Dempsey v Auditor of Marion County, et al (IN)

Tax Deeds

Dempsey v Auditor of Marion County, et al, 871 NE2d 1031 (Ind Ct App 2007).

Summary: Tax deed petition by county auditor violated automatic stay in bankruptcy.

Facts: On June 24, 2000, Gordon Dempsey purchases a parcel of real property in Marion County from the Suburban West Optimist Club (club), but did not immediately record his interest in the parcel. The club had not paid property taxes on the parcel for a few years before Dempsey purchased it and Dempsey also failed to pay property taxes after the acquisition. In August 2001, the county treasurer attempted a tax sale of the parcel because of the delinquent taxes. The county auditor sent notice of the sale to the club, but not Dempsey. After no private purchaser came forward, the county treasurer attempted a second sale of the property and the county auditor again sent notice to the club, but not Dempsey. Pursuant to statute, the county then received a tax certificate for the parcel and a 120-day redemption period began to run.

On October 15, 2002, Dempsey filed a Chapter 13 bankruptcy petition. On November 22, the county auditor sent notice of the tax sale and redemption rights to the club, but not Dempsey. On January 6, 2003, the county auditor petitioned the trial court for the issuance of a tax deed for the parcel. Around this time, Dempsey learned of the tax sale proceedings and contacted the county treasurer's office and stated that he was the owner of the parcel. Although the time period for redemption had passed, the county treasurer's office faxed redemption information to Dempsey. However, Dempsey took no action to redeem the parcel or to respond to the county auditor's petition for a tax deed. On April 23, 2003, the county treasurer filed a claim for the redemption amount against Dempsey with the bankruptcy court. On July 14, 2004, Dempsey finally recorded his deed for the parcel and, in November, the bankruptcy court dismissed his bankruptcy case and barred him from filing another bankruptcy petition for one year.

On August 26, 2005, the county obtained a tax deed to the parcel and sold it to Donna Tew as surplus government property. On February 27, 2006, Dempsey attempted to pay the delinquent taxes, interest, and penalties on the parcel, but the county treasurer declined to accept Dempsey's check because Tew now owned the parcel.

On April 27, 2006, Dempsey filed a motion to dismiss, seeking to set aside the tax deed to the county and the subsequent quitclaim deed to Tew. He claimed a lack of proper notice as to the tax sale, issuance of the tax deed, and sale of the property to Tew. Dempsey also claimed that the county auditor's January 2003 petition for issuance of a tax deed while his bankruptcy case was pending violated the automatic stay provision of the ankruptcy Code. The trial court denied Dempsey's motion to dismiss and held that the petition for a tax deed did not violate the automatic stay. Dempsey then appealed.

Holding: Reversed. On appeal, Dempsey again contended that the automatic stay provision was violated, claiming that the petition for a tax deed was rendered void ab initio, thus making the final issuance of a tax deed in August 2005 void as well, even though his bankruptcy case had been dismissed by that time. Ordinarily, any action taken in violation of the stay is void and without effect. Therefore, if the county auditor's January 2003 filing of the petition for a tax deed violated the automatic stay, that filing was without effect and could not support the later issuance of a tax deed to the county. Because there were no reported federal court decisions addressing Indiana law on this topic, the appellate court looked to similar cases in Illinois. Illinois court holdings have generally demonstrated that petitioning for a tax deed would violate the automatic stay, because the courts believe it is necessary to grant relief from the automatic stay before such a petition could be filed. Therefore, the appellate court held the following: (1) the trial court erred as a matter of law in concluding that the petition for a tax deed did not violate the automatic stay; and (2) only the bankruptcy court had power to grant relief from the automatic stay.

Opinion Year: 
2008
Jurisdiction: 
Indiana
By: ATG Underwriting Department | Posted on: Fri, 05/30/2008 - 5:54pm