Rebuild America and REO America v. Mark E. and Tammy L. Davis , 235 W. Va. 245 ( 2015 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2015 Term FILED
April 9, 2015
released at 3:00 p.m.
RORY L. PERRY II, CLERK
No. 14-0432 SUPREME COURT OF APPEALS
OF WEST VIRGINIA
REBUILD AMERICA, INC. and REO AMERICA, INC.,
Defendants Below, Petitioners
v.
MARK E. DAVIS and TAMMY L. DAVIS, Plaintiffs Below;
MIKE RUTHERFORD, Sheriff of Kanawha County and
VERA MCCORMICK, Clerk of the County Commission of Kanawha County,
Defendants Below;
and HUNTINGTON NATIONAL BANK, N. A.,
Intervenor Below, Respondents
Appeal from the Circuit Court of Kanawha County
The Honorable Carrie L. Webster, Judge
Case No. 08-C-1058
AFFIRMED
Submitted: March 11, 2015
Filed: April 9, 2015
James W. Lane, Jr., Esq. Philip B. Hereford, Esq.
William J. Hanna, Esq. Hereford & Riccardi, PLLC
Flaherty Sensabaugh Bonasso, PLLC Charleston, West Virginia
Charleston, West Virginia and
Attorneys for Rebuild America, Inc. Christopher S. Smith, Esq.
And REO America, Inc. Hoyer, Hoyer & Smith, PLLC
Charleston, West Virginia
Attorneys for Huntington National Bank
CHIEF JUSTICE WORKMAN delivered the Opinion of the Court.
JUSTICE DAVIS, deeming herself disqualified, did not participate in the decision of this
case.
SENIOR STATUS JUSTICE MCHUGH, sitting by temporary assignment.
SYLLABUS BY THE COURT
1. “A circuit court’s entry of summary judgment is reviewed de novo.”
Syl. Pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
2. The acts required under West Virginia Code § 11A-3-2(a) and (b)
(2007) (Repl. Vol. 2010) constitute acts in enforcement of a lien against property and,
where there exists an automatic stay pursuant to the provisions of 11 U.S.C. § 362, such
acts are violative of the stay.
3. Acts taken in violation of the automatic stay provisions of 11 U.S.C.
§ 362 (2010) are void ab initio.
i
WORKMAN, Chief Justice:
This is an appeal from the circuit court’s order granting summary judgment
in favor of respondent/intervenor below, Huntington National Bank (hereinafter
“Huntington”), declaring a tax deed issued to petitioner/defendant below, Rebuild
America, Inc. (hereinafter “Rebuild”) to be void. The circuit court found that the
issuance of two statutory notices of delinquency while the property owners (hereinafter
“the Davises”1) were under the protection of a bankruptcy stay voided the tax deed.2
Upon careful review of the briefs, the appendix record, the arguments of the
parties, and the applicable legal authority, we conclude that the existence of the
bankruptcy stay rendered the statutory notices void ab initio and therefore, the tax lien
sale was lacking in substantial compliance with the required statutory procedure.
Accordingly, we agree that the tax deed must be set aside and therefore affirm the order
of the circuit court.
1
Neither Mark E. Davis and Tammy L. Davis, plaintiffs below, nor Mike
Rutherford and Vera McCormick, defendants below, filed a brief in this appeal.
2
This order was entered on remand following this Court’s opinion in Rebuild
America, Inc. v. Davis, 229 W. Va. 86, 726 S.E.2d 396 (2012) (hereinafter “Rebuild I”).
1
I. FACTS AND PROCEDURAL HISTORY
This is the second time this Court has been presented with this case; as
such, the facts will not be exhaustively reiterated. As we set forth in detail in Rebuild I,
the Davises owned property located at 51 Woodbridge Drive, Charleston, West Virginia;
the property secured a credit line deed of trust held by Huntington. The Davises failed to
pay their 2005 and 2006 real property taxes, resulting in a notice of delinquency being
published in the newspaper on May 11, 2006, pursuant to West Virginia Code §§ 11A-2­
11 and -13 (Repl. Vol. 2010).
