In re Pittman, Bankruptcy No. 14–17665–AMC

• Decision Date: 06 May 2016
• Docket Number: Bankruptcy No. 14–17665–AMC
• Parties: In re: Patricia Ann Pittman, Debtor
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

549 B.R. 614

In re: Patricia Ann Pittman, Debtor

Bankruptcy No. 14–17665–AMC

United States Bankruptcy Court, E.D. Pennsylvania.

Signed May 6, 2016

Michael A. Latzes, Law Offices of Michael A. Latzes, Philadelphia, PA, for Debtor.

OPINION

Ashely M. Chan, United States Bankruptcy Judge

I. INTRODUCTION

Under Pennsylvania law, when property is sold under a tax sale, the prior owner retains the right to redeem the property within nine months of the acknowledgment of the sheriff's deed issued in connection with the sale. The question before the Court is what happens with respect to the prior owner's right of redemption when the prior owner files for bankruptcy after the sale of the property takes place, but before the redemption period expires. Specifically, may the prior owner effectively redeem the property by treating the purchaser's right to payment of the redemption amount as a secured claim under the Bankruptcy Code which can be modified and paid over time under the debtor's plan pursuant to § 1322(b)(2).¹ As discussed below, the Court has concluded that a prior owner may treat the purchaser's right to payment of the redemption amount as a secured claim which may be modified under § 1322(b)(2).

II. FACTS AND PROCEDURAL HISTORY

Prior to filing for bankruptcy, the Debtor and her family resided at 3848 N. Smedley Street in Philadelphia, Pennsylvania ("Property"). Stipulation ¶ 1, ECF No. 39. She and her brother, Ronnie L. Pittman, co-owned the Property as tenants in common. Id. Over a four year period, unpaid real estate taxes accrued on the Property totaling $4,235.67 ("Tax Delinquency"). Id. ¶ 8.

Based upon the Tax Delinquency, the City of Philadelphia ("City") sought and obtained an order to sell the Property at a tax sale. Id. ¶¶ 9–10. On October 21, 2013, Sahil S. Singhal ("Purchaser") purchased the Property at a tax sale for $13,100.00, thereby satisfying the Tax Delinquency in full.² Id. ¶ 2. Afterwards, the Sheriff of Philadelphia County prepared a deed to the Property in favor of the Purchaser which was acknowledged by the Sheriff's office on December 30, 2013. Id. ¶ 3. The deed was subsequently recorded on February 26, 2014. Id.

Under applicable state law, the Debtor had nine months from December 30, 2013, the date that the deed was acknowledged, to exercise her right to redeem the Property. City Mem. Supp. Obj. to Second Am. Plan ("City's Br.") 3, ECF No. 44. Prior to the expiration of the redemption period, on September 23, 2014 ("Petition Date"), she filed a voluntary Chapter 13 bankruptcy petition. The Debtor also filed a Chapter 13 plan on the Petition Date in which she proposed to pay the Purchaser $13,100.00, the amount that he paid to purchase the Property in the tax sale. Ch. 13 Plan ¶ 2.B(a)(i), ECF No. 8.

On February 10, 2015, the Purchaser filed a secured proof of claim in the amount of $17,709.47 ("Claim") in connection with his purchase of the Property at the tax sale. On February 23, 2015, the Purchaser amended his Claim and listed his secured claim as $16,908.11 ("Amended Claim").

On February 23, 2015, the City filed an objection to the plan based upon, inter alia, the Debtor's failure to pay the full amount of the Amended Claim filed by the Purchaser in the amount of $16,908.11. Obj. to Proposed Ch. 13 Plan ¶¶ 19–21, ECF No. 24. The Debtor subsequently filed a first amended Chapter 13 plan and then a second amended Chapter 13 plan ("Plan"), both of which proposed to pay the Purchaser the full amount of his Amended Claim of $16,908.11. Am. Ch. 13 Plan ¶ 2.B(a)(i), ECF No. 31; Second Am. Ch. 13 Plan ¶ 2.B(a)(i), ECF No. 34. The Plan proposed to pay the Purchaser the entire amount of the Amended Claim, albeit in equal monthly installments over the thirty-six month life of the Plan. Second Am. Ch. 13 Plan ¶¶ 1, 2.B(a)(i). The Plan also provided that, upon completion of all payments to the Purchaser, he would reconvey the Property to the Debtor. Id. ¶¶ 6–7.

On April 26, 2015, the City filed an objection to the Plan arguing that: (1) the Debtor did not properly file a motion under Federal Rule of Bankruptcy Procedure 6008 to redeem the Property; (2) the Purchaser does not hold a "claim," as defined under § 101(5), which can be modified under § 1322(b)(2); and (3) the redemption amount cannot be paid to the Purchaser in installments under applicable state law. Obj. to Proposed Second Am. Ch. 13 Plan ¶¶ 14, 22, ECF No. 37.

