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Statutory Tax Lien Can Be Set Aside as Against a Bona Fide Purchaser

On Behalf of | Aug 8, 2017 | Bankruptcy Appellate Panel

In In re Mainline Equipment, Inc., Case No. 15-60069, the Ninth Circuit Court of Appeals held that the County of Los Angeles (“County”) could not enforce its tax liens on personal property against a bona fide purchaser when the County had failed to perfect its liens. The Chapter 11 debtor could set aside the County’s liens under Bankruptcy Code Section 545 because the liens were only statutory and were unenforceable against a bona fide purchaser based on the enforceability of the liens pursuant to Cal. Rev. and Tax Code section 2191.4. Specifically, the County had recorded tax delinquency certificates with the County Recorder but failed to file its liens with the Secretary of State of California. While this granted the County a lien upon all of the debtor’s real and personal property in the county in which it was recorded, such liens were not enforceable against a bona fide purchaser of personal property and thus, could be avoided by the debtor. The result would likely be different if real property were concerned because judgment liens recorded with the County Recorder are perfected as to real property.

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