On July 12, 2006, the Davises filed a petition for Chapter 7 bankruptcy in
the United States District Court for the Southern District of West Virginia, initiating an
automatic stay pursuant to 11 U.S.C. § 362 (2010). Thereafter, on September 13, 2006, a
second notice of delinquency was published in the newspaper advising that the tax lien
would be sold on November 14, 2006,3 as required by West Virginia Code § 11A-3-2(a)
(2007) (Repl. Vol. 2010). On October 13, 2006, pursuant to West Virginia Code § 11A­
3-2(b), a notice of the tax lien sale was mailed to the Davises at their last known address,
but was returned undeliverable. On October 17, 2006, the Davises received a discharge
in bankruptcy and the bankruptcy was case closed, terminating the automatic stay. 11
U.S.C. § 362(c). The tax lien was sold by the sheriff on November 14, 2006, to Sass
Muni, which lien was later assigned to Rebuild.
3
This date is presumed inasmuch as the actual newspaper publication was not
included in the record; this is the date that the tax lien was actually sold.
2
Statutory notices to redeem were purportedly thereafter sent to the Davises
and Huntington noting that a tax deed would be issued after April 1, 2008, unless the
property was redeemed by payment of the taxes, interest, and charges due.4 No party
redeemed the property; therefore, a tax deed was issued to Rebuild on April 14, 2008.
The Davises filed the instant action on June 2, 2008, pro se. The circuit
court granted the Davises’ motion to set aside the tax sale, finding that because of the
Davises’ bankruptcy and failure to receive proper notices, the deed should be set aside
and the property “restored” to the Davises. Rebuild appealed to this Court, which
reversed and remanded, finding that the circuit court’s focus on the Davises’ failure to
receive the pre-tax sale notices was immaterial to an action to set aside a tax deed. The
Court further found that there was an insufficient record on the existence and effect of the
bankruptcy stay, as well as whether the Davises had received the post-sale notices to
redeem. This Court remanded for further development and ruling on these issues.
On remand, Huntington moved for summary judgment arguing that the
bankruptcy stay in effect during the publication of the second delinquency notice in the
paper and the issuance of the letter notifying the Davises of the impending tax lien sale
voided those actions and therefore, the tax deed. Huntington relied heavily on testimony
4
Because the circuit court determined that the bankruptcy stay voided the tax
deed, it did not address the post-sale notices to redeem as directed by this Court on
remand.
3
from the Kanawha County Sheriff’s Office’s Chief Tax Deputy who testified that the
Sheriff’s office improperly failed to code the Davises’ property as being in bankruptcy,
which should have halted the proceedings.5 Rebuild argued that the delinquency notice
and letter did not violate the provisions of the automatic stay, merely preserved the tax
sale proceeding, and/or fell into an exception for transactions to which the stay did not
apply. Rebuild further argued that Rebuild I stood for the proposition that any
irregularities with the pre-sale notices were inconsequential to the validity of the tax
deed. Nevertheless, the circuit court found that “actions taken in violation of the
automatic stay are void ab initio” and that as a necessary and integral part of the tax sale
process, the sale must be set aside as “jurisdictionally defective.” The circuit court gave
the Davises or Huntington thirty days to repay the redemption amount, interim taxes, and
interest to Rebuild. This appeal followed.
II. STANDARD OF REVIEW
It is well-established that “[a] circuit court’s entry of summary judgment is
reviewed de novo.” Syl. Pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
With this standard in mind, we proceed to Rebuild’s arguments.
5
The Deputy, Allen Bleigh, testified that the office properly coded rental property
owned by the Davises as being in bankruptcy by denominating it “BR7” but failed to
likewise code the Woodbridge property. The Deputy was unequivocal in his testimony
that the Sheriff’s office had made an error and that had it been properly coded, all action
on the tax lien sale would have ceased.
4
III. DISCUSSION
This case presents the very narrow issue of whether notices issued pursuant
to West Virginia Code § 11A-3-2 violate the bankruptcy court’s automatic stay. 6
Critically, we note that the statutory tax sale process was not initiated during the stay, nor
was the sale of the tax lien itself conducted during the stay. Therefore, this case deals
only with the effect of the bankruptcy stay on the delinquency notice published in the
newspaper and the notice mailed to the Davises pursuant to West Virginia Code § 11A-3­
2(a) and (b), respectively. 7 To the extent the bankruptcy stay had an effect on those
notices, this Court must then determine the resulting effect on the tax deed.
