Tuesday, May 24, 2016

Did You Really Lose Your Home to a Tax Deed?!

Did You Really Lose Your Home to a Tax Deed?!

The 7th Circuit Court of Appeals recently issued an opinion in In re Smith, 411 F.3d 228 (7th Cir. 2016) that may change tax deed sales forever.  Until Smith I believe that most bankruptcy attorneys felt that once a tax deed is issued on a piece of real property the previous owner was likely doomed.  Given that most case law is clear that the transfer of the property by tax deed conveys the property free and clear of most liens to the bona fide purchaser attorneys never really questioned whether or not they could get the property back, barring any deed or notice deficiency of course.

Now Smith opens up an entirely new avenue.  The Debtors’ attorney in Smith filed the Debtors in a Chapter 13 bankruptcy case after the tax deed sale in an attempt to avoid the sale as a fraudulent transfer.  The Debtors’ attorney claimed that the transfer of the property was a fraudulent transfer because the tax sale was not to a bona fide purchaser for value since the sale was WAY below the actual value of the property.

The United States Supreme Court in In BFP v Resolution Trust Corp., 511 U.S. 531 (1994) addressed a similar argument in a foreclosure sale.  The 7th Circuit differentiated Smith from Resolution because a foreclosure sale does get a reasonably equivalent value to the actual value of the property while the tax deed sale does not even come close to the reasonably equivalent value.

This could be a very good case to keep in your tool belt as a bankruptcy practitioner should a tax deed sale ever come up.  Just remember 11 U.S.C. 548 is the key.

If you have any questions or if you need help please give us a call at 904-372-4791 or email me at jason@jasonAburgess.com