On June 30, 2015, the Court held a confirmation hearing on the Plan. Although the Purchaser did not file an objection to the Plan, he attended the confirmation hearing and orally lodged his objection. Ultimately, the Court adjourned the confirmation hearing and ordered the parties to file briefs addressing the objections. After the parties filed their briefs, on December 1, 2015, a confirmation hearing on the Plan was held and the matter was taken under advisement. On December 21, 2015, the Debtor filed a supplemental letter ("Letter") addressing one of the cases raised by the Purchaser and the City in their briefs. The Court subsequently gave the Purchaser and the City an opportunity to respond to the Debtor's Letter. On January 19, 2016, the City filed a response to the Debtor's Letter.

III. DISCUSSION

Although the Debtor's Brief in Support of Plan Confirmation ("Debtor's Brief"), ECF No. 40, challenges the City's standing to object to confirmation of the Plan, the Court notes that the Purchaser appeared at the initial confirmation hearing to join in the City's objection to confirmation and also filed a timely brief opposing confirmation in accordance with this Court's briefing schedule. Since the Debtor does not dispute the Purchaser's standing to object to confirmation and the Purchaser's position appears to be virtually identical to the City's position, it is unnecessary for the Court to resolve whether the City has standing to object to confirmation of the Plan and the Court will proceed as though the Purchaser was the sole objector. The issue of the City's standing is therefore moot.

The Purchaser argues that he holds absolute title to the Property and that the Debtor may only regain ownership of the Property by paying the redemption amount in full within nine (9) months of the acknowledgement of the deed under applicable state law. His position is that the Bankruptcy Code does not alter his state law right to be paid the redemption amount in such manner. The Purchaser asserts that

1) under state law ... a redemption must be exercised in accordance with the particular statute that the Sheriff's Sale took place under; 2) state law dictates that the Purchaser receives absolute title to the Subject Property at the conclusion of the Sheriff's Sale leaving the Debtor with no ownership interest in the Property, only a right of redemption; and, 3) the Debtor can only exercise a right of redemption upon the full payment of the Redemption Amount.

Purchaser's Br. Supp. Obj. to Second Am. Plan ("Purchaser's Br.") 4–5, ECF No. 46.³ The Purchaser also argues that the "only authority for exercising the redemption in bankruptcy is Fed.R. Bankr.P. 6008" and that the Debtor has failed to file a motion to redeem pursuant to Rule 6008. Id. at 21. Finally, the Purchaser argues that he does not hold a "claim" as defined under § 101(5) which can be modified under § 1322(b)(2). Id. at 27.

The Debtor argues that: (1) the Plan meets all of the requirements for confirmation under § 1325(a); (2) the Purchaser holds a defeasible interest "to secure payment of a debt" which is "subject to extinguishment upon payment of that debt"; and (3) the Purchaser holds a claim under § 101(5) which may be modified by the Plan pursuant to § 1322(b)(2). Debtor's Br. 3. The Debtor also argues that Rule 6008 is not applicable to confirmation of the Debtor's Plan and that § 108 does not negate the rights afforded to a debtor under § 1322(b)(2). Id. at 4.

A. The Purchaser Does Not Hold Absolute Title to the Property

The Purchaser essentially argues that the Property does not constitute property of the estate under § 541(a) because he purportedly holds absolute title to it. Section 541(a)(1) of the Bankruptcy Code provides that "property of the estate" includes "all legal or equitable interests of the debtor in property as of the commencement of the case." In United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), the Supreme Court stated that § 541(a)'s legislative history demonstrates that the language of this provision was intended to sweep broadly to include "all kinds of property, including tangible or intangible property, causes of action ... and all other forms of property currently specified in section 70a of the Bankruptcy Act." Id. at 205 n. 9, 103 S.Ct. 2309 (first quoting H.R.Rep. No. 95–595, pt. 4, at 367 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6323; then quoting S.Rep. No. 95–989, pt. 1, at 82 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5868); accord In re O'Dowd, 233 F.3d 197, 202 (3d Cir.2000).

In order to determine the existence and scope of the debtor's "legal or equitable interests" for purposes of § 541(a)(1), it is well-established that federal courts typically must look to state law. See Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) ("Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law."); O'Dowd, 233 F.3d at 202 (first citing Congress Talcott Corp. v. Gruber, 993 F.2d 315, 319 (3d Cir.1993) ; then citing In re Roach, 824 F.2d 1370, 1374 (3d Cir.1987) ) ("While federal law defines what types of property comprise the estate, state law generally determines what interest, if any, a debtor has in property.").

1. MCTLA

The relevant state law in this case is 53 Pa. Stat. and Cons.Stat. Ann. §§ 7101–505 (West 2016), commonly known as the Municipal Claims and Tax Lien Act (the "MCTLA"). Upon the sale of the Property pursuant to § 7283(a) of the MCTLA, the Purchaser argues that he...