6
With respect to this Court’s jurisdiction to determine the applicability of the
automatic stay, “courts have uniformly held that when a party seeks to commence or
continue proceedings in one court against a debtor or property that is protected by the
stay automatically imposed upon the filing of a bankruptcy petition, the non-bankruptcy
court properly responds to the filing by determining whether the automatic stay applies to
(i.e., stays) the proceedings.” Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 384 (6th
Cir. 2001); see In re Baldwin–United Corp. Litig., 765 F.2d 343, 347 (2d Cir. 1985)
(“Whether the stay applies to litigation otherwise within the jurisdiction of a district court
or court of appeals is an issue of law within the competence of both the court within
which the litigation is pending . . . and the bankruptcy court[.]”); In re: United Imports
Corp., 200 B. R. 234 (Bankr. D. Neb. 1996) (“[O]ther district courts retain jurisdiction to
determine the applicability of the stay to litigation pending before them[.]”).
7
West Virginia Code § 11A-3-2(a) requires the Sheriff to publish a list of
delinquent lands in the newspaper, as follows:
On or before the tenth day of September of each year, the
sheriff shall prepare a second list of delinquent lands, which
shall include all real estate in his or her county remaining
delinquent as of the first day of September, together with a
notice of sale . . . . The sheriff shall publish the list and notice
(continued . . .)
5
11 U.S.C. § 362(a) provides that the filing of a petition in bankruptcy:
operates as a stay, applicable to all entities, of—
(1) The commencement or continuation, including the
issuance or employment of process, of a judicial,
administrative, or other action or proceeding against the
debtor that was or could have been commenced before the
commencement of the case under this title, or to recover a
claim against the debtor that arose before the
commencement of the case under this title;
***
prior to the sale date fixed in the notice as a Class III-0 legal
advertisement in compliance with the provisions of article
three, [§§ 59-3-1 et seq.] chapter fifty-nine of this code, and
the publication area for such publication shall be the county.
Subsection (b) provides for notification of the delinquency and sale to a list of
enumerated persons, via certified mail, as follows:
In addition to such publication, no less than thirty days prior
to the sale, the sheriff shall send a notice of the delinquency
and the date of sale by certified mail: (1) To the last known
address of each person listed in the land books whose taxes
are delinquent; (2) to each person having a lien on real
property upon which the taxes are due as disclosed by a
statement filed with the sheriff pursuant to the provisions of
section three [§ 11A-3-3] of this article; (3) to each other
person with an interest in the property or with a fiduciary
relationship to a person with an interest in the property who
has in writing delivered to the sheriff on a form prescribed by
the Tax Commissioner a request for such notice of
delinquency; and (4) in the case of property which includes a
mineral interest but does not include an interest in the surface
other than an interest for the purpose of developing the
minerals, to each person who has in writing delivered to the
sheriff, on a form prescribed by the Tax Commissioner, a
request for such notice which identifies the person as an
owner of an interest in the surface of real property that is
included in the boundaries of such property[.]
6
(3) Any act to obtain possession of property of the estate or of
property from the estate or to exercise control over
property of the estate;
(4) Any act to create, perfect, or enforce any lien against
property of the estate;
(5) Any act to create, perfect, or enforce against property of
the debtor any lien to the extent that such lien secures a
claim that arose before the commencement of the case
under this title;
(6) Any act to collect, assess, or recover a claim against the
debtor that arose before the commencement of the case
under this title;
(emphasis added). The primary purpose of the automatic stay “is to give the debtor a
breathing spell from his creditors” and to “stop all collection efforts, stop all harassment
of a debtor seeking relief, and to maintain the status quo between the debtor and her
creditors, thereby affording the parties and the Court an opportunity to appropriately
resolve competing economic interests in an orderly and effective way.” In re Roach, 600
F.2d 1316, 1318 (9th Cir. 1981); Zeoli v. RIHT Mortgage Corp. 148 B. R. 698, 700
(D.N.H. 1993). Moreover, in its 1973 report, the Commission on the Bankruptcy Laws
of the United States specifically noted its “frustration with the ‘dismember[ing] of estates
by the foreclosures of liens instituted before the filing of a petition in bankruptcy.’”
Zeoli, 148 B.R. at 699. Rebuild makes four arguments in support of its contention that
the bankruptcy stay does not serve to void the tax deed as the circuit court determined.
We will address each in turn.
