In re United Const. and Development Co., Bankruptcy No. 85C-03657
| Decision Date | 07 January 1992 |
| Docket Number | Adv. No. 90PC-0744.,Bankruptcy No. 85C-03657,85C-03656 |
| Citation | 135 BR 904 |
| Court | U.S. Bankruptcy Court — District of Utah |
| Parties | In re UNITED CONSTRUCTION AND DEVELOPMENT COMPANY, Debtor. In re BRIAN HEAD HOTEL CORPORATION, Debtor. FIRST AMERICAN SAVINGS BANK, FSB, Greensboro, North Carolina, and FDIC, as Receiver for American Federal Savings & Loan Association, Anderson, Indiana, Trustees, Plaintiffs, v. IRON COUNTY, a political subdivision of the State of Utah, Dee G. Cowan, Gene E. Roundy, and James C. Robinson, in their official capacity as the Iron County Board of County Commissioners, Dennis Ayers, in his official capacity as the Iron County Assessor, and Merna Mitchell in her official capacity as Iron County Treasurer, Defendants. |
Mark O. Morris, Brent D. Wride, Ray, Quinney & Nebeker, Salt Lake City, Utah, for plaintiffs.
Kent L. Christiansen, Mueller & Christiansen, Salt Lake City, Utah, for defendants.
Mary Ellen Sloan, Deputy County Atty., Salt Lake City, Utah, amicus curiae.
Kenneth A. Rushton, Lehi, Utah.
This matter is presently before the court on a Motion for Summary Judgment filed by the plaintiffs, First American Savings Bank, F.S.B., Greensboro, North Carolina, and the F.D.I.C., as Receiver for American Federal Savings & Loan Association, Anderson, Indiana, Trustees (hereafter collectively referred to as the "Financial Institutions"). A hearing was held on May 30, 1991. Mark O. Morris, Esq., and Brent D. Wride, Esq., appeared on behalf of the plaintiffs. Kent L. Christiansen, Esq., appeared on behalf of the defendants, Iron County, a political subdivision of the State of Utah, Dee G. Cowan, Gene E. Roundy, and James C. Robinson, in their official capacity as the Iron County Board of County Commissioners, Dennis Ayers, in his official capacity as the Iron County Assessor, and Merna Mitchell, in her official capacity as Iron County Treasurer (hereafter collectively referred to as "Iron County" or "County"). Upon application to and approval of the court, Mary Ellen Sloan, Esq., Deputy Salt Lake County Attorney, filed a memorandum and made an appearance as amicus curiae. Counsel presented argument, after which the court took the matter under advisement. The court has carefully considered and reviewed the arguments of counsel and memoranda submitted by the parties and has made an independent review of the pertinent authorities. Now being fully advised, the court renders this decision.
The issue before the court is whether or not the filing of a petition under the Bankruptcy Code stays, pursuant to 11 U.S.C. § 362, the postpetition creation and perfection of tax liens under Utah law for real property taxes assessed postpetition.
It appears that the following material facts are not disputed by the parties.
1. United Construction and Development Co. (hereafter "Debtor") filed a petition for relief under Chapter 11 of the Bankruptcy Code on November 1, 1985. Included among the property of the estate was real property known as the Brian Head Hotel (hereafter "Hotel"), located in the town of Brian Head, Iron County, Utah.
2. The case was subsequently converted to one under Chapter 7; and on or about August 11, 1987, the Chapter 7 trustee sold the Hotel under 11 U.S.C. § 363, as authorized by order of this court. By operation of 11 U.S.C. § 363, all liens on the Hotel became liens on the sale proceeds, which proceeds now constitute property of the estate.
3. Plaintiffs are trustees for themselves and seven other financial institutions who allege to be secured creditors claiming a first priority lien position on the sale proceeds by virtue of a trust deed recorded on October 7, 1983.
4. Iron County claims to have a lien position on the sale proceeds superior to that of the plaintiffs by virtue of Utah state law. This claim is based upon ad valorem property taxes assessed on the Hotel for tax years 1984, 1985, 1986, and 1987.
5. On or about May 12, 1990, this court entered an order holding that Iron County's 1984 and 1985 tax liens had priority over all other liens and encumbrances on the sale proceeds. Apparently, the tax claims for 1984 and 1985 have been paid by the trustee.
6. In 1986, for purposes of the 1986 property taxes, the County assessed the Hotel's value; and on or about October 22, 1986, the County mailed an assessment notice for the 1986 taxes.
7. In 1987, for purposes of the 1987 property taxes, the County assessed the Hotel's value; and on or about October 28, 1987, the County mailed an assessment notice for the 1987 taxes.
