Haggerty v. Erie County Tax Claim Bureau

Opinion by

Judge Craig,

Tax sale purchasers Michael Haggerty and William Haggerty appeal from an order of the Court of Common Pleas of Erie County directing the Erie County Tax Claim Bureau to take no further action relative to confirmation of a delinquent tax sale pertaining to the property of United Oil Manufacturing Company, pending further order of that court or the Bankruptcy Court of the Southern District of Texas, Houston Division. We affirm.

Landowner, now known as United Refining Company of Pennsylvania, is the record owner of a parcel of real property in Erie. The landowner had paid the real estate taxes for that property on a continuous basis until 1983. On July 6, 1985, the Erie County Tax Claim Bureau notified the landowner by certified mail of a pending tax sale for the unpaid 1983 Erie County taxes. On September 9, 1985, the bureau sold the property to William Haggerty and Michael Haggerty. On September 23, 1985, the bureau notified the landowner that it had sold the property at a tax sale.

On October 21, 1985, the landowner filed a notice of its bankruptcy petition with the Recorder of Deeds of Erie County. The tax sale purchasers had not recorded a deed for the property as of that date. Responding to that notice of the landowners bankruptcy, the bureau petitioned the court of common pleas to void the tax sale.

Trial Judge Roger M. Fischer correctly determined that the issue for his consideration was:

The question before the Court is whether the filing of the copy of the Bankruptcy Petition with the Recorder of Deeds of Erie County on October 21, 1985, after the tax sale of September 9, 1985, but before the transfer or recording of any deed to the purchasers at the tax sale, subjected the property to the automatic stay provisions of the Bankruptcy Code.

Those automatic stay provisions specifically address situations where the subject property does not lie within the county in which the landowner has filed a bankruptcy petition. Specifically, under 11 U.S.C. §549(c), the stay does not become effective:

As to a purchaser at a judicial sale, of real property located other than in the county in which the case is commenced, unless a copy of the petition was filed in the office where conveyances of real property in such county are recorded before such transfer was so far perfected that a bona fide purchaser of such property against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of such good faith or judicial sale purchaser.

Accordingly, Judge Fischer determined that the automatic stay provisions of the Bankruptcy Code would not be applicable if the tax sale transfer was so far perfected on October 21, 1985 that it would have defeated a claim of a bona fide purchaser who would have recorded a deed on that date.

Judge Fischer specifically held that “as to a bona fide purchaser any transfer arising out of a tax claim sale is not perfected until the deed arising out of that sale is recorded in the Office of the Recorder of Deeds of the County in which the subject property is located.”

There is no dispute that Pennsylvania law must be applied in resolving the question of title perfection. Pennsylvania’s recording law, 21 P.S. §351,¹ provides that all deeds or conveyances must be recorded, and that:

(e)very such deed, conveyance, contract or other instrument of writing which shall not be acknowledged or proved and recorded, as aforesaid, shall be adjudged fraudulent and void as to any subsequent bona fide purchaser . . . without actual or constructive notice unless such deed, conveyance, contract, or instrument of writing shall be recorded, as aforesaid, before the recording of the deed or conveyance . . . under which such subsequent purchaser . . . shall claim.

The tax sale purchasers argue that Judge Fischer’s reliance on 21 RS. §351 was in error, contending that the landowner could not qualify as a bona fide purchaser “without actual or constructive notice” under 21 P. S. §351 because the landowner necessarily had constructive notice, if not actual notice, of the tax sale proceedings.

However, the automatic stay provisions of the Bankruptcy Code require a judicial determination as to the respective rights of the judicial sale purchaser and a hypothetical bona fide purchaser, not a determination as to the respective rights of the judicial sale purchaser and the landowner. Note that 11 U.S.C. §549(c) sets up the interest of a judicial sale purchaser against that of “a” bona fide purchaser “against whom applicable law permits such transfer to be perfected. ...” By definition, a bona fide purchaser is one who purchases for value without any notice of outstanding rights of others.

Under Pennsylania law, a transfer of real property is good as against a subsequent bona fide purchaser only after the deed has been recorded. In Re: MacQuown, 717 F.2d 859 (1983). Hence, because the tax sale purchasers had not recorded a deed to the property when the landowner filed its notice of bankruptcy, Judge Fischer correctly determined that the tax sale purchasers’ interest in that land was not “so for perfected that a bona fide purchaser . . . cannot acquire an interest that is superior to the interest of [the tax sale purchaser] ... 11 U.S.C. §549(c)”

Accordingly, we must affirm Judge Fischers sound decision.

Order

Now, July 8, 1987, the order of the Court of Common Pleas of Erie County, at No. 3327-A-1985, dated December 20, 1985, is affirmed.

1 Act of June 12, 1931, P.L. 558.