7
A. Inapplicability of 11 U.S.C. § 362(a)
While the statutory tax lien sale at issue ostensibly implicates each of the
provisions of § 362(a) delineated above, the parties focus their attention on subsection
(a)(4), forbidding “[a]ny act to create, perfect, or enforce any lien against property of the
estate[.]” (emphasis added). 8 Rebuild argues that the tax sale was not an attempt to
“enforce” the tax lien because the tax lien sale was merely a “transfer” of the lien to a
third party. In support of this argument, Rebuild correctly notes that the sale of a tax lien
transfers only the lien held by the Sheriff, not the property itself. Rebuild relies on an
oft-cited decision from the Middle District of Georgia, which holds that
the automatic stay provisions of the Bankruptcy Code do not
prohibit a creditor of a debtor from transferring any interest or
claim it might have against the debtor’s bankruptcy estate to a
third party. Such a transfer merely substitutes the party that
holds the interest or claim against the debtor’s bankruptcy
estate, and such transfer does not serve to increase or decrease
the interest or claim the party asserts against the debtor’s
bankruptcy estate.
In re: Georgia Steel, Inc., 71 B. R. 903, 909 (Bankr. M.D. Ga. 1987). Rebuild notes that
it is only after the property is unredeemed that title to the property transfers to the lien
purchaser, which it contends is the actual act of “enforcement.” As noted above, in
opposition, Huntington relies heavily on the testimony of the Tax Deputy who admitted
that the Sheriff’s office improperly failed to code the Davises’ property as being in
8
There is little question that the acts of the Sheriff were not an attempt to create or
perfect the lien; the lien was created and attached to the property on July 1, 2004. W. Va.
Code § 11A-1-2 (Repl. Vol. 2010).
8
bankruptcy and that if it had been properly coded, all actions related to the sale would
have ceased.9
While it is undisputed that the tax lien sale merely transfers the tax lien, we
find it difficult to characterize the initiation and execution of the statutory tax sale
procedure outlined in West Virginia Code § 11A-3-1 et seq. as anything other than an act
to “enforce” the tax lien. Albeit a process, it is still an attempt to collect the taxes due
under the lien. Rebuild’s invocation of the rule articulated in Georgia Steel would be
compelling were the sale of the tax lien not a step in a process of enforcement which
ultimately results in the onus being placed upon the debtor to redeem. A tax sale is not a
simple assignment or transfer of a lien that has no further effect. See In re Barton, 359 B.
R. 681, 689 (Bankr. N.D. Ill. 2006) (“[A] tax sale is a step in the enforcement process.”);
In re Young, 14 B. R. 809, 311 (Bankr. N.D. Ill. 1981) (“‘Tax sales have as their purpose
coercion of negligent and unwilling citizens to pay their taxes.’ The sale of debtors’ real
property for the nonpayment of delinquent taxes is the exact type of creditor action § 362
9
Rebuild argues that the opinion of the Tax Deputy is irrelevant to this issue of
law. We agree. The Sheriff’s policy of terminating all activity when a property is in
bankruptcy is not germane to the narrow issue of whether the notices at issue are
violative of the stay; this is a pure question of law. The Sheriff’s policy is undoubtedly in
place to avoid inadvertently performing any acts that would plainly be in violation of the
stay, such as issuing a tax deed and therefore divesting the bankruptcy estate of the
property. Obviously, although the tax lien sale did not in this instance occur during the
stay, the Sheriff’s office does not know how long a bankruptcy may actually remain
pending and therefore undoubtedly terminates tax sale activity to avoid any potential
interference with the bankruptcy estate, not necessarily because all of its associated
activities violate the stay as a matter of law.
9
(a) stays.” (citations omitted)). Therefore, we conclude that the statutory notices plainly
implicate the automatic stay.
B. Applicability of 11 U.S.C. § 362(b)(24)
Rebuild next argues that, even if the language of 11 U.S.C. § 362 which
creates the stay appears to apply to the statutory process at issue, an exception contained
in 11 U.S.C. § 362(b)(24) removes the notices from operation of the stay. 11 U.S.C. §
362(b)(24) provides that the filing of a petition in bankruptcy does not operate as a stay
“of any transfer that is not avoidable under section 544 and that is not avoidable under
section 549[.]” In essence, Sections 544 and 549 empower the bankruptcy trustee to
“avoid” or nullify transfers of estate property that occur for a certain period of time
before the bankruptcy and during the bankruptcy, respectively. Rebuild argues that both
Section 544 and 549 empower the trustee only to avoid “transfer[s] of property of the
debtor” or “transfer[s] of property of the estate,” respectively. Simply put, Rebuild
maintains that since the tax lien was not property of the Davises or the Davises’ estate—
rather, the lien belonged to the Sheriff—that it was not a transfer “avoidable” by the
trustee. 11 U.S.C. § 362(b)(24) establishes that if a transfer is not avoidable by the
trustee, it is not subject to the stay.
