Even in Bankruptcy, Prior Owner’s Failure to Respond to Ch. 91 Request Not Excused

by: Daniel Kim
29 Jun 2017

The Tax Court once again dismissed an appeal for taxpayer’s failure to provide income and expense information pursuant to the municipality’s Ch. 91 request.  In 975 Holdings, LLC v. Egg Harbor City, the prior owner of the subject property had filed for bankruptcy under Chapter 11 and plaintiff acquired the subject property in a bankruptcy asset sale.  The prior owner was designated as the debtor-in-possession of the subject property and thus remained in possession of the property and administered the assets of the bankruptcy estate.

During the pendency of the prior owner’s bankruptcy proceeding, the municipality served a request for the income and expense information.  Despite having received the request, the prior owner failed to respond.  Plaintiff acquired the subject property pursuant to a bankruptcy sale and filed a timely complaint with the Tax Court soon thereafter.  The municipality timely filed a Ch. 91 motion to dismiss the complaint based on the prior owner’s failure to respond.  Plaintiff argued that since the prior owner was the debtor-in-possession during bankruptcy proceedings the failure to respond should be excused.  Furthermore, plaintiff also contended that the purchase of the property pursuant to the United States bankruptcy code renders the sale free and clear of any interest which the municipality had in filing a Chapter 91 defense.

The Tax Court reiterated once again that a Ch. 91 defect runs with the land.  Whether the prior owner was a debtor-in-possession is irrelevant as the subsequent owner is “saddled with that failure to comply with the statue.”  The Tax Court also rejected plaintiff’s second argument stating that the municipality’s Ch. 91 motion is an affirmative defense, not an “interest.”  The municipality’s motion is not an interest but a defense waivable only by the municipality’s “inaction or indifference.”

A copy of the Tax Court’s opinion can be found here.

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