Jones-Davis. Debtor testified that she moved into and began purchasing the Property from Jones-Davis on a "rent-to-buy" basis in 1999, and had already paid most of the $39,000 agreed price at the time of the hearing (two and half years into her Chapter 13 plan).1 Debtor admitted that she and Jones-Davis had no written agreement regarding her purchase of the Property. Debtor testified that she made significant improvements to the Property including new underpinning, a new roof, new plumbing, a new bathroom, removing an old bathroom, removing walls, and removing trees from the Property.
Jones-Davis allegedly failed to pay the property taxes on the Property, and the Property was certified to the State on March 26, 2003. The State first sent a notice to "Rose Marie Jones" at 4014 Vinson Road on June 5, 2003, informing Jones-Davis that the Property had been certified to the State for delinquent taxes; that notice was returned and marked "forwarding address expired." The State then sent a notice to "Rose Marie Jones" at 3412 N. Poplar Street, N. Little Rock, Arkansas on February 8, 2005, informing Jones-Davis that the Property was scheduled for sale on July 7, 2005.2 According to Lisa Pelton, the Director of Real Property Sales for the State, the new address was found on the Pulaski County Tax Assessor's tax assessment card for the Property.3 A certified return receipt was signed by a "Rose M. Jones" and returned to the State.4
LandNPulaski purchased the Property from the State at a public auction held July 7, 2005, for a total of $2,920.50 (representing both the bid amount of $2,300.00 and the delinquent taxes of $620.50). On July 11, 2005, the State sent "Rose Marie Jones" another notice at the Poplar address in North Little Rock, informing her that the Property had been sold, and she had thirty days to redeem the Property by paying the delinquent taxes. Upon the expiration of Jones-Davis' right of redemption on August 11, 2005, the State issued a Limited Warranty Deed transferring the Property to LandNPulaski. According to Pelton, the Debtor was not provided notice of these proceedings because she had no recorded interest in the property. See Ark.Code Ann. § 26-37-301(a)(2) (), and § 26-37-301(c) ().
LandNPulaski subsequently filed a quiet title action in the Circuit Court of Pulaski County, Arkansas (CV-2005-015786) (the "Quiet Title Action"), and was awarded quiet title to the Property on February 21, 2006. It was determined in that action that "Rose Marie Jones", her unknown spouse, unknown surviving spouse and unknown heirs had no further right, title, interest, equity or ownership in the Property. The Decree Quieting Title does not describe the notice provided to Jones-Davis or the occupant of the Property (other than to say that the Defendants had been served by Warning Order and that the Notice of Quiet Title Action had been published). John Ryles, a member of LandNPulaski, testified that he had no personal knowledge of how notice was effectuated in the Quiet Title Action. Although the Decree Quieting Title found (in paragraph 47) that "no individuals, entities, organizations, occupants or others have appeared, answered or claimed any right, title or interest in and to the real properties described hereinabove ..." (emphasis added), the Debtor was not aware of the Quiet Title Action.
In August 2006, LandNPulaski sent a letter to "Rose Marie Jones or Current Occupant" at the Property's address (4014 Vinson Road) requesting a meeting. Ryles testified that the letter came back marked "no mail receptacle." He testified that a follow-up letter to Jones-Davis at the same address was also returned and marked "no mail receptacle." Debtor testified that she had no mailbox because vandals repeatedly knocked it down, and she used a post office box instead. Ryles testified that he did not meet Debtor or know that she lived there until November 15, 2006, when he visited the Property. At that time, Debtor informed him that she was purchasing the Property from Jones-Davis.
This case presents a number of difficult issues under Arkansas law. The Debtor being in the middle of a Chapter 13 bankruptcy case only complicates these issues. However, because state law issues predominate and control what property Debtor brought into her Chapter 13 estate, the Court must first determine whether Debtor has an interest in this Property that is protected by the automatic stay, and if so, what relief to Debtor and LandNPulaski is appropriate. In sum, the Court has determined that upon filing bankruptcy, the Debtor had an equitable interest in this Property, having acquired this interest from Jones-Davis who sold her the Property. To what extent Debtor's equitable interest was subsequently cut off by the tax sale, of which she had no actual notice, is even more difficult. The question becomes who has superior title to the Property? A third-party purchaser at a State tax sale of which Debtor had no notice, or the Debtor in, possession of the Property with an unrecorded interest in the Property? Ultimately, these questions should be determined by the State Court that quieted title to this Property in LandNPulaski.5 Because the statute of limitations under both the tax sale provisions and the quiet title provisions of the Arkansas Code remain open, Debtor may still challenge the tax sale and/or the Quiet Title Action in State Court. Accordingly, and for the reasons described more fully below, this Court conditionally lifts the stay to allow the parties to determine who has title to the Property in State Court.6
Although Debtor admittedly has no recorded interest in the Property, and no written agreement with Jones-Davis to purchase the Property, it is well-established in Arkansas law that an oral contract to purchase realty may be enforceable under the part-performance exception to the statute of frauds.7 The Arkansas Court of Appeals has described the part-performance exception to the statute of frauds as follows:
We recognize, of course, that partial performance of a contract by payment of a part of the purchase price and placing a buyer in possession of land pursuant to an agreement of sale and purchase is sufficient to take the contract out of the statute of frauds. Johnston v. Curtis, 70 Ark.App. 195, 16 S.W.3d 283 (2000); Langston v. Langston, 3 Ark.App. 286, 625 S.W.2d 554 (1981); Sossamon v. Davis, 271 Ark. 156, 607 S.W.2d 405 (Ark App.1980). The possession of the property by the purchaser, together with the making of valuable improvements on the property, has also been held sufficient to take the agreement out of the statute of frauds. French v. Castleberry, 238 Ark. 1038, 386 S.W.2d 482 (1965); Harrison v. Oates, 234 Ark. 259, 351 S.W.2d 431 (1961); Phillips v. Jones, 79 Ark. 100, 95 S.W. 164 (1906). The improvements must be more than routine maintenance. French, supra. It is necessary to prove both the making of the oral agreement and its part performance by clear and convincing evidence. Johnston v. Curtis, supra.
Smith v. Malone, 83 Ark.App. 99, 103-104, 117 S.W.3d 643, 646 (Ark.App.2003)....
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