We find this exception to the automatic stay inapplicable to the instant case.
There is no “transfer” of property—the estate’s or otherwise—that occurred within the
stay at all such as to implicate this exception; the tax lien sale occurred after the stay was
10
extinguished.10 Therefore, this exception does nothing to resolve the issue of whether the
notices—administrative steps in the tax sale process—violated the stay. See Bascom
Corp. v. Chase Manhattan Bank, 832 A.2d 956, 961 (N. J. Super. Ct. App. Div. 2003)
(noting that final judgment of foreclosure was entered after stay was extinguished and
that [w]hat was void was . . . the only action in the proceeding that occurred while the
stay was in effect.”).
C. Preservation of the “Status Quo”
Rebuild next argues that the notices themselves did not affect the Davises
or the bankruptcy estate, but merely maintained the status quo as to the statutory
procedure employed: “The automatic stay, though broad, does not preclude all post-
petition activity. Actions taken that tend to maintain the status quo are not as likely to be
found to violate the automatic stay provision of § 362.” In re Atlas Machine & Iron
Works, Inc., 239 B. R. 322, 330 (Bankr. E.D. Va. 1998) (citations omitted).
In support of this argument, Rebuild cites a litany of cases which generally
hold that notices of postponement of mortgage foreclosure sales do not violate the stay.
See Roach, 660 F.2d at 1318 (“Postponement notices which specify a new sale date do
10
Rebuild appears to recognize the inapplicability of this provision for precisely
this reason. In its brief, Rebuild concludes its argument by stating that “the sale of the
tax lien qualifies as an exception from the automatic stay and all events associated with
the tax sale did not [violate] the automatic stay.” (emphasis added). Presumably the
“events associated with the tax sale” to which Rebuild refers are the notices at issue.
Rebuild provides no support for the argument that “associated” events which occur
during the stay do not violate the stay themselves.
11
not violate 11 U.S.C. § 362.”); Taylor v. Slick, 178 F.3d 698 (3d Cir. 1999) (same); In re:
Fine, 285 B. R. 700 (Bankr. D. Minn. 2002) (same); Zeoli, 148 B. R. 698 (same). In each
of these cases, the bank initiated foreclosure proceedings but sought to postpone the sale
itself and filed notices of postponement during the stay. Courts addressing the effect of
these postponements have uniformly held that such acts do not violate the stay.
In Zeoli, the court reasoned that notices of postponement of foreclosure
were not acts in “continuation” of a proceeding as forbidden by § 362(a)(1), but “[r]ather,
[are] more appropriately characterized as an act in preservation of a stayed proceeding.”
148 B. R. at 701. The court explained that “[t]ime does not stand still for legal
processes” and that the passage of time would have “entirely expunged the stayed
foreclosure proceeding, thereby disrupting the status quo to the economic detriment of
RIHT, while conferring no discernable benefit on the debtor.” Id. The court observed
that the postponement “preserved the existing relationship between the parties, protected
its legitimate interests, and imposed no burden on the debtor.” Id.We agree that the notices themselves had no appreciable effect on the
bankruptcy estate itself and served to maintain the statutory procedure initiated pre-
petition. However, as both the Atlas and Zeoli courts noted, the “status quo” is not
maintained when the actions taken post-petition actually advance the proceeding. See
Atlas, 239 B. R. at 332 (distinguishing case where “the creditor was . . . acting in
furtherance to enforce a lien against the property of the estate.”); Zeoli, 148 B.R. at 700,
12
n.2 and 701 (contrasting postponement with “initially scheduling” a sheriff’s sale post-
petition and finding that mere postponement does not “harass[], or revive[] the financial
pressures that drove the debtor into bankruptcy”). See also Taylor, 178 F.3d at 702(“[T]he filing of a bankruptcy petition prohibits the beginning (‘commencement’) of a
judicial proceeding and the carrying forward (‘continuation’) of a proceeding that has
already begun.”).
