Opinion
Case No. 01-72663
October 22, 2002
OPINION
The issue before the Court is whether the Debtor or the mortgage holder is responsible for the 2000 and 2001 real estate taxes on property surrendered pursuant to a Chapter 12 Plan confirmed on April 8, 2002.
The Debtor, Gary Patterson, filed a petition pursuant to Chapter 12 of the Bankruptcy Code on July 5, 2001. The Debtor scheduled Kinderhook State Bank as a creditor holding mortgages on two farms, one in Pike County and one in Adams County. The Debtor's Chapter 12 Plan proposed the sale or surrender of all but 112 acres in Pike County. The Order Confirming Chapter 12 Plan, which was entered on April 8, 2002, provided that the Debtor would pay $134,400 to Kinderhook State Bank over 20 years for the 112 acres that the Debtor was keeping.
The current dispute concerns the 260 acres or so that were surrendered to Kinderhook State Bank on May 3, 2002. It is undisputed that the Debtor was in possession of the 260 acres from the time of the note and mortgage of March 27, 2000, through the July 5, 2001, filing date and until the surrender of the property on May 3, 2002. The Debtor farmed the property in 2000 and 2001 and all the crops, crop proceeds, rents, and profits from the use of the 260 acres accrued to the benefit of the Debtor.
Under the terms of the March 27, 2000, note, the Debtor was required to make forty semi-annual payments of $18,845.81.
However, the Debtor made only about $20,000 of payments through November 11, 2000. No payments were made to the Bank after November 11, 2000.
Property taxes in the amount of $5,112.44 accrued on the 260 acres surrendered to the Bank for the years 2000 and 2001. The Debtor filed a Motion on August 8, 2002, which requests that the Bank assume this real estate tax liability. The Debtor asserts that he is only responsible for the real estate taxes due on the real estate that he is keeping. The Bank opposes the Debtor's Motion. The Bank notes that the loan documents obligate the Debtor to pay the real estate taxes on the 260 acres. In addition, the Debtor possessed, farmed, and received all the economic benefit from the surrendered property during 2000 and 2001 when he failed to pay the real estate taxes as required by the loan documents.
The Debtor states in his Motion that the Chapter 12 Plan and Confirmation Order provide that the Debtor is only responsible for the real estate that is being retained by the Debtor. However, the Debtor could not point to and the Court could not find any provision in the Plan or Confirmation Order which obligates the Bank to pay the real estate taxes on the surrendered property. In the absence of a specific plan provision addressing the payment of the real estate taxes, the Court must turn to the case law.
The applicable case law supports the Bank's position that the Debtor is responsible for the 2000 and 2001 real estate taxes. In In re Erie Hilton Joint Venture, 125 B.R. 140 (Bankr.W.D.Pa. 1991), the Court determined that the Chapter 11 debtor-in-possession was responsible for the post-petition real estate taxes allocable to the period that the debtor remained in possession of the property, operated its business, and attempted to reorganize.
The Court found that the amount should be paid as a priority administrative expense under the confirmed plan of reorganization notwithstanding the fact that the mortgagee had been granted relief from the automatic stay and foreclosed on the property. The Court stated that it would be "inherently unfair" to require the mortgagee to pay the taxes for the period of time for which the debtor operated the property solely for its benefit and while the mortgagee was excluded from possession. 125 B.R. at 149. See also In re Farris, 205 B.R. 461, 466-67 (Bankr.E.D. Pa. 1997).
In this case, the Debtor remained in possession of the property for the 2000 and 2001 crop years, farmed the property in 2000 and 2001, and enjoyed all the benefits from the farming operation. Therefore, the Debtor is liable for the real estate taxes for 2000 and 2001 on the surrendered property.
For the foregoing reasons, the Debtor's Motion for Kinderhook State Bank to assume real estate tax liability on the surrendered property is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the Debtor's Motion for Kinderhook State Bank to pay real estate taxes for years 2000 and 2001 on surrendered property be and is hereby denied.