In re Curry, No. 12-26201; U.S. Bankruptcy Court (DNJ); opinion by Winfield, U.S.B.J.; filed May 21, 2013. DDS 42-6-xxxx [10 pp.]

Beverly Curry owns real property in Morristown as a tenant in common with her sister. In 2010, the Morristown tax collector conducted a tax sale to collect unpaid taxes and sewer charges on the property. Delores Portis was the successful bidder and acquired a tax-sale certificate. She paid all tax and sewer charges for the property in 2010, 2011 and through June 2012.

Curry filed a voluntary Chapter 13 petition in June 2012.

Portis filed a secured proof of claim in the Chapter 13 case, citing unpaid delinquent taxes as a basis for the claim.

The debtor’s amended Chapter 13 plan proposes to pay the claim at an interest rate of 4.25 percent (comprised of 3.25 percent prime rate plus 1 percent). Portis objects to the amended plan, arguing that she is the holder of a "tax claim" under § 511 of the bankruptcy code and that an interest rate of 18 percent applies to her claim.

Held: The purchaser of a tax-sale certificate holds a "tax claim" pursuant to § 511 of the bankruptcy code and is entitled to the interest rate on that claim as provided under applicable nonbankruptcy law, but Portis’ proof of claim must be amended to reflect an interest rate of 0 percent on the certificate and she may not include the premium she paid to the tax collector as part of the proof of claim.

Section 511 was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It provides that if the code requires the payment of interest on a tax claim or on an administrative expense tax, or the payment of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the interest rate shall be determined under applicable nonbankruptcy law.

Unfortunately, the code does not define "tax claim" in either § 511 or in § 101. Although it is clear that a governmental unit seeking payment of unpaid taxes is entitled to an interest rate determined under nonbankruptcy law, it is not clear if a third-party creditor who pays the debtor’s taxes continues to hold a "tax claim."

The court says there is divergent authority in the District of New Jersey as to whether the purchaser of a tax-sale certificate holds a "tax claim" under § 511. It says In re Kopec, 473 B.R. 597 (Bankr. D.N.J. 2012), is persuasive. It holds that a third party’s purchase of a tax-sale certificate does not satisfy or extinguish the municipality’s tax claim. The only change is the party to whom the taxes are owed.

In so concluding, the court gives significant weight to the fact that in requiring that the interest payable on a tax be calculated at a rate determined by nonbankruptcy law, Congress conferred this benefit on "creditors" rather than solely governmental units. Both "creditor" and "governmental unit" are defined in the code and Congress is presumed to know those definition. Its use of the more expansive "creditor" strongly suggests that it intended that a tax claim could be held by a third party.

The court also looks to the New Jersey tax sale law. It says that while there is no explicit language in any section of that law that assigns the tax debt and lien to a certificate purchaser, it cannot discern how a lien continues to exist if the underlying debt has been satisfied. It notes that New Jersey courts construing the tax sale law have determined that the taxing authority’s lien interest is conveyed to the purchaser of a tax-sale certificate. As the purpose of a lien is to secure payment of a debt, logically the debt owed to the taxing authority is conveyed as well.

The court says this conclusion is also supported by the underlying purpose of the statute and the provisions by which its purpose is met — the collection of taxes. The collection may occur through redemption or foreclosure of a tax certificate by a municipality or a third party, but every step in the process is guided by the purpose of tax collection. N.J.S.A. 54:4-67(c) provides another strong indicator that a holder of a certificate holds a tax claim cognizable under § 511.

Accordingly, the court concludes that Portis holds a tax claim under § 511.

As to Portis’ claim that she is entitled to the tax statute’s default interest rate of 18 percent on the tax-sale certificate, the court says this position is not consistent with the applicable statute. The certificate explicitly provides that the sale is subject to redemption on repayment of the amount of sale, together with interest at the rate of 0.00 percent per annum from the date of sale, plus costs permitted by statute. This statement comports with N.J.S.A. 54:5-58. Accordingly, the proof of claim must be amended to reflect an interest rate of 0 percent on the certificate.

Because Portis is the holder of a "tax claim," the amount of interest to be charged must be determined by applicable nonbankruptcy law. N.J.S.A. 54:4-67 provides that the rate cannot exceed 8 percent on the first $1,500 and an 18 percent statutory interest rate applies to delinquencies in excess of the first $1,500. These are the rates Portis may apply to her claim regarding subsequent tax and sewer payments.

Also, Portis may not include the $6,800 premium she paid to the tax collector as part of the proof of claim since, under 54:5-33, reimbursement of a premium must be obtained from the tax collector. The statute does not make return of the premium an obligation of the property owner.

For Curry — Marc P. Feldman. Dolores Portis appeared pro se.