Request By:
Mr. James S. Secrest, Jr.
Assistant County Attorney
Office of the County Attorney
Box 35
Scottsville, Kentucky 42164
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
You have asked whether the sale of real estate by a trustee under the bankruptcy act is of the same nature as a foreclosure proceeding so as to exempt the recording of the deed from the real estate transfer tax under KRS 142.050(8)(j). KRS 142.050(8)(j) states as follows:
"The tax imposed by this section shall not apply to a transfer of title under a foreclosure proceeding; "
You advised that this was a public sale of land by the trustee pursuant to an order of the bankruptcy court. In OAG 79-641, we stated that in a typical judicial sale case, which does not involve a foreclosure, a deed transaction is taxable.
A judicial sale is one made under the process of a court having competent authority to order it by an officer duly appointed and commissioned to sell the property as distinguished from a sale by an owner by virtue of his right of property. See
ABC Liquidators, Inc. v. Kansas City, Mo., 322 S.W.2d 876 (1959). Therefore, a sale in a bankruptcy proceeding is a judicial sale. See In Re Superior Mushroom Growers Corp., 228 F. Supp. 372 (D.C. Pa. 1964);
Hagan v. Gardner, 283 F.2d 643 (C.A. Cal. 1960); and In Re Strunks Lane and Jellico Mountain Coal and Coke Co., 64 F. Supp. 731 (D.C. Ky. 1946). Similarly, a sale by a lienholder of mortgaged property in a mortgage foreclosure proceeding is also a judicial sale. See
State ex rel. Com'rs of Land Office v. Warden, 197 Okl. 97, 168 P.2d 1010 (1946).
Thus, a foreclosure sale and a sale by a trustee in bankruptcy are both considered judicial sales. They are, however, different in nature.
A foreclosure is a legal proceeding that bars or extinquishes a mortgagor's right of redeeming a mortgaged estate. See
Tice v. Tice, 208 Iowa 145, 224 N.W. 571 (1929). This is accomplished through a sale by the lienholder.
A sale by a trustee in bankruptcy, while being a judicial sale, is not the same as a foreclosure sale. A trustee in a bankruptcy sale is in the same situation as if the owner himself is selling and transferring title. In other words, the trustee stands in the shoes of the bankrupt and it is not the same situation as a lienholder selling the property to foreclose his lien in a foreclosure proceeding. It is the latter which the statutes specifically exempt from the real estate transfer tax and not a bankruptcy trustee sale.
For the foregoing reasons, a sale by a trustee in bankruptcy of real estate does not come within the exception of KRS 142.050(8) and is subject to the transfer tax imposed thereunder.