Appeal from Unite4 States Bankruptcy Court Northern District of Illinois USBC No. 08 B 32995
The opinion of the court was delivered by: Hon. Harry D. Leinenweber
MEMORANDUM OPINION AND ORDER
This case comes before the Court on Appellant Lyubomir Alexandrov's appeal from the Bankruptcy Court's denial of his Motion to Modify the Automatic Stay in the case of In re LaMont, Case Number 08-BK-32995. For the reasons stated herein, the judgment of the Bankruptcy Court is affirmed and modification of the stay is denied.
First, the Court notes that Appellees Todd and Christina LaMont (the "Appellees") did not file a brief in response to Appellant's brief. The response brief was initially due on June 15, 2012. On July 19, 2012, because they had still not filed a brief, the Court gave them seven additional days to do so. Those seven days passed without a response from Appellees. The only facts the Court has available to it, therefore, are from Appellant's brief and the bankruptcy record on appeal.
Appellant Lyubomir Alexandrov (hereinafter, the "Appellant" or "Tax Purchaser" or "Purchaser") seeks a lifting of the stay so that he can seek issuance of the deed to debtors' property.
On November 14, 2008, Appellant purchased the delinquent real estate taxes on the subject property at 800 Grant Drive in Minooka, Illinois, (located in Grundy County) which was owned by Appellees. When he made the purchase, Appellant received a Certificate of Purchase from the County Collector of Grundy County, the effect of which will be discussed in greater detail below. Appellees had until November 14, 2011 to redeem the delinquent taxes and retain their property.
On December 3, 2008, Appellees filed a voluntary Chapter 13 Petition and a proposed Chapter 13 Plan ("the Plan"). The proposed Plan was modified and then confirmed on February 12, 2009. The confirmed Plan did not provide for any payments to be made to Appellant. It did, however, list Grundy County as a secured creditor and provided for the repayment of delinquent taxes to Grundy County over the life of the Plan.
Appellant alleges that at the time of the Plan's confirmation, he had still not received notice of Appellees' bankruptcy proceeding. It is unclear when exactly he received notice, but on January 26, 2012, Appellant filed a Motion in Bankruptcy Court to modify the automatic stay entered pursuant to 11 U.S.C. § 362. Appellees responded to this Motion on February 10, 2012. Appellant was not given an opportunity to reply and on February 17, 2012, the Bankruptcy Court orally denied Appellant's motion. After the court denied his motion for relief from that judgment, Appellant filed this appeal.
This Court has jurisdiction over this appeal pursuant 28 U.S.C. § 158. Under Bankruptcy Court Rule 8013, the Court must accept the bankruptcy court's findings of fact unless they are clearly erroneous. There are no such factual issues relevant to the determination in this case. The Court reviews the bankruptcy court's conclusions of law under a de novo standard. Colon v. Option One Mortg. Corp., 319 F.3d 912, 916 (7th Cir. 2003).
The issue presented by this appeal is one on which bankruptcy and district courts in Illinois are split. The split stems from the different approaches taken when characterizing the rights held by a purchaser at an Illinois Tax Sale; the rights held by the tax-delinquent landowner and bankruptcy debtor; and the treatment of these rights within the context of a Chapter 13 bankruptcy proceeding. Though this split has yielded different results in similar cases for some years, the Seventh Circuit has not yet taken the opportunity to endorse one of these approaches over the other.
For the reasons explained below, this Court adopts the view that modification of the automatic stay is inappropriate in this situation. In an effort to address these issues fully, the Court will discuss the competing approaches and reasoning regarding the treatment of a tax sale in bankruptcy. It is important first, however, to explain the Illinois Tax Sale process.
A. Illinois Tax Sale Process
The Illinois Tax Code states that on January 1 of each year, a lien attaches to all non-exempt real property securing the payment of the taxes levied on that property in that year. 35 ILL. COMP. STAT. 200/21-75. This lien has priority over all other liens on the property, even those prior in time. Id. If the taxes are not paid, the county may bring an action to foreclose the lien and seek a judgment and order of sale in the Illinois Circuit Court. Id.; 35 ILL. COMP. STAT. 200/21-150 through 21-185. The landowner/ tax debtor then has the opportunity to pay the delinquent taxes and interest up to and including one business day before the sale. 35 ILL. COMP. STAT. 200/21-165.
If the taxes are not paid, the collector may proceed with the tax sale. 35 ILL. COMP. STAT. 200/21-205. Potential tax purchasers (or bidders) compete or "reverse bid" for the right to buy the taxes. Each bidder agrees to pay the taxes and any interest and fees due to the county. In addition, tax purchasers can make a return on their investment by charging the landowner a "penalty" or premium interest rate on top of that sum. 35 ILL. COMP. STAT.
The penalty is where the "reverse" bidding occurs. The maximum penalty a bidder may charge a landowner is 18 percent. Id. The potential purchasers engage in reverse bidding, offering successively lower penalties. ...