Patrick E. Catalano v. Commissioner of Internal Revenue

In this appeal, we consider whether an order granting relief from an automatic stay always constitutes an abandonment of property under bankruptcy law. We conclude that it does not, and we reverse the decision of the Tax Court.

I

In 1988, Patrick Catalano purchased a residential condominium in San Francisco, California for $1.8 million. He financed $1.4 million of the purchase price with a loan from Wells Fargo Bank that was secured by a lien on Catalano’s residence. Catalano stopped making payments of either interest or principal on the Wells Fargo loan as of June 1,1994.

Shortly thereafter, Catalano filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code, resulting in an automatic stay of any action to foreclose against the property. 11 U.S.C. § 362 . Wells Fargo subsequently filed a motion in the Bankruptcy Court asking for relief from the automatic stay to permit it, and the trustee under the deed of trust, to foreclose on Catalano’s residence. Catalano opposed the motion on the ground that the value of the property was substantially greater than that of the outstanding debt. However, the Bankruptcy Court lifted the automatic stay to allow…