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
