The County of Ontario in New York failed in its bid to challenge a federal court decision setting aside its 2017 foreclosure of a tax-delinquent home and auction sale for less than market value.
The county’s transfer of the home amounted to fraudulent conveyance because the sale wasn’t conducted for “reasonably equivalent value,” the US Court of Appeals for the Second Circuit said Monday, affirming a district court decision.
Ontario County recorded a lien on the home in 2016 after Brian and Gliee Gunsalus failed to pay $1,290 in real estate taxes. The county eventually auctioned the home to a third party for $22,000 and pocketed the difference of $20,710, according to the Second Circuit.
The Gunsaluses, who had owned the home free of a mortgage, filed for Chapter 13 bankruptcy and filed a complaint that the auction amounted to fraudulent conveyance by the county. Under the Chapter 13 bankruptcy filing, the couple had proposed a plan to repay all delinquent real estate tax bills with 12% interest.
Citing the Supreme Court’s decision in BFP v. Resolution Trust Corp., Ontario County argued that the district court should not have allowed the Gunsaluses to challenge the foreclosure. The high court held in that decision that mortgage foreclosures are presumed to be sold for reasonably equivalent value.
But the US District Court for the Western District of New York held that tax lien foreclosures cited in that case differ from the mortgage foreclosures referenced in that case.
The county’s position “would produce results that are fundamentally at odds with the goals of bankruptcy law,” because it would mean a windfall for the county “at the expense of the estate, the other creditors, and the debtor,” the Second Circuit said.