8. Plaintiffs' present motion for summary judgment concerns the County's lien claim for the 1986 and 1987 taxes, assessed postpetition.1
11 U.S.C. § 362(a)(4) provides that the filing of a petition for relief under the Bankruptcy Code "operates as a stay, applicable to all entities, of . . . (4) any act to create, perfect, or enforce any lien against property of the estate."2 Plaintiffs are correct in noting that the term "entities" includes governmental units such as Iron County. See 11 U.S.C. § 101(14) ().
An exception to the stay is found in 11 U.S.C. § 362(b)(3), which provides that the filing of a petition for relief under the Bankruptcy Code In turn, 11 U.S.C. § 546(b) provides in part: "The rights and powers of a trustee under sections 544 trustee (as lien creditor or as successor to creditors and purchasers) avoiding transfer of property of or obligation incurred by the debtor, 545 trustee avoiding the fixing of statutory lien on property of the debtor, and 549 trustee avoiding transfer of property of the estate of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection."
In effect, then, the issue before the court turns on whether Iron County had a preperfected, yet perfectible and lienable, interest in the Hotel for the 1986 and 1987 taxes that under generally applicable law could be perfected and made effective against an entity acquiring rights in the property prior to perfection. Based on a review of the pertinent law, this court believes that the County did not have such an interest in the Hotel and that the debtor's filing of bankruptcy stayed the creation and perfection of tax liens on property of the estate for postpetition tax assessments. The County's interest was anticipatory at best.
The court must first turn to Utah law to determine what interest the County had in the Hotel for future-assessed taxes prior to any assessment of those taxes and prior to perfection of a tax lien for those future-assessed taxes.
Utah Code Ann. § 59-5-4 (§ 59-2-303, 1987 Property Tax Act), provides that by May 15 of each year, the county assessor must ascertain all property in the county subject to taxation and assess the property to the person owning, claiming, possessing, or controlling the property on January 1 of that year. Utah Code Ann. § 59-5-17 (§ 59-2-309, 1987 Property Tax Act) allows for property that has escaped assessment to be assessed at any time as far back as five years prior to the time of discovery of the escaped assessment. See Union Portland Cement Co. v. Morgan County, 64 Utah 335, 230 P. 1020 (1924); Ririe v. Randolph, 51 Utah 274, 169 P. 941 (1917). Once the assessment steps are completed, the property tax is computed by the county auditor pursuant to the levies established. Utah Code Ann. §§ 59-5-4 to 59-5-18, 59-5-30 to 59-5-36, 59-8-1 to 59-8-10 (§§ 59-2-301 to 59-2-329, 1987 Property Tax Act). Thereafter, the county auditor transmits the charge of taxes to the county treasurer, who mails the original tax notice. Utah Code Ann. § 59-10-10 (§ 59-2-1309, 1987 Property Tax Act).
Utah law provides further that every tax has the effect of a judgment against the person, and every lien created has the force and effect of an execution duly levied against all personal property of the delinquent. Utah Code Ann. § 59-10-1 (§ 59-2-1301, 1987 Property Tax Act); Dillman v. Foster, 656 P.2d 974 (Utah 1982) () (disavowing San Juan County v. Jen, Inc., 16 Utah 2d 394, 401 P.2d 952 (1965)); Hayes v. Gibbs, 110 Utah 54, 169 P.2d 781 (1946) (Wolfe, J., concurring). The judgment is not satisfied nor the lien removed until the taxes are paid or the property is sold for the payment of taxes. Every tax on real property is a lien against the property assessed. The lien attaches as of the first day in January of each year. Utah Code Ann. § 59-10-3 (§ 59-2-1303, 1987 Property Tax Act). See Anson v. Ellison, 104 Utah 576, 140 P.2d 653 (1943). The lien for taxes on real property is superior to pre-existing consensual liens on the property. Union Cent. Life Ins. Co. v. Black, 67 Utah 268, 247 P. 486 (1926).
Real property taxes unpaid on November 30 of each year following the date of levy are delinquent. Utah Code Ann. § 59-10-26 (§ 59-2-1325, 1987 Property Tax Act). And on the 15th day of January, property subject to a lien for taxes which are then delinquent for the preceding year shall be deemed to have been sold to the county at a preliminary sale to pay the taxes, penalty, and costs for which property is liable. Utah Code Ann. § 59-10-33 (§ 59-2-1332, 1987 Property Tax Act). While the property is held by the county under a preliminary sale, the property is not deemed sold for taxes subsequently assessed. Rather, the deemed sale for subsequently...
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