Appeals from the Circuit Court of Cook County, the Hon. Robert
J. Dempsey, Judge, presiding.
MR. JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 30, 1979.
This case is a consolidation of six separate actions brought in the name of the People of the State of Illinois to recover unpaid real estate taxes on land held in land trusts. The State seeks to impose personal liability for the real estate taxes on three entities: the banks or trust companies in their individual corporate capacities; the banks or trust companies in their capacities as land trustees of land trust property, and the beneficiaries of the land trust, all as "owners" of the tracts of land trust property. The trial court found the trustees in their individual corporate capacities liable and dismissed the cases as to the banks and trust companies as trustees and as to the beneficiaries. Appeals were perfected by the various losing parties. This court granted motions for direct appeal to this court under Rule 302(b) (58 Ill.2d R. 302(b)).
The Revenue Act of 1939, section 27a (Ill. Rev. Stat. 1977, ch. 120, par. 508a), imposes liability on the "owner" of real estate for unpaid taxes on that land. It provides:
"The owner of real property on January 1 * * * in any year shall be liable for the taxes of that year."
Section 275 of the Act (Ill. Rev. Stat. 1977, ch. 120, par. 756) authorizes suit by the county board in the name of the People of the State of Illinois to recover the unpaid taxes on forfeited property. The question posed in these cases is who is the owner of real estate held in a land trust against whom suit may be brought.
The factual bases of these six appeals are nearly identical. A land trust was created by execution of a deed in trust transferring all legal and equitable title to a trustee. The deed specifically provides that one dealing with the trustee need not inquire about the trust agreement and stipulates that the interest of the beneficiary is personal property. The deed was recorded. A second document, the trust agreement, was simultaneously executed, though not recorded. That agreement recites that all legal and equitable title remains with the trustee with an assignable personal property interest in the beneficiary. The beneficiary retains absolute control of the management and receives all the proceeds of the property. Under the agreement, all money advanced by the trustee must be paid by the beneficiary, and the trustee is not required to pay any taxes or assessments. The beneficiary may order the land sold at any time, and the trustee may not act except on written authorization of the beneficiary.
In each of these cases a complaint was filed against the trustee in its individual capacity, and was subsequently amended to add as defendants the trustee as trustee and the beneficiaries of the land trust. Prior to this action, the parcels had been listed on the county collector's application for judgment and sale for delinquent taxes, the Cook County circuit court had ordered the real estate sold, and it was offered for sale. The real estate was not purchased and was forfeited to the State. (Ill. Rev. Stat. 1977, ch. 120, par. 727.) By this complaint the State seeks to impose personal liability under sections 27a and 275 of the Revenue Act of 1939 (Ill. Rev. Stat. 1977, ch. 120, pars. 508a, 756) for the unpaid real estate taxes on the "owners" of the land held in the land trusts. The complaint alleges that the three classes of defendants were owners of the real estate on which taxes were unpaid. The State alleges that each defendant is an owner under the statute and is therefore liable for the unpaid taxes.
The trial court dismissed the complaints against the beneficiaries and trustees as trustees. The court, however, ruled that the trustees in their individual capacities were the owners under section 27a and refused to dismiss those defendants. In each instance the trial court entered appropriate orders finding no reason to delay an appeal. We have consolidated these cases and allowed a direct appeal under Rule 302(b).
Normally, the entire tax liability for real estate would be met through a judgment and sale of the property. These cases have arisen however, because, for an increasing number of inner-city parcels, the marketable price is well below the outstanding tax bills. (See Lawlor, Real Property Tax Delinquency and the Rehabilitation of Multi-Family Housing Stock in Chicago, Illinois: The Role of the Collection Provisions of the Illinois Revenue Act, 26 De Paul L. Rev. 1 (1976).) There simply are no buyers willing to pay the taxes in order to obtain the property. As a consequence, the property has been forfeited to the State and the tax bills remain unpaid. Though available for more than 100 years (compare 1872 Ill. Laws 18, sec. 59, and 1872 Ill. Laws 55, sec. 230, with Ill. Rev. Stat. 1977, ch. 120, par. 508a, and Ill. Rev. Stat. 1977, ch. 120, par. 756), these provisions for the enforcement of personal liability are being utilized against land trusts for the first time in these cases.
The Illinois land trust is a unique creation of the Illinois bar, though its acceptance elsewhere has received a great deal of attention. (See Arntson, The Virginia Land Trust An Overlooked Title Holding Device for Investment, Business and Estate Planning Purposes, 30 Wn. & Lee L. Rev. 73 (1973); McKillop, The Illinois Land Trust in Florida, 13 U. Fla. L. Rev. 173 (1960); Comment, The Illinois Land Trust and Nebraska Law, 47 Neb. L. Rev. 101 (1968); Note, Land Trusts in New York, 37 St. John's L. Rev. 123 (1962).) Its origin is rooted in case law rather than statute. (See Schumann-Heink v. Flosom (1927), 328 Ill. 321; Hart v. Seymour (1893), 147 Ill. 598; Garrett, Land Trusts, 1955 U. Ill. L.F. 655, 656-59.) The land trust has, over the years, served as a useful vehicle in real estate transactions for maintaining secrecy of ownership and allowing ease of transfer. Despite recent disclosure statutes, e.g., "An Act relating to disclosure of beneficiaries of land trusts and owners of property allegedly violating building laws," section 1 (Ill. Rev. Stat. 1977, ch. 80, par. 81), and "An Act to require disclosure * * * of all beneficial interests in real property held in a land trust * * *," section 2 (Ill. Rev. Stat. 1977, ch. 148, par. 72), the land trust remains a widely utilized and useful device. See H. Kenoe, Kenoe on Land Trusts (Ill. Inst. Cont'g Legal Educ. 1976).
In a land trust the legal and equitable title lies with the trustee and the beneficiary retains what is referred to as a personal property interest. (Chicago Federal Savings & Loan Association v. Cacciatore (1962), 25 Ill.2d 535, 543.) It is important to note, however, that though referred to as personal property, most of the usual attributes of real property ownership are retained by the beneficiary under the trust agreement. In fact, the only attribute of ownership ascribed to the trustee is that relating to title, upon which third parties may rely in transactions where title to the real estate is of primary importance. A third party, even the State, may generally rely on the title of the trustee in such cases. Keessen v. Zarattini (1969), 119 Ill. App.2d 284, 293; see also First Lien Co. v. Marquette National Bank (1973), 56 Ill.2d 132.
For example, in Chicago Federal Savings & Loan Association v. Cacciatore (1962), 25 Ill.2d 535, a second mortgage was issued on real estate held in a land trust. Prior to the drawing of that mortgage, a Federal tax lien for unpaid income taxes had been issued against the beneficiary of the property held by the land trust. The Federal government asserted that its tax lien had priority over the mortgage. This court held that the mortgagee could rely on the title and his lien had priority. The primary concern in establishing priority of liens is the title. Similarly, in First Lien Co. v. Marquette National Bank (1973), 56 Ill.2d 132, the plaintiff sought the issuance of a tax deed. The primary concern in the issuance of a tax deed is the transfer of title. A procedure which gave notice to the titleholder was, accordingly, approved under the statute. Ownership has been imputed to the land trust trustee in other instances where title is the primary concern. (See, e.g., Marshall v. Solomon (1948), 335 Ill. App. 302, 309 (mortgage foreclosure need not include beneficiary).) The ...