In re Washington
| Citation | 551 B.R. 644 |
| Decision Date | 17 June 2016 |
| Docket Number | Case No. 14–81564–WRS |
| Parties | In re Eddie James Washington, Debtor |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Alabama |
Charles M. Ingrum, Jr., Ingrum, Rice, & Parr, LLC, Opelika, AL, for Debtor.
William R. Sawyer
This case is before the Court on Debtor Eddie James Washington's motion to modify his plan post-confirmation. (Doc. 23). Creditor J & J Caldwell objects to the proposed modification. (Doc. 24). The Court held hearings on this matter on March 29 and April 26, 2016. The issue is whether a Chapter 13 debtor can, through his plan, redeem real property in the debtor's possession that has been sold for taxes under Alabama law, after the tax purchaser has been granted a tax deed. For the reasons set forth below, the Court holds that a debtor in this scenario may, in Alabama, redeem his property through a Chapter 13 plan. Accordingly, J & J Caldwell's objection is OVERRULED and the Debtor's motion to modify is GRANTED.
Eddie James Washington (“Washington”) owned real property known as 1706 Lee Road (“the Property”), but failed to pay state ad valorem taxes on it. The State of Alabama placed a tax lien on the property and sold it at a tax sale on May 4, 2011 to J & J Caldwell for $4,000. (Doc. 24). J & J Caldwell was issued a tax deed to the Property on July 3, 2014 and properly recorded it. .
Washington filed Chapter 13 bankruptcy on November 23, 2014. (Doc. 1). On his Schedule A he listed the Property as having a value of $87,240, subject to a mortgage on which he owed roughly $53,500, as well as $1,000 on the tax lien. (Doc. 1). He lists J & J Caldwell as a secured creditor on his Schedule D. (Doc. 1). In his amended Chapter 13 plan, he proposed to pay J & J Caldwell $1,000 at 12% interest via monthly plan payments of $125, and to make direct mortgage payments of $445 per month. (Doc. 14). The Court confirmed Washington's amended plan on February 20, 2015. (Doc. 19).
The Trustee did not distribute Washington's plan payments to J & J Caldwell because it never filed a proof of claim in Washington's bankruptcy. On February 22, 2016, Washington filed a secured proof of claim on behalf of J & J Caldwell in the amount of $6,572. (Claim 5). The same day, he moved to modify his plan to pay J & J Caldwell $6,572 at 12% interest, via a monthly payment of $280. (Doc. 23). The proposed modification also provides that J & J Caldwell will be required to release its tax deed on the Property upon Washington's completion of the plan payments. (Doc. 23). J & J Caldwell objected to the modification, asserting that Washington has no legal interest in the Property. (Doc. 24).
The Court held an evidentiary hearing on April 26, 2016 and heard testimony from Washington and from Robert Garris (“Garris”), the redemption official for the Lee County Probate Office. Washington testified that he has lived in the Property for fifteen years, that he is still living there, and that it is his principal residence. Garris testified that once land is sold at a tax sale, the tax assessments on the land are sent to the purchaser. He also testified that according to the probate office's records, Washington would have to pay $6,566.02 to redeem the Property.1 This amount would have to be paid in lump sum.2
The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a)
and 157(a), and the District Court's General Order of Reference dated April 25, 1985. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). This is a final order.
Any time after a Chapter 13 plan is confirmed, but before plan payments are completed, the debtor, trustee, or any unsecured creditor may seek to modify the plan. 11 U.S.C. § 1329(a)
; In re Meza, 467 F.3d 874, 878 (5th Cir.2006). Any post-confirmation plan modification must meet three basic requirements. First, the modification must either (1) increase or reduce payments on a particular class of claims, (2) extend or reduce the time for such payments, (3) adjust distribution on a claim based on payments made outside the plan on the claim, or (4) reduce payments based on the cost of the debtor's health insurance. 11 U.S.C. § 1329(a). Second, the modification must comply with the requirements for plan confirmation set out in 11 U.S.C. §§ 1322(a) and 1325(a), and may treat claims in accordance with the provisions of 11 U.S.C. §§ 1322(b) and 1323(c). 11 U.S.C. § 1329(b)(1). Third, the modification cannot extend the payment period beyond five years after the first plan payment was due, and cannot extend the original commitment period of the debtor's disposable income except for cause. 11 U.S.C. § 1329(c). This Court has held that § 1329 does not require the movant to demonstrate an unforseen substantial change in the debtor's circumstances. In re Thomas, 291 B.R. 189, 193 (Bankr.M.D.Ala.2003). “The plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.” 11 U.S.C. § 1329(b)(2).
