In re Ford

623 B.R. 381

IN RE: Darryenne FORD, Debtor.

Case No. 20-16046-MMH

United States Bankruptcy Court, D. Maryland.

Signed October 16, 2020

Donna Beth Bernstein, Legal Aid Bureau, Inc., Baltimore, Md, for Debtor.

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPCY JUDGE

Chapter 13 of the U.S. Bankruptcy Code¹ provides a financially-distressed individual with an opportunity to catch her financial breath, assess her financial obligations, and structure a repayment plan to satisfy, at least in part, her obligations to creditors. This scheme benefits both the debtor and her creditors; it dedicates funds to pay creditors' claims over a period of time and then provides the debtor with a discharge of any remaining obligations upon completion of the plan payments. A debtor may use the chapter 13 process to address most kinds of defaulted debt obligations, including prepetition arrears on her home mortgage or real property taxes. In the context of these longer-term or ongoing obligations, the chapter 13 plan typically does not satisfy all of the debtor's present and future obligations. Rather, the focus of the plan is to cure arrearages and reset the debtor's relationship with that creditor.

The matter before the Court involves a debtor's obligations under state and local law to redeem her home from a purchaser at a tax sale and how those obligations fit into the chapter 13 plan process. Specifically, the Court must determine which obligations the debtor owes to the tax collector and which she owes to the tax sale purchaser and the amounts (or potential amounts) of those respective obligations. The debtor's chapter 13 plan can only address the debtor's obligations under state law and not those of the tax collector or tax sale purchaser. Accordingly, as further explained below, the Court (i) sustains the pending objection to the extent of the prepetition statutory fees and costs due the tax sale purchaser and the law governing the interest rate on unpaid taxes and (ii) overrules the pending objection to the extent it suggests that any high bid premium or postpetition taxes must be included in the plan. Moreover, the Court provides the debtor an opportunity to file a motion to determine the appropriate rate of interest on any unpaid taxes to the extent that the debtor deems it necessary or appropriate under applicable nonbankruptcy law.

I. Relevant Background

Darryenne Ford, the above-captioned debtor ("Debtor"), commenced this chapter 13 case on June 16, 2020. ECF 1. On that same date, the Debtor filed all required papers, including her proposed chapter 13 plan. ECF 3. That plan and the Debtor's subsequently filed amended plans seek to address the Debtor's obligations to her creditors at the time of the bankruptcy petition, including amounts necessary to redeem her home under Maryland state law. ECF 20, 31. Thornton Mellon LLC ("Creditor") filed objections to the confirmation of the Debtor's proposed chapter 13 plans. ECF 19, 21. The Court held a hearing on the Debtor's plan, the Creditor's objection, and the related papers filed by the parties on August 26, 2020 (the "Hearing"). ECF 3, 19, 20, 21, 22, 27.

At the Hearing, the parties explained the events leading up to the Debtor's chapter 13 case. That background is fairly straightforward. The Debtor was behind on the payment of her real property taxes due and owing to Baltimore City. The City commenced a tax sale, at which the Creditor was the successful bidder.² The Creditor paid the outstanding taxes and a high bid premium to Baltimore City and, in turn, received a tax sale certificate relating to the Debtor's home. The Creditor then commenced an action to foreclose the Debtor's right of redemption, but the Debtor disputes that service or notice was made with respect to that action. Regardless, the Debtor then filed this case, which stayed all actions with respect to the Debtor's home and the tax sale certificate.

The Debtor's proposed chapter 13 plan treats the Creditor's claim as a secured claim to be paid in full by the Chapter 13 trustee at an interest rate of 12 percent. ECF 20. The plan also lists the Debtor's obligations to Baltimore City for unpaid taxes for tax years 2018-2019 and 2019-2020.³ ECF 20. The plan does not otherwise address the Debtor's ongoing tax obligations or the high bid premium paid by the Creditors in connection with the tax sale process. The Debtor and the Creditor fully explained their legal positions in their respective papers and at the Hearing. This matter is now ripe for resolution.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a) and its Local Rule 402, the United States District Court for the District of Maryland has referred this case to the Court. This matter is a statutorily core proceeding under 28 U.S.C. §§ 157(b)(1) and (b)(2). The Court has constitutional authority to enter final orders in this matter.

