In re Howard, --- B.R. ----, 2008 WL 2782652 (Bankr.N.D.Ga. Jul 07, 2008) (NO. A06-61345-PWB) .
Debtors filed a chapter 13 petition and their residence was property of the estate. Litton asserted it held a note and deed to secure debt on the Property, and filed a proof of claim reflecting arrears of $47,691.83, and a total debt of $220,486.52. Some 16 months after the filing of the case, Litton obtained relief from the automatic stay with respect to the Property based upon the Debtors' failure to make postpetition payments.
Rockdale County, Georgia was not listed as a creditor and there is no evidence that it had notice of the case. On January 12, 2007, Rockdale County recorded a Fieri Facias for postpetition 2006 taxes and interest totaling $3,332.57. Rockdale County contends it sent notice of the delinquency, intent to levy, and execution to the Debtor and to Fremont Investment & Loan (“Fremont”), the record lienholder on the Property. Although it is unclear the exact manner by which Litton succeeded Fremont as the entity holding a note and security deed, it is undisputed that Litton did not record any transfer or assignment in the records of Rockdale County. Because Litton had no recorded interest in the Property, Litton did not receive notice of the tax lien or the impending tax sale….
After no party had paid the taxes, Rockdale County conducted a tax sale of the Property. ALF purchased the Property at the tax sale for $171,000. After the sale, Rockdale County sent a letter to the Debtor and Fremont notifying them of the results of the tax sale, the existence of excess funds in the amount of $161,825.50, and that any party seeking to redeem the Property should contact the purchaser, ALF. On July 11, 2007, Litton sent a letter to the Rockdale County Tax Commissioner asserting that the tax sale was in violation of the automatic stay and requesting that he rescind the tax sale of the Property. In response, the Rockdale County Tax Commissioner asserted that he lacked of notice of the bankruptcy case, that he had provided notice of the tax sale to the Debtor and the record security deed holder, Fremont, in compliance with Georgia law, and that, according to the recorded documents in Rockdale County, Litton had no interest in the Property. After its purchase of the Property at the tax sale, ALF notified Litton of its right to redeem the Property.
The case focused on the competing interests of three non-debtor parties: a creditor who relies on the existence and protection of the automatic stay to protect its interest in property; an unlisted creditor who, without notice of the bankruptcy case, sells property of the estate to enforce a lien; and a non-party who, without knowledge of the pending bankruptcy, in good faith buys property that is under bankruptcy protection. Litton contends that the Court should invalidate the sale of the Property to ALF because the tax sale conducted by Rockdale County violated the automatic stay; it asserts standing to seek such relief because a creditor, just like a debtor, is protected by the stay and can be harmed by its violation. ALF contends that the tax sale was excepted from the automatic stay and that Litton lacks standing to seek its invalidation; alternatively, it requests that the Court retroactively annul the stay to validate the tax sale for cause.
In order to answer these questions, the Court must determine (1) whether Litton has standing to enforce the automatic stay and challenge the tax sale; (2) whether the tax sale conducted by Rockdale County was void because it violated the stay; and (3) whether, if it did, the tax sale is nevertheless valid because ALF can demonstrate either that an exception to the automatic stay applies or that cause exists for its retroactive annulment.
The holding (after the jump):
1) Litton had standing to invoke the benefit of the automatic stay and to seek determination of whether an act taken in violation of the stay is void. In re Ring, 178 B.R. 570 (Bankr.S.D.Ga.1995). … The Eleventh Circuit has ruled that transactions in violation of the automatic stay of 362(a) are void. Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11 th Cir.1982)…
2) The tax sale of the Property did not fall within the parameters of § 549(c) such that it was not avoidable under § 549(a) and , therefore, excepted from the automatic stay under § 362(b)(24). ALF was a “good faith purchaser” for purposes of § 549(c). See 11 U.S.C. § 101(43). The term “purchaser” contemplates that the transfer is “voluntary” leading this Court to conclude that a forced sale, such as a tax sale, does not satisfy the elements of § 549(c)'s exception. § 362(b)(24) does not except the tax sale from the automatic stay.
3) Rockdale County, in exercising its statutory authority to collect postpetition taxes and having given notice to the record interest holders, was not engaged in any type of inequitable conduct, notwithstanding its technical violation of the automatic stay. Likewise, ALF was an innocent purchaser of the property at a tax sale without notice of the existence of the bankruptcy case. So neither Rockdale County nor ALF has acted inequitably.
4) Litton did not engage in inequitable or unreasonable conduct in the sense that it acted in bad faith, but it failed to record its interest, a responsibility so fundamental to property law and protection of its own interests. The facts should have been a red flag to Litton that taxes were not being paid. Litton has a right to the excess proceeds of the sale and it may redeem the Property in accordance with state law.
Although the stay was violated, the Court retroactively annulled the automatic stay.
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