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In Re Application of Boone Cty Collector

OPINION FILED APRIL 2, 1985.

IN RE APPLICATION OF BOONE COUNTY COLLECTOR (CANDLEWICK LAKE ASSOCIATION, INC., PETITIONER-APPELLANT,

v.

CONTINENTAL ILLINOIS NATIONAL BANK, RESPONDENT-APPELLEE).



Appeal from the Circuit Court of Boone County; the Hon. David A. Englund, Judge, presiding.

JUSTICE SCHNAKE DELIVERED THE OPINION OF THE COURT:

This matter was instituted by petitioner, Candlewick Lake Association, Inc. (Candlewick), when it filed 29 petitions for tax deed for the tax year 1980 pursuant to section 266 of the Revenue Act of 1939 (Ill. Rev. Stat. 1983, ch. 120, par. 747). Twelve of these petitions are not before this court. Appeal No. 84-362 involves 12 of the remaining petitions, with the record on appeal limited to case No. 81-TX-3(2), which the trial court found to be substantially identical to the 11 other cases. Appeal No. 84-363 involves the five remaining petitions, with the record on appeal limited to case No. 81-TX-3(11), which the trial court found to be substantially identical to the four other cases. Both appeals present the question of whether a lienholder, because of its interest in the property, is precluded from obtaining a tax deed to the property. The circuit court of Boone County held in the affirmative, and we affirm.

Candlewick is a homeowner's association formed pursuant to the covenants, conditions and restrictions of Candlewick Lake Subdivision (CCR's) recorded in Boone County. Each lot owner is a member by virtue of lot ownership. The CCR's require that each lot owner pay dues for the support of Candlewick, which owns and manages the common areas and enforces the CCR's. Candlewick is authorized by the CCR's to record an assessment lien with the Boone County recorder of deeds against any lot for which dues are in default.

On November 30, 1981, the Boone County clerk held a tax sale as provided for by section 235a of the Revenue Act of 1939 (Ill. Rev. Stat. 1981, ch. 120, par. 716a). Candlewick purchased tax certificate No. 1-222, involved in case No. 81-TX-3(2), for $134.65 and tax certificate No. 1-259, involved in case No. 81-TX-3(11), for $238.16. On September 7, 1983, Candlewick filed its petitions for tax deed as the holder of the tax purchase certificates on the two lots. No redemption took place in case No. 81-TX-3(2) (appeal No. 84-362), while in case No. 81-TX-3(11) (appeal No. 84-363), Continental Illinois National Bank (Continental), which held a mortgage on the property, redeemed under protest pursuant to section 253 of the Revenue Act of 1939 (Ill. Rev. Stat. 1983, ch. 120, par. 734). The trial court denied both petitions for tax deed because Candlewick was a lien holder of record on the date of the tax sale. Additionally, in case No. 81-TX-3(11) (appeal No. 84-363), the trial court upheld Continental's redemption under protest and ordered its redemption money refunded, while holding that Candlewick's tax purchases were actually tax payments. Candlewick appeals both the denial of its 17 tax petitions and the trial court's treatment of its tax purchase as a tax payment.

• 1 Several Illinois cases have held that an owner or mortgagee, because of its interest in the property and its obligation to pay the taxes on it, may not purchase the property at a tax sale and thereby cut off the interest in the property of the other party. (Lewis v. Ward (1881), 99 Ill. 525; Oswald v. Wolf (1889), 129 Ill. 200; McChesney v. White (1892), 140 Ill. 330; Stinson v. Connecticut Mutual Life Insurance Co. (1898), 174 Ill. 125; Ragor v. Lomax (1887), 22 Ill. App. 628.) While no Illinois case has yet decided whether a lienor is precluded from purchasing at a tax sale, thereby cutting off the interests in the property of a fellow lienor or mortgagee, the great weight of authority in the United States is that it may not do so. Annot., 140 A.L.R. 294, 319-31 (1942).

