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In re Crespo

United States District Court, E.D. Pennsylvania

March 30, 2017

IN RE EDWIN O. CRESPO, Debtor
v.
ABIJAH TAFARI IMMANUEL, et al., Defendants. EDWIN O. CRESPO, Plaintiff, Bankruptcy No. 14-11629 Adversary No. 14-326

          MEMORANDUM

          Juan R. Sánchez, J.

         Debtor-Appellant Edwin O. Crespo appeals from a May 18, 2016, Bankruptcy Court Order entering judgment against Crespo and in favor of Appellee Abijah Tafari Immanuel in an adversary proceeding Crespo filed seeking to avoid the prepetition upset tax sale of his home to Immanuel as a fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B). The dispositive issue in this appeal is whether Crespo's property was sold to Immanuel for “reasonably equivalent value” within the meaning of the Bankruptcy Code. The Bankruptcy Court held it was, relying on BFP v. Resolution Trust Corp., 511 U.S. 531, 545 (1994), in which the United States Supreme Court held that when real property is sold at a mortgage foreclosure sale, the price received at the sale constitutes the reasonably equivalent value of the property, “so long as all the requirements of the State's foreclosure law have been complied with.” Crespo argues the Bankruptcy Court erred (1) in extending the BFP decision to upset tax sales conducted pursuant to the Pennsylvania Real Estate Tax Sale Law (Tax Sale Law), 72 Pa. Stat. 5860.101 et seq., and (2) in finding the upset tax sale in this case complied with state law. Because the Court agrees with the Bankruptcy Court on both points, the Bankruptcy Court's Order will be affirmed.

         BACKGROUND[1]

         At some point prior to November 4, 2009, Crespo and his wife, Angelica Crespo, purchased real property located at 715 Kiowa Street, Allentown, Pennsylvania (the Property) for $175, 000, which they paid in full at the time of the sale. The Crespos became delinquent on their property tax payments on the Property in the 2011 tax year. Crespo thereafter entered into an agreement with the Lehigh County Tax Claim Bureau (the Bureau) to stay the tax sale, which required Crespo to pay the past due taxes in four installment payments. Crespo defaulted on the agreement, however, by missing a payment due January 30, 2013. On February 12, 2013, the Bureau sent Crespo a delinquency notice by certified mail, but the notice was returned to the Bureau unclaimed.

         Deputy Sheriff Jack Anthus, an agent of the Bureau, attempted to personally serve the Crespos with tax sale notices three separate times, once on July 16, 2013, and twice on July 17, 2013. All three attempts were unsuccessful.[2]

         On September 10, 2013, the Bureau filed a petition to waive the requirement that notice of the upset tax sale be personally served on the Crespos, as owner occupants of the Property, in the Lehigh County Court of Common Pleas. The Bureau did not serve the petition on the Crespos. The Common Pleas Court granted the petition later the same day.

         The following day, on September 11, 2013, the Bureau exposed the Property to an upset tax sale. Immanuel was the only party to bid on the Property at the sale, and he purchased the Property with a bid of $27, 000. Crespo contends that at the time of the sale, the Property had a fair market value of $175, 000.

         On October 31, 2013, the Crespos filed a petition to set aside the tax sale, challenging, inter alia, the Bureau's failure to provide them with “personal notice” of the sale, failure to post notice of the sale on the Property, and failure to provide them with notice of the petition to waive personal service. See R.11 at 8. The Common Pleas Court held an evidentiary hearing on the petition on January 24, 2014.[3] During the hearing, the Crespos' counsel stipulated that his clients had received notice of the sale by certified mail and that notice of the sale had been published as required by statute. R.11 at 41, 82. Ms. Crespo also acknowledged having received certified mail notice of the upcoming tax sale, stating the notice had prompted her to call the Bureau seeking a new payment plan, to which the Bureau would not agree. Id. at 71. Deputy Sheriff Anthus also testified at the hearing, stating he posted the tax sale notice on the front of the Property when he attempted to personally serve the Crespos in July 2013. Id. at 48. The Crespos, however, maintain they did not personally observe any posting on July 16, 2013, or at any time thereafter.

         Following the hearing, the Common Pleas Court denied the petition by Order dated February 4, 2014. Id. at 87. The Court rejected the Crespos' argument that the Bureau had failed to comply with the Tax Sale Law's posting requirement, see 72 Pa. Stat. § 5860.602(e)(3), crediting Deputy Sheriff Anthus's testimony that he had posted notice of the sale on the Property.[4] As for the Crespos' arguments that the Bureau failed to personally serve them with notice of the sale, see Id. § 5860.601(a)(3), the Court found personal service was not required because the Court had waived the requirement for good cause shown. Finally, the Court rejected the Crespos' argument that the Bureau's petition to waive personal service should be stricken because of the Bureau's failure to serve the petition on the Crespos, noting this argument was inconsistent with the purpose of the waiver provision, which was aimed at preventing parties from hiding from actions against them, and observing that the Crespos had actual notice of the sale in any event.

