In re Wallingford's Fruit House

• Citation: 30 BR 654
• Decision Date: 06 June 1983
• Docket Number: Adv. No. 282-0306.,Bankruptcy No. 282-00086
• Parties: In re WALLINGFORD'S FRUIT HOUSE, Debtor. WALLINGFORD'S FRUIT HOUSE, Plaintiff, v. INHABITANTS OF THE CITY OF AUBURN, Defendant.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Maine

30 B.R. 654 (1983)

In re WALLINGFORD'S FRUIT HOUSE, Debtor.

WALLINGFORD'S FRUIT HOUSE, Plaintiff, v. INHABITANTS OF THE CITY OF AUBURN, Defendant.

Bankruptcy No. 282-00086, Adv. No. 282-0306.

United States Bankruptcy Court, D. Maine.

June 6, 1983.

Stephen B. Wade, Fales & Fales, P.A., Lewiston, Me., for debtor/plaintiff.

G. Curtis Webber, Linnell, Choate & Webber, Auburn, Me., for the City of Auburn.

Gary C. Wood, Maine Municipal Ass'n Legal Services, Augusta, Me., amicus curiae.

MEMORANDUM OF DECISION

JAMES A. GOODMAN, Bankruptcy Judge.

The debtor filed on October 25, 1982 a complaint seeking to hold the defendant in contempt for violating the automatic stay of 11 U.S.C. § 362. The debtor moved for partial summary judgment on the issue of whether the defendant violated the stay, and the parties filed an agreed statement of facts.

The dispute before the Court involves the defendant's actions to preserve and enforce its municipal tax liens on the debtor's real property pursuant to Me.Rev.Stat.Ann. tit. 36, §§ 942-943 (Supp.1982). Involved are real property taxes due for the years 1980 and 1981. The debtor filed its chapter 11 petition on March 2, 1982. Prior to that date, the taxes for 1980 and for 1981 both were assessed. On April 28, 1981, the Auburn tax collector sent the debtor notices pursuant to Me.Rev.Stat.Ann. tit. 36, § 942 stating the amount of the 1980 taxes due, describing the real estate being taxed, asserting a lien on the property, and stating that lien notices would be filed in the Registry of Deeds if the taxes were not paid within 30 days (hereinafter referred to as "§ 942 notice"). The taxes were not paid, and notices of liens were recorded in the Androscoggin County Registry of Deeds on May 28, 1981.

On May 7, 1982, after the debtor had filed its chapter 11 petition, the Auburn tax collector sent § 942 notices to the debtor with regard to the 1981 taxes similar to the notices sent on April 28, 1981. The 1981 taxes were not paid, and on June 14, 1982 the tax collector filed notices of liens in the Androscoggin County Registry of Deeds covering the 1981 real estate taxes. On October 21, 1982, the Auburn tax collector sent notices to the debtor pursuant to Me. Rev.Stat.Ann. tit. 36, § 943 advising that the tax liens covering the 1980 taxes previously recorded would expire automatically on November 28, 1982 and that on that date the City of Auburn would take title to the property and be entitled to immediate possession (hereinafter referred to as "§ 943 notice").¹

The debtor contends that the City violated the automatic stay of 11 U.S.C. § 362(a) by (1) filing notices of lien in the Registry of Deeds on June 14, 1982; and (2) sending the § 943 notice to the debtor on October 21, 1982.

A summary of the tax lien foreclosure process involved here will aid in understanding the issues before the Court. Maine law provides:

There shall be a lien to secure the payment of all taxes legally assessed on real estate. . . . Such lien shall take precedence over all other claims on said real estate and shall continue in force until the taxes are paid or until said lien is otherwise terminated by law.

Me.Rev.Stat.Ann. tit. 36, § 552 (1978). This lien arises upon the date the tax is assessed. Maddocks v. Stevens, 89 Me. 336, 336, 36 A. 398, 399 (1896). The lien may be enforced in several ways, one of which is through the procedure established in Me.Rev.Stat.Ann. tit. 36, §§ 942-43. Section 942 provides in part:

Liens on real estate created by section 552, in addition to other methods established by law, may be enforced in the following manner.

The tax collector may, after the expiration of 8 months and within one year after the date of original commitment of a tax, give to the person against whom the tax is assessed, . . . or send by certified mail, return receipt requested, to his last known address, a notice in writing signed by the tax collector or bearing his facsimile signature, stating the amount of the tax, describing the real estate on which the tax is assessed, alleging that a lien is claimed on the real estate to secure the payment of the tax, and demanding the payment of the tax within 30 days after service or mailing of the notice with $1 for the tax collector for making the demand together with the certified mail, return receipt requested, fee. . . .