Section 1322 of the Code sets forth what a debtor may and must include in her chapter 13 plan, and section 1325 of the Code governs confirmation of that plan. In general, a debtor must, among other things, dedicate future earnings to the payment of claims under her plan and classify and specify appropriate treatment for allowed claims asserted against her. 11 U.S.C. § 1322(a). A debtor also may, for example, cure defaults on prepetition obligations under her plan. 11 U.S.C. § 1322(b). The Court must confirm a chapter 13 plan if certain requirements are met, including that the Debtor proposed her plan in good faith, the plan will pay creditors at least what they would receive in a chapter 7 liquidation case, and with respect to the holders of secured claims and subject to certain caveats, the plan will pay those creditors the value of their allowed secured claims. 11 U.S.C. § 1325(a).

In evaluating a plan's proposed treatment of a secured claim, the Court often must consider the creditor's rights under state law and any applicable documents. The applicable state law in this matter is the chapter of the Code of Maryland addressing real property tax sales. Md. Code, Tax-Property §§ 14-808 through 14-854.⁴ Maryland courts have described the Maryland tax sale process as follows:

"Unpaid taxes on real estate constitute a lien on that property. [§ 14-804]. Generally, within two years from the date taxes become in arrears the jurisdiction's collector must sell the land. [ § 14-808 ]. Notice of the proposed sale must be given to the owner at least thirty days before the property is advertised for sale and the owner is notified that if he does not pay the taxes within thirty days, the property will be sold. [§ 14-812]. After the sale is properly advertised, the property is sold at public auction. [§ 14-817]."

Kona Properties, LLC v. W.D.B. Corp. , 224 Md.App. 517, 121 A.3d 191, 197 (Md. Ct. Spec. App. 2015) (quoting Scheve v. Shudder, Inc. , 328 Md. 363, 614 A.2d 582 (1992), and citing other opinions by the Maryland Court of Appeals). The purchaser at a tax sale, once it pays the outstanding taxes and any required high bid premium, receives a tax sale certificate from the collector. MD. CODE. ANN. , TAX-PROP. § 14-820. The property's owner has the ability to redeem the property at any time prior to the purchaser receiving a court order foreclosing the owner's right of redemption. MD. CODE ANN. , TAX-PROP. § 14-844. The statute identifies the amounts that an owner must pay to redeem the property, as well as the amounts for which the purchaser may seek reimbursement. MD. CODE ANN. , TAX-PROP. § 14-843. The parties' respective rights and obligations during redemption are at the heart of this dispute and are further addressed in the Court's analysis below.

III. Analysis

The Debtor does not dispute that she must make two payments relating to the outstanding prepetition taxes on her home under her chapter 13 plan: one payment to reimburse the Creditor for certain fees and costs incurred by the Creditor during the sale and redemption process, and one to the collector (here, Baltimore City) for unpaid real property taxes. The Debtor does dispute, however, the amount of these payments and whether certain postpetition obligations—primarily real property taxes that become due and owing postpetition—must be paid through the plan. The Court's analysis in this matter is a hybrid one that first looks to state law to determine the amount and extent of the Debtor's obligations to the Creditor and the collector, and second to the Code to determine the treatment of any such claims in this chapter 13 case.

A. Claims Relating to the Tax Sale Process

The resolution of the Debtor's obligations to the Creditor and the collector are governed by Maryland state law. The Debtor has not challenged the validity of the state tax sale process, as invoked with respect to the Debtor's home. The Debtor seems to acknowledge that event and is seeking to redeem the property in accordance with state law. Consequently, the focus of the Court's inquiry is on the statutory requirements for redemption.

Section 14-828 of the Maryland Code requires the Debtor to pay the following amounts to the collector in order to redeem property:

(1) the total lien amount paid at the tax sale for the property together with interest;

(2) any taxes, interest, and penalties paid by any holder of the certificate of sale;

(3) except for owner-occupied residential property in Baltimore City, any taxes, interest, and penalties accruing after the date of the tax sale;

(4) in the manner and by the terms required by the collector, any expenses or fees for which the plaintiff or the holder of a certificate of sale is entitled to reimbursement under § 14-843 of this subtitle; and

(5) for vacant and abandoned property sold under § 14-817 of this subtitle for a sum less than the amount due, the difference between the price paid and the unpaid taxes, interest, penalties, and expenses.

MD. CODE ANN. , TAX-PROP. § 14-828. Thus, under subsectio...