Opinion
No. 74 B 3481
June 18, 1980
Former Bankruptcy Act — Debts Having Priority — Statutory Liens — Tax Certificate Holder
Due to the inequity of allowing a reimbursement to a tax certificate holder who paid "unsecured" delinquent taxes on the basis of the statutory tax priority and denying one who paid "secured" property taxes, the creditor was permitted to secceed to the rights of the county as a lien holder to the extent of his tax certificate expenditures. See Sec. 64a at ¶ 2624 and Sec. 507 at ¶ 9026.
[Digest of Opinion]
Subsequent to his filing a petition in bankruptcy, certain parcels of the bankrupt's property, which had become tax delinquent, were sold to the creditor or its assignees at tax foreclosure sales. Pursuant to those tax sales, the creditor was issued tax certificates. Subsequently, on application of the trustee, the court issued a restraining order which prohibited the creditor from pursuing any course of conduct with the purpose of or resulting in the issuance of tax deeds. Thereafter, the creditor sought an order directing the trustee to pay it the amounts expended in the various tax sales together with statutory interest on those sums.
Historically, the court noted, courts have differed as to the status of lien foreclosures, whether judicial or private, which are consummated in violation of the automatic stay. Under Bankruptcy Rule 601, unless equity mandates otherwise, the tax foreclosure sales in the instant case will be null and void.
In Dayton v. Pueblo County, 241 U.S. 588 (1916) the court held that equity required reimbursement of the tax certificate holders at the highest priority. That court reasoned as follows: If the tax certificate holders were not paid the delinquent taxes, the taxes would have to be paid in full to the county before general creditors could receive anything.
Section 64(a) of the Bankruptcy Act gives only sixth priority to unsecured tax debts which accrued prior to the institution of bankruptcy. However, the delinquent taxes paid by the creditor were not unsecured. As properly secured debts, the court stated it was axiomatic that the delinquent taxes would, in the absence of a foreclosure sale, have had to be satisfied prior to the satisfaction of even first priority debts. Thus, under the authority of Dayton, the court determined that it would be patently unequitable and illogical to allow a tax certificate holder, who paid unsecured delinquent taxes, reimbursement on the basis of the statutory tax priority and deny the same relief to a tax certificate holder, who paid secured property taxes, simply because secured tax liens were not a statutory priority. Accordingly, the court held that the creditor should succeed to the rights of the county as a lien holder to the extent of the tax certificate expenditures.