After the expiration of the 30 days and within 10 days thereafter, the tax collector shall record in the registry of deeds of the county or registry district where the real estate is situated a tax lien certificate signed by the tax collector or bearing his facsimile signature, setting forth the amount of the tax, a description of the real estate on which the tax is assessed and an allegation that a lien is claimed on the real estate to secure the payment of the tax, that a demand for payment of the tax has been made in accordance with this section, and that the tax remains unpaid.

Section 943 provides in part:

The filing of the tax lien certificate in the registry of deeds shall create a tax lien mortgage on said real estate to the municipality in which the real estate is situated having priority over all other mortgages, liens, attachments and encumbrances of any nature, and shall give to said municipality all the rights usually incident to a mortgagee, except that the municipality shall not have any right of possession of said real estate until the right of redemption shall have expired.

The filing of the tax lien certificate in the registry of deeds shall be sufficient notice of the existence of the tax lien mortgage.

In the event that said tax, interest and costs shall be paid within the period of redemption, the municipal treasurer or assignee of record shall prepare and record a discharge of the tax lien mortgage in the same manner as is now provided for the discharge of real estate mortgages.

If the tax lien mortgage, together with interest and costs, shall not be paid within 18 months after the date of the filing of the tax lien certificate in the registry of deeds, the said tax lien mortgage shall be deemed to have been foreclosed and the right of redemption to have expired.

The municipal treasurer shall notify the party named on the tax lien mortgage and each record holder of a mortgage on the real estate not more than 45 days nor less than 30 days before the foreclosing date of the tax lien mortgage, in a writing left at his last and usual place of abode or sent by certified mail, return receipt requested, to his last known address of the impending automatic foreclosure and indicating the exact date of foreclosure. If notice is not given in the time period specified in this section to the party named on the tax lien mortgage or to any record holder of a mortgage, the person not receiving timely notice shall have the right to redeem the tax lien mortgage until 30 days after the treasurer does provide notice in the manner specified in this section.

The Maine Supreme Judicial Court has recently stated that it is a well-established principle that strict compliance with statutory requirements is necessary to divest property owners of their titles for nonpayment of taxes. Failure to follow strictly the statutory requirements "will destroy the validity of the tax lien certificate and will prevent the town from acquiring title under the tax lien foreclosure procedures." Blaney v. Inhabitants of Shapleigh, 455 A.2d 1381, 1387 (Me.1983).

Turning to the automatic stay, it seems clear that, unless an exception applies, the filing of a tax lien certificate in the Registry of Deeds and the sending of the § 943 notice to the debtor violate 11 U.S.C. § 362(a).² While the parties might disagree which specific label applies, they would concede that filing a tax lien certificate in the Registry is an act to either create, perfect, or enforce a lien. The § 943 notice, which advised the debtor that in approximately 30 days the City would take title to the debtor's property and be entitled to immediate possession if the tax lien mortgage were not paid, is an act designed to collect a pre-petition claim. The automatic stay was intended to prevent creditors from attempting in any way to collect a pre-petition debt. "Inexperienced, frightened, or ill-counseled debtors may succumb to suggestions to repay notwithstanding their bankruptcy." H.R.Rep. No. 595, 95th Cong., 1st Sess. 342 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5963, reprinted in 2 app. Collier on Bankruptcy 342 (15th ed. 1982).

The City contends that an exception to the stay does apply, namely, 11 U.S.C. § 362(b)(3):

The filing of a petition . . . does not operate as a stay—under subsection (a) of this section, of any act to perfect an interest in property to the extent that the trustee\'s rights and powers are subject to such perfection under section 546(b) of this title. . . . ³

The Court will examine the City's argument with respect to, in turn, the § 943 notice and the filing of the tax lien certificate.

Section 943 Notice

Prior to 1973, section 943 did not require that notice be sent to the property owner after the tax lien certificate was filed in the Registry of Deeds. In 1973, L.D. 722 was introduced into the 106th Legislature, providing that the municipal treasurer notify the property owner between 45 and 30 days prior to the expiration of the 18-month foreclosure period. L.D. 722 was amended to add the following sentence: "In the event the notice provided in this section has not been given, the party named on said tax lien mortgage shall have the right to redeem said real estate mortgage within 30 days after the said notice." The problem this amendment was intended to resolve was explained in legislative debate by Senator Fortier:

However, there is a technical problem in the way the original bill was written in that it would be possible, if the municipal treasurer neglected, inadvertently or otherwise, to send this notice, that the municipality could lose

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