Real Estate Capital Gains Tax as Realization Costs in the Mortgage Realization Procedure

Facts

The City of Zurich had initiated a mortgage realization procedure against the community of heirs [A.] , consisting of [B.] and [C.] . The condominium unit ... co-ownership of the property Strasse [S.] , Zurich, was auctioned off on November 9, 2001. The Debt Collection Office Zurich 1 drew up the distribution list for mortgage creditors, whereby the real estate capital gains tax was not included in the costs of realization.

The City of Zurich appealed to the District Court of Zurich as the lower supervisory authority over debt collection and bankruptcy and requested that a real estate capital gains tax amount of CHF 95,827.-- be added to the realization costs and the distribution list be amended accordingly. The District Court dismissed the appeal, and the Higher Court of the Canton of Zurich, 2nd Civil Chamber, as the higher cantonal supervisory authority in debt collection and bankruptcy matters, also dismissed the appeal.

The City of Zurich appealed the decision of the higher supervisory authority to the Debt Collection and Bankruptcy Chamber of the Federal Court and requested that the contested decision be annulled and a real estate capital gains tax amount of CHF 95,827.-- be added to the realization costs and the distribution list be amended accordingly.

Considerations

The appellant, the City of Zurich, has a legitimate and current interest in having the contested decision annulled or amended. The higher supervisory authority stated in the contested decision that the real estate capital gains tax is generally owed by the seller of the property in the mortgage realization procedure.

The appellant accuses the lower court of violating Art. 157 DEBA, as according to case law, the real estate capital gains taxes incurred in the mortgage realization procedure are to be considered as costs of realization and are therefore to be deducted from the gross proceeds and paid. The Federal Court has ruled that the real estate capital gains tax belongs to the realization costs in both bankruptcy and mortgage foreclosure.

The higher supervisory authority…