May 31, 2016

Using Chapter 13 Bankruptcy to Stop Tax Foreclosure Sale

As discussed in one of my prior posts, Chapter 13 Bankruptcy can be an effective way to save a home from foreclosure if you are behind on the payments to the mortgage lender.  Foreclosures for back property taxes owing to a county tax collector can also be stopped using Chapter 13.  As part of the Chapter 13 Plan, the back property taxes are repaid to the county over time from the payments made by the Debtor to the Chapter 13 Trustee.

To summarize the tax foreclosure process under Oregon law (ORS 312.010 – 312.270), properties with unpaid property taxes for three years are subject to foreclosure.  Each year, the county tax collector is required to prepare a list of all properties subject to foreclosure.  The list is then mailed to the affected property owners, and must also be published in a general circulation newspaper within the county.  If the taxes are not cured within ninety days after the date when the most recent taxes became due, the county then may file an application for foreclosure in Circuit Court.  Any person with an interest in the property may then file an objection to the application within thirty days.  If no objection is timely filed, a default judgment is entered.  Once the Circuit Court Clerk delivers a certified copy of the judgment to the county tax collector, the property is deemed sold to the county for the amount of the back property taxes owing.  Even though ownership of the property transfers to the county at that point, the property owner generally has the right to continue to occupy the property, and has two years from the date of the judgment to “redeem” the property by paying the back taxes, interest, and fees.

An opinion recently issued by Judge Dunn of the Oregon Bankruptcy Court, however, emphasizes the time deadlines by which a property owner must file a Chapter 13 Bankruptcy case to save the property.  In In re Pineda, the Pinedas failed to pay their property taxes for 2007 through 2010.  Washington County followed the procedures set forth above, and a foreclosure judgment was entered on October 24, 2011.  In an attempt to save the property, the Pinedas filed a Chapter 13 case on September 20, 2013, shortly before the expiration of the redemption period.  Washington County objected to the Pinedas’ use of Chapter 13 to save the property as untimely, relying upon Section 1322(c)(1)of the Bankruptcy Code.  That statute allows for the cure of a default with respect to a lien on a debtor’s principal residence “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law”.

Apparently, the Pinedas felt that they had the right to cure the delinquency owing to the county as the redemption period had not expired as of the time of the filing of the Chapter 13 filing.  Judge Dunn, however, ruled to the contrary, holding that the “foreclosure sale” occurred on October 24, 2011 under state law when the foreclosure judgment was entered.  The Bankruptcy Code therefore precluded the Pinedas from using Chapter 13 to prevent the loss of the property, and Judge Dunn accordingly denied confirmation of the Pinedas proposed Chapter 13 Plan.

This case illustrates the importance of taking timely action when facing debt problems.  Had the Pinedas filed a Chapter 13 case prior to the entry of the default judgment, they could have used Chapter 13 to save the property from the tax foreclosure.

This post is intended to be purely informational in nature, and cannot be considered legal advice.  If you have questions related to stopping a tax foreclosure by using Chapter 13 Bankruptcy, please call our office at (503) 253-7777 (Oregon cases) or (360) 882-7777 (Washington cases) to schedule a free initial consultation

Article written by
Bankruptcy Law Center

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