West Virginia Code § 11A-3-1 et seq. (2010 Repl. Vol.) was specifically
enacted “[t]o provide for the speedy and expeditious enforcement of the tax claims of the
state and its subdivisions” and to “provide for the transfer of delinquent and nonentered
lands to those more responsible to, or better able to bear, the duties of citizenship than
were the former owners[.]” West Virginia Code § 11A-3-2(a) and (b) are the first steps
in this process. Subsection (a) provides for publication of a list of delinquent lands and
notice of sale to the county at large. See n.7, supra. Subsection (b) provides for notice
via certified mail to a set of enumerated interested persons of the delinquency and
impending sale. Id.
Therefore, we find the notices at issue herein do not merely maintain the
status quo; rather, they advance the tax lien enforcement procedures outlined in West
Virginia Code § 11A-3-1 et seq. Once a tax lien sale is initiated under our statutes, each
step in the statutory process brings the debtor closer to potential loss of his or her
property unless he or she redeems the property in the amount of the taxes due. As
13
previously noted, the purpose of a tax sale is provide impetus for citizens to pay their
taxes. Without question, institution and continuation of this statutory procedure “revives
the financial pressure that drove the debtor into bankruptcy” and interferes with the
“breathing spell” from creditors, all of which the automatic stay was designed to prevent.
Zeoli, 148 B. R. at 701; Roach, 660 F.2d at 1318. Unlike the foreclosure postponement
notices discussed by Rebuild, the statutory notices at issue do not simply hold the tax lien
sale in limbo. Rather, the notices are evidence that the lien enforcement process marches
forward with the end result being payment of the taxes, redemption, or transfer of the
property.
The affirmative nature of the integral steps in the foreclosure or tax sale
processes has been observed by other courts, which have found such acts to be violative
of the automatic stay. In In re Ring, 178 B. R. 570, 574 (Bankr. S.D. Ga. 1995), the
United States Bankruptcy Court for the Southern District of Georgia held that the
initiation of foreclosure proceedings post-Chapter 7 filing violated the stay: “Advertising
for foreclosure is clearly the sort of creditor action that is stayed by sections 362(a)(1),
(3), (4) and (5).” Likewise, in In re Demp, 23 B. R. 239 (Bankr. E.D. Pa. 1982), the
bankruptcy court held that posting property for Sheriff’s sale after notice of a bankruptcy
petition was a violation of the stay. See also In re Kane, 248 B.R. 216 (B.A.P. 1st Cir.
2000) (“[W]hatever procedural requirements are imposed by Maine statutes, the effect of
the Notice was perfection of a lien against property of the estate which arose before the
commencement of the case, and hence violated the automatic stay.”); In re Derringer,
14
375 B. R. 903 (B.A.P. 10th Cir. 2007) (distinguishing “postponement” of foreclosure sale
and holding that “[w]hen a foreclosure sale is initially scheduled postpetition, case law
holds that actions in furtherance of the foreclosure sale are violations of the automatic
stay.”); Atlas, 239 B.R. at 332 (setting sale date post-petition was not maintaining status
quo “but acting in furtherance to enforce a lien against property of the estate.”); McKeen
v. Fed. Deposit Ins. Corp., 549 S.E.2d 104, 106 (Ga. 2001) (“Filing a notice of levy and
advertising the property for sale are actions that are clearly stayed during the pendency of
a bankruptcy.”); Therefore, we hold that the acts required under West Virginia Code §
11A-3-2(a) and (b) constitute acts in enforcement of a lien against property and, where
there exists an automatic stay pursuant to the provisions of 11 U.S.C. § 362, such acts are
violative of the stay.
Furthermore, it is widely held that acts taken in violation of a bankruptcy
say are void ab initio: “Actions taken in violation of the stay are void and without
effect.” 2 Collier on Bankruptcy, § 362.11 (15th Ed. 1979); see also Jordache Enters.,
Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 204 W.Va. 465, 487, 513 S.E.2d 692,
714 (1998) (Davis, J., dissenting) (“In general, acts taken in violation of the automatic
stay are void and without legal effect.” (citing Kalb v. Feuerstein, 308 U.S. 433 (1940))).
As noted by the United States District Court for the Southern District of West Virginia,
“[t]he majority of circuits hold that a violation of the automatic stay is generally void as a
matter of law.” Ellison v. Comm’r of Internal Revenue Serv., 385 B. R. 158, 163 (S.D.
