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BFP decision . Id . at 479 .
Next , the Sixth Circuit in In re Lowry , No . 20-1712 , 2021 WL 6112972 ( 6th Cir . Dec . 27 , 2021 ) addressed the question of the extension of BFP to tax foreclosure sales under Section 548 in the context of Michigan law . Rejecting the extension of BFP to Michigan tax foreclosure sales , the Sixth Circuit noted :
The tax foreclosure process here was also significantly different from the mortgage foreclosure system in BFP . . . . In contrast , the Michigan foreclosure law here permitted the local government to purchase the property , without a public auction , for the “ minimum bid .” Id . at * 4 . Again , focusing on policy arguments , the Sixth Circuit found that “ when a tax foreclosure sale focuses on the value of the taxes owed rather than the value of the property ,” it is not an equivalent process as a mortgaged foreclosure that focuses on the value of the property even though the sale occurs in “ not-purely market conditions .” Id . Thus , the Sixth Circuit reversed the lower court ’ s dismissal of the Section 548 claim and remanded the case for further consideration .
This controversy continues today . Earlier this year , the Second Circuit made its position known on this circuit split just this year in Gunsalus v . Cnty . of Ontario , New York , 37 F . 4th 859 ( 2d Cir . 2022 ). This case involved a tax lien in New York and a suit again addressing whether the properly conducted tax sale yielded “ reasonably equivalent value ” under Section 548 of the Bankruptcy Code . Under New York law , the taxing authority could simply foreclose on the property , transferring title to itself and then resell the property , which is what occurred in this case . Focusing again on the policy issues underlying the BFP decision , the Second Circuit said of the Supreme Court ’ s decision in BFP : “ Critical to that conclusion was the existence of an auction or sale which would permit some degree of market forces to set the value of the property even in distressed circumstances .” Id . at 865 . Accordingly , the Second Circuit held that BFP covers only mortgage foreclosures and not tax foreclosures . In furtherance of its policy focused analysis , the Second Circuit also noted that the applying BFP to this tax foreclosure situation would be “ fundamentally at odds with the goals of bankruptcy law ” including preventing “ a windfall at the expense of the estate ” and “ Congress ’ policy choice that ‘ reasonably equivalent value ’ must be obtained for a transfer of a debtor ’ s property in the bankruptcy context .” Id . at 866 . With respect to the argument that the failure to apply BFP would upset the tax foreclosure state system , the Second Circuit concluded : “ By its very nature , the Code upsets common and state law property interests an recalibrates the relationship between debtors and creditors .” Id .
Thus , BFP provided no clear answers to the avoidability of tax foreclosure sales under Section 547 , 548 and 549 . While a circuit split has been created , and a new focus has been placed on the many ways state laws address tax foreclosure sales , the policy considerations of every Circuit Court that has considered the issue are remarkably similar .
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