The rationale for this rule is that equity regards the land as a common fund for the payment of all liens and mortgages, and it would be inequitable and a fraud for one lienor to acquire title to the land by a tax sale and use it to destroy the claim of another lienor or mortgagee. The lienor is authorized to redeem from the tax sale, and equity will not allow him to acquire the title for an inconsiderable sum when he was authorized to remove the trifling incumbrance by redemption. Equity will relieve against such oppression and teach the grasping creditor moderation in his demands, and that he cannot destroy others to build up his own fortunes. Koch v. Kiron State Bank (1941), 230 Iowa 206, 297 N.W. 450.

Support for this rule is found in several Illinois cases. Specifically, in Ragor v. Lomax (1887), 22 Ill. App. 628, where the court held that a mortgagee could not purchase at a tax sale and thereby cut off the mortgagor's interest in the property, the court stated:

"But while it may not be the duty of the mortgagee to pay the taxes it is clearly his right to do so, for he has a manifest interest in the protection of his mortgage title. In the land both the mortgagor and the mortgagee have an interest. It is a fund, the protection of which is for the benefit of both, but the lien of the State for taxes is superior to the right of each, and if one or the other does not discharge it, the land will be sold and the interest will be extinguished." (Emphasis added.) 22 Ill. App. 628, 632.

Our supreme court then addressed the mortgagee-mortgagor situation in Stinson v. Connecticut Mutual Life Insurance Co. (1898), 174 Ill. 125, where it stated:

"In Woodbury v. Swan, 59 N.H. 22, in the discussion of the question, the court said: `Mortgagor and mortgagee have a unity of legal interest in the protection of their title against a sale for non-payment of taxes, and against outstanding tax titles, and it is not equitable that either of them should act adversely to the other in the acquisition and use of such titles. * * *' In Ragor v. Lomax, 22 Ill. App. 628, the question is thoroughly discussed and the authorities cited, and the conclusion reached that a mortgagee cannot, whether in or out of possession of the mortgaged premises, acquire a tax title and set it up against the mortgagor." 174 Ill. 125, 129-30.

Lastly, in Vulcan Materials Co. v. Bee Construction Co. (1981), 101 Ill. App.3d 30, rev'd on other grounds (1983), 96 Ill.2d 159, the Appellate Court for the First District held that a mortgagee could not purchase title at the tax sale and cut off the interest of the other lienors, stating:

"Though Illinois courts have not specifically ruled that a mortgagee, whose interest in property arose before a tax sale, is prohibited from becoming a tax purchaser for the purpose of eliminating other liens on the property, other jurisdictions have specifically ruled that mortgagees are prohibited from doing so. [Citations.] The reasoning underlying these decisions is, we believe, applicable here. The mortgagee has a right to redeem the property from a tax sale. In equity, the mortgagee should not be allowed to waive this right and instead become a tax purchaser, and cause injury to the other lienholders, for the minimal cost it would have taken to redeem the property from the tax sale. The property is a common fund in which all the parties have an interest. One should not be allowed to use the law of tax sales to destroy this fund to benefit oneself to the prejudice of all others. It is manifestly unfair to allow a mortgagee to use the law of tax sales for the specific purpose of working an injustice. [Citation.] The law of tax sales is designed to give strangers to the property a speedy method of acquiring merchantable title to the property so the property can get back into the stream of commerce so that future taxes can be collected. [Citation.] It is not designed to be a method by which a party with a pretax sale interest in the property can forego the payment of the taxes, allow the property to be sold for taxes, and then acquire it for a minimal cost so that party can raise its previous interest above all other previous interests." (Emphasis added.) Vulcan Materials Co. v. Bee Construction Co. (1981), 101 Ill. App.3d 30, 38.

We hold, therefore, that a lienor may not obtain a tax deed and thereby cut off the interest of other lienors or mortgagees. This rule has been adopted by a majority of the States that have addressed the issue and it is consistent with the prior Illinois cases dealing with the related situation involving a mortgagee-mortgagor.

• 2 The petitioner argues that this rule is contrary to sections 235a and 27a of the Revenue Act of 1939 (Ill. Rev. Stat. 1983, ch. 120, pars. 716a, 508a), which prohibit only the owner of the property from purchasing at a tax sale. ...


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