February 13, 2015
Authored by: Beth Haden and Mark Stingley
On November 6, 2014, the United States Bankruptcy Court for the Western District of New York in Canandaigua Land Dev., LLC v. Cnty. of Ontario, ruled that an in rem tax foreclosure conducted by a county—in full compliance with Article 11 of the New York Real Property Tax Law—was capable of being set aside in bankruptcy as a constructively fraudulent transfer, pursuant to 11 U.S.C. § 548(a)(1)(B).
The County had foreclosed on a real property tract, 642-732 pdfvalued at approximately $300,000 to $425,000, in order to satisfy a tax debt of $16,595. Further, the sale was conducted only a few hours after the debtor filed its Chapter 11 petition. The debtor argued that the County’s foreclosure of its tax lien constituted a constructively fraudulent transfer because the debtor was rendered insolvent by the transfer and received less than reasonably equivalent value in exchange for the transfer of the property to the County.
The Canandaigua court distinguished the United States Supreme Court case BFP v. Resolution Trust Co. (holding that a properly-conducted, non-collusive mortgage foreclosure sale is entitled to a presumption of reasonably equivalent value) on the grounds that the tax foreclosure process did not include the safeguards provided