         A month later, on March 4, 2014, a few days before the time to appeal the Common Pleas Court's February 4, 2014, ruling was due to expire, Crespo filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania. On July 20, 2014, Crespo commenced the underlying adversary proceeding in the Bankruptcy Court against Immanuel, the tax sale purchaser, seeking to avoid the tax sale as a fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B) on the basis that the Property had been sold for less than “reasonably equivalent value.”[5] The case proceeded to trial, at which the parties submitted a stipulation of facts with accompanying exhibits. The parties thereafter submitted post-trial briefs, and on May 18, 2016, the Bankruptcy Court issued an opinion finding the tax sale was not avoidable. The Bankruptcy Court entered judgment in favor of Immanuel and sua sponte granted relief from the automatic stay to enable the parties to participate in an appeal of the Common Pleas Court's Order denying the petition to set aside the tax sale if they wished. On May 27, 2016, Crespo filed a notice of appeal from the Bankruptcy Court's Order entering judgment in favor of Immanuel in the adversary proceeding.

         Three weeks later, on June 17, 2016, the Crespos also filed a notice of appeal in state court, seeking review of the Common Pleas Court's Order denying their petition to set aside the upset tax sale. On January 5, 2017, the Commonwealth Court issued an opinion affirming the Common Pleas Court's Order. Crespo v. Lehigh Cty. Tax Claim Bureau, No. 1169 C.D. 2016, 2017 WL 56120 (Pa. Commw. Ct. Jan. 5, 2017). Based on a search of the Pennsylvania Unified Judicial System's web portal, the Crespos do not appear to have sought further review of the matter.

         DISCUSSION

         The Bankruptcy Court had jurisdiction over the adversary proceeding under 28 U.S.C. §§ 157 and 1334.[6] This Court has jurisdiction to review the Bankruptcy Court's final order in the underlying adversary proceeding pursuant to 28 U.S.C. § 158(a)(1). A district court reviews a “bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof.” In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (citation omitted).

         Crespo seeks to set aside the upset tax sale of the Property under 11 U.S.C. § 548(a)(1)(B), which authorizes a bankruptcy trustee[7] to avoid “any transfer . . . of an interest of the debtor in property” made within two years before the debtor filed a bankruptcy petition if the debtor voluntarily or involuntarily “received less than a reasonably equivalent value for such transfer” and “was insolvent on the date that such transfer was made . . ., or became insolvent as a result of such transfer.” In the present case, whether the tax sale can be avoided turns on whether the Property was sold for “reasonably equivalent value” within the meaning of the statute.

         The Supreme Court considered the meaning of the term “reasonably equivalent value” in the context of property sold at a mortgage foreclosure sale in BFP v. Resolution Trust Corp., a case that involved a debtor's effort to set aside as a fraudulent transfer a foreclosure sale in which property allegedly worth more than $725, 000 was sold for $433, 000. The Court declined to interpret the phrase “‘reasonably equivalent value' in § 548(a)(2) to mean, in its application to mortgage foreclosure sales, either ‘fair market value' or ‘fair foreclosure price, '” instead holding “a ‘reasonably equivalent value, ' for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure laws have been complied with.” BFP, 511 U.S. at 545.

         As to fair market value, the Court found the concept inapplicable in the context of a forced sale such as a foreclosure sale. Fair market value, the Court explained, is the price the property “might be expected to bring if offered for sale in a fair market”-i.e., one characterized by negotiation, mutual agreement, and ample time to find a purchaser. See Id. at 538 (citation omitted). Such market conditions, by definition, do not exist for foreclosed properties, which, because they must be sold “within the time and manner strictures of state-prescribed foreclosure, ” are “simply worth less.” Id. at 538-39. Foreclosure thus “has the effect of completely redefining the market in which the property is offered for sale” based on the applicable state rules governing foreclosure sales. See Id. at 548.

         The Court also rejected the notion that reasonably equivalent value could be defined in terms of a reasonable foreclosure price, finding this interpretation would require courts to make “policy determinations that the Bankruptcy Code gives [them] no apparent authority to make.” Id. at 540. In reaching this conclusion, the Court described the conflict such an ...


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