W. Va. 2008) (collecting cases from First, Second, Third, Seventh, Ninth, Tenth, and
15
Eleventh Circuits). There is, however, a small minority of jurisdictions that find such
acts merely “voidable.” As astutely observed by the Ellison court, “[c]haracterizing an
act as ‘void’ or ‘voidable’ has the practical effect of determining which party bears the
burden of going forward.” Id. at 162.
We agree that finding acts violative of the stay merely voidable “diminishes
the benefits of the automatic stay by placing an additional burden on a debtor in
bankruptcy. . . . [A] debtor’s time and money are better spent reorganizing their finances,
rather than prosecuting litigation on the validity of acts violating the automatic stay.” Id.
at 165. Therefore, we further hold that acts taken in violation of the automatic stay
provisions of 11 U.S.C. § 362 are void ab initio.
D. Applicability of the Court’s holding in Rebuild I
Having determined that the bankruptcy stay served to render the West
Virginia Code § 11A-3-2 notices void ab initio, we must now assess the effect of this
determination on the validity of the tax deed. See Bascom Corp. 832 A.2d at 961(“[S]ince foreclosure law is a matter uniquely within the state’s competence, the state is
free to make its own determination as to the effect of the entry of a void interlocutory
order irrespective of the reason it is void.”). Rebuild contends that even if the notices are
found to have violated the automatic stay, this Court’s opinion in Rebuild I holds that
such invalidity is of no consequence to the subsequent tax lien sale and tax deed.
16
In Syllabus Point 1 of Rebuild I, this Court held that
[a] tax deed is not invalidated on the basis that a person or
entity failed to receive notice of the tax lien sale required by
W. Va. Code, 11A-3-2 [2007], where it is proven that: (1) the
subsequent redemption notice required by W. Va. Code, 11A­
3-21 [2010], was served on all persons and entities entitled to
notice, (2) service of the notice to redeem was perfected in
the manner required by W. Va. Code, 11A-3-22 [2010], (3)
the property was not redeemed within the time period set out
in the redemption notice, and (4) a tax deed, meeting the
requirements of W. Va. Code, 11A-3-27 [2010], was
delivered to the tax lien purchaser or assignee thereof.
(emphasis added). The Court cited to West Virginia Code § 11A-3-2(b) which provides
that “‘[i]n no event shall failure to receive the mailed notice by the landowner or
lienholder affect the validity of the title of the property conveyed . . .’” 229 W. Va. at
93, 726 S.E.2d at 403. Based upon this statutory declaration, this Court held that it is
plain that the Legislature intended that a mere failure to receive the pre-redemption
notices would not invalidate a sale. Id.
Rebuild argues that even if the West Virginia Code § 11A-3-2 notices were
invalidated by the bankruptcy stay, this Court’s holding in Rebuild I indicates that such
invalidation is immaterial to the validity of the tax deed as only the post-sale redemption
notices are pertinent.11 However, a more careful reading of Rebuild I reveals that the
Court’s holding—and the language of the statute itself—is limited to the property
11
Because the circuit court’s decision was not based on, nor included an analysis
of, the post-tax lien sale redemption notices, this opinion does not reach those issues and
should not be read as affecting our body of caselaw regarding post-sale redemption
notices. See n.4, supra.
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owner’s failure to receive the pre-sale notices, not the failure to issue them in the first
instance. The Legislature plainly intended that a property owner simply cannot claim that
he did not receive the pre-tax sale notices in order to invalidate the sale; this is obviously
to preclude homeowners from self-servingly claiming they failed to receive the notice
and disrupting an otherwise valid tax sale.
Accordingly, it is plain that Rebuild I holds that to the extent a homeowner
claims not to have received the notices, such lack of receipt is insufficient to invalidate a
tax sale. However, the failure to issue the notices at all and comply with statutory
procedure must necessarily invalidate the tax deed. Since the notices are rendered void
ab initio due to the bankruptcy stay, the notices simply did not occur. There can be no
sale of a tax lien if there was no notice of the tax lien sale issued. We therefore find that
the failure to comply with the statutory tax lien sale procedures contained in West
Virginia Code § 11A-3-1 et seq. requires the tax deed issued in this matter to be set aside.
IV. CONCLUSION
For the reasons set forth hereinabove, we affirm the March 20, 2014, order
of the circuit court.
Affirmed.
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