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For the fifth year in a row, Stanley P. Tarutis Jr. filed for bankruptcy shortly before the September first-stage Luzerne County back-tax sale so his Hanover Township residence would automatically be removed from the auction.
Tarutis and his wife, Molly, owe $62,500 in real estate taxes dating back to 2009 on the Clifton Court property, not including unpaid 2016 taxes, records show.
But this time, county tax-claim operator Northeast Revenue Service LLC took legal action as part of its ongoing effort to crack down on suspected abuses of the bankruptcy shield from tax auctions.
Northeast Revenue asked the bankruptcy judge to lift the automatic stay so the property can proceed to sale, saying the latest bankruptcy “appears to be part of a scheme by the debtor to hinder or delay” auctioning on the eve of sales.
U.S. Bankruptcy Judge John J. Thomas held a hearing on the matter Thursday at the federal courthouse in Wilkes-Barre that resulted in both sides negotiating a settlement.
Under this settlement, Tarutis agreed to list the property for sale with a Realtor acceptable to Northeast Revenue within 14 days and sign a sales agreement if an offer is made within 20 percent of the listing price determined by the Realtor.
His attorney, Ronald V. Santora, said the property has an estimated value of more than $250,000, and Tarutis has no outstanding mortgage.
The agreement also gives Northeast Revenue the right to auction the property after 60 days if the taxes remain unpaid.
Northeast Revenue wanted to auction the property at a special sale Oct. 27, but company officials said it would be more advantageous to the three taxing bodies — the Hanover Area School District, county and township — if Tarutis sells the property on his own.
The reason: a sale by Tarutis would guarantee taxing bodies recoup all money owed. Bidders may be unwilling to pay such a sizeable tax debt to obtain the property at a first-stage sale, when all back taxes and liens are rolled into the starting bid. Taxing bodies would then have to wait to recoup taxes until a final-stage, free-and-clear auction that won’t be held before August.
The settlement agreement also prevents removal of the property from a sale due to bankruptcy for two years, allowing Northeast Revenue sufficient time to list the real estate in both first- and second-stage sales without the threat of another removal due to a future bankruptcy filed by Tarutis or his wife, who was not a filer in the pending bankruptcy.
Before breaking to negotiate a settlement Thursday, the lawyers presented their positions to Thomas.
Representing Northeast Revenue, Attorney Lisa M. Doran pointed to repeated Tarutis bankruptcy filings that were terminated shortly after sales due to failure to pay the filing fee or file schedules or a plan. Tarutis and his wife have not made “any meaningful attempt to reorganize their financial affairs” and pay the taxes through the bankruptcy process, her filing said.
The last tax payment toward the debt was in November 2011, even though Tarutis reports receiving more than $1,200 per month in disposable income and lists no other creditors owed money in his bankruptcy filing, she said.
“It’s pretty clear what was going on,” Doran told the judge.
Santora said Tarutis did not obtain legal counsel in his past bankruptcy filings, and his only steady ongoing income is from Social Security.
Tarutis is awaiting a contractual payment through his corporation, Keystone Advanced Solutions Inc., that would cover the back taxes, Santora said. Before the settlement was announced, Santora said Tarutis was prepared to sell his house if necessary but had hoped for more time to see if his contracted payment would come through first.
“I have no problem listing the property for sale now, and then if the money he is expecting does not come through, the debt will be paid,” Santora said.
Since taking over county tax claim in 2010, Northeast Revenue has filed a few court actions seeking permission to auction properties tied up in stale or multiple bankruptcies. Company officials stress they are not attempting to challenge most filings.
“We’ve focused on those with egregious debts who filed repeatedly and showed no intention of using bankruptcy the way it’s intended to be used,” said Dyan E. Dinstel, an attorney with Northeast Revenue.
In 2011, for example, the company sought court approval to auction a dozen properties belonging to the late Joseph Nowakowski because a series of bankruptcies kept the properties out of tax sales for years, resulting in $325,000 in unpaid taxes dating back to 1996. Northeast Revenue’s intervention resulted in payment of the debt.