There is no dispute that Washington's proposed modification meets the requirements of §§ 1329(a)
and (c). Washington proposes to increase payments on a particular class of claims (J & J Caldwell's secured claim), and is not extending his payment period beyond five years. Whether Washington's modification meets the requirements of § 1329(b)(1) ultimately depends on whether he can redeem the Property through his plan.
A Chapter 13 debtor's treatment of a secured claim in his plan depends on the nature of the bankruptcy estate's interest in the property securing the claim. See In re Jones, 544 B.R. 692, 696 (Bankr.M.D.Ala.2016)
. “Property of a bankruptcy estate includes ‘all legal or equitable interests of the debtor in property as of the commencement of the case.’ ” Id. (quoting 11 U.S.C. § 541(a)(1) ). “Whether a debtor's interest constitutes ‘property of the estate’ is a federal question [;] ... however, ‘the nature and existence of the debtor's right to property is determined by looking to state law.’ ” Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280, 1283 (11th Cir.1998) (quoting Southtrust Bank of Ala. v. Thomas (In re Thomas), 883 F.2d 991, 995 (11th Cir.1989) ) (internal brackets omitted).
The extent of Washington's interest in the Property is defined by Alabama's tax sale law, and treatment of that interest in bankruptcy is an issue of first impression.3
Therefore, a detailed discussion of Alabama's tax sale procedure is warranted.
“The probate court of each county may order the sale of lands therein for the payment of taxes assessed on the lands ... when the tax collector ... was unable to collect the taxes assessed against the land ... without a sale of the land.” ALA. CODE § 40–10–1
. The land must be sold for at least the amount of the tax lien, and if there is no other bidder the State buys the land at that amount. ALA. CODE § 40–10–18. If someone other than the State purchased the land at the tax sale (hereafter “tax purchaser”), the tax purchaser is entitled to a certificate of purchase containing a description of the land and the taxes that were owed. ALA. CODE § 40–10–19. The tax purchaser is entitled to possession of the property upon receiving the certificate of purchase, and if the tax debtor has not surrendered possession within six months after the tax purchaser demands it, the tax purchaser may sue the tax debtor for ejectment.4 ALA. CODE § 40–10–74.
If the State purchased the land at the tax sale, the land owner may redeem the land “at any time before title passes out of the state....”5 ALA. CODE § 40–10–120
. If a tax purchaser bought the land at the tax sale, it “may be redeemed at any time within three years from the date of the sale....” ALA. CODE § 40–10–120. This is known as “administrative redemption.” First Properties, L.L.C. v. Bennett, 959 So.2d 653, 654 (Ala.Civ.App.2006). The tax debtor may administratively redeem the property by paying the purchase price plus 12% interest per annum from the date of the sale, plus any insurance premiums paid and the value of all preservation improvements made by the tax purchaser (also with 12% interest from the date of such premium payments or improvements), to the probate court. ALA. CODE § 40–10–122(a) and (c).
If land purchased at a tax sale by a tax purchaser has not been redeemed after three years, the tax purchaser may demand a tax deed from the probate court, “and such deed shall convey to and vest in the grantee all the right, title, interest and estate of the person whose duty it was to pay the taxes on such real estate and the lien and claim of the state and county thereto [.]” ALA. CODE § 40–10–29
. Likewise, if the State had brought the land at the tax sale and later sells it pursuant to ALA. CODE §§ 40–10–132 or 40–10–134, supra , the purchaser is entitled to a tax deed granting him “all the right, title, and interest of the state in and to such lands” and providing him “all the rights, liens, powers, and remedies, whether as a plaintiff or defendant, respecting said lands as an individual purchaser at the tax collector's sale would have in similar circumstances[.]” ALA. CODE § 40–10–135.
Delivery of a tax deed to the purchaser, whether under §§ 40–10–29
or 40–10–135, extinguishes the tax debtor's legal title in the land. Thomas v. Benefield, 494 So.2d 452, 453 (Ala.Civ.App.1986). In Thomas, the State sold the plaintiff/tax debtor's property in 1981 for nonpayment of taxes and was the highest bidder; the State sold the property to the defendants in 1985 and granted the defendants a tax deed. Id. at 452–53. When the plaintiff subsequently brought an ejectment action against the defendants, the appellate court reversed the trial court's grant of summary judgment for the plaintiff. Id. at 453. The...
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