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In re LaMont

United States Court of Appeals, Seventh Circuit

January 7, 2014

In re Todd LaMONT and Christina LaMont, Debtors-Appellees. Appeal of Lyubomir Alexandrov.

Argued Sept. 19, 2013.

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[Copyrighted Material Omitted]

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David S. Yen, Attorney, Legal Assistance Foundation of Metropolitan Chicago, Chicago, IL, John C. Dent, Lockport, IL, for Debtors-Appellees.

Michael O'Malley Kurtz, Attorney, Kurtz & Augenlicht LLP, Chicago, IL, for Lyubomir Alexandrov.

Marilyn Fusco Schlesinger, Attorney, Office of the Cook County State's Attorney, Chicago, IL, for Amicus Curiae.

Before MANION, KANNE, and SYKES, Circuit Judges.

MANION, Circuit Judge.

If an owner of real property in Illinois does not timely pay his county property taxes, the county may " sell" the property to a third, often called a tax purchaser.

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The tax purchaser does not receive title to the property, but rather receives a " Certificate of Purchase" which can be used to obtain title to the property if the delinquent taxpayer does not redeem his property within about two years. At issue in this case is how the tax purchaser's interest is treated when the property owner enters bankruptcy during the redemption period. The bankruptcy court held that, when there is still time to redeem, the tax purchaser's interest is a secured claim that is treatable in bankruptcy and modifiable in a's Chapter 13 plan. The district court agreed. The holder of the Certificate of Purchase, Lyubomir Alexandrov, appeals, objecting to the treatment of his interest as a claim and arguing that he should be permitted to obtain a tax deed to the' home. We affirm.

I. Factual Background

Illinois Property Tax System

Because this case concerns an interest created by Illinois' property tax code, we begin with a brief overview of the system. Illinois property taxes are due the year after the year in which they accrue, and a lien in favor of the county automatically arises at the beginning of the year in which the taxes accrue. See Jeffrey S. Blumenthal & David R. Gray, Jr., Tax Bills and Payments; Tax Sales and Redemptions; Miscellaneous Collection and Enforcement Matters and A Guide to Tax Deed and Indemnity Fund Proceedings, Chapters 10 & 11 in Real Estate Taxation § 10.3 (IICLE 2012) (hereinafter, " Real Estate Taxation" ); 35 ILCS 200/21-75. If the taxes are paid, the county's lien is extinguished; if the taxes are not paid, Illinois law provides various methods for recovering delinquent taxes. While the county may foreclose on its tax lien, the most common method to collect delinquent taxes is via one of the " tax sale" methods provided by the property tax code. Real Estate Taxation at § 10.20. First, the county applies for a judgment and order of sale against the property. Once a judgment and order of sale is obtained, the county may " sell the property" at a tax sale. One particular type of tax sale is called the " annual sale," where properties with at least one year of delinquent taxes are sold to the public. (For example, properties with taxes incurred in 2010 and due but unpaid in 2011 will be sold at the 2012 annual sale). When the property is sold at an annual sale, the tax purchaser pays all taxes due on the property, the county loses its lien, and the tax purchaser receives a " Certificate of Purchase." [1]

What happens next depends on the actions of the delinquent taxpayer and the tax purchaser. The taxpayer has two years to redeem the property— two and a half years if the property is a home. 35 ILCS 200/21-350. The tax purchaser may, however, extend the period to three years total. 35 ILCS 200/21-385.[2] During the redemption period, the taxpayer can redeem the property by paying the tax purchaser, through the county clerk, all amounts due (which includes everything

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the tax purchaser paid to the county plus any penalty interest). Three to six months before the redemption period expires, the tax purchaser must file a petition for a tax deed in the circuit court of the county where he acquired the Certificate of Purchase. He must also give notice of the expiration of the redemption period to the taxpayer and anyone else with an interest in the property. See 35 ILCS 200/22-10, 22-30. The taxpayer, of course, may still redeem his property while the petition is pending, so long as the redemption period has not run. Once the redemption period has run, the taxpayer cannot redeem the property. At that point the tax purchaser has one year to act on its petition by applying for " an order on the petition that a[tax] deed be issued," taking that order to the county clerk to obtain a tax deed, and recording the tax deed. If these steps are not completed within a year, the tax purchaser loses his interest and the taxpayer keeps the property. 35 ILCS 200/22-30, 22-40, 22-85. If, however, there is an order of a court preventing the tax purchaser from applying for an order to issue a tax deed— such as the automatic stay in a bankruptcy proceeding— the one-year period is tolled. 35 ILCS 200/22-85. If the obstacle to obtaining the order is lifted, the tax purchaser may do so in the time that remains. If the tax purchaser obtains and records a tax deed, he becomes the owner of the property outright and all outstanding liens and mortgages are extinguished. See 35 ILCS 200/22-55.

However, under certain circumstances, the tax purchaser has another option. Instead of seeking a tax deed, he may apply to the county circuit court for a declaration that the tax sale was a " sale in error" for a reason listed in the statute. See 35 ILCS 200/21-310. One such reason is that the taxpayer petitioned for bankruptcy after the tax sale and before the county issued a tax deed. 35 ILCS 200/21-310(b)(1). Under those circumstances, the circuit court will declare the sale to be a sale in error. Id. When the circuit court has done so, the tax purchaser is reimbursed by the county for everything he paid, plus interest (either at the penalty rate or a statutory rate of 12% per year, whichever is lower). 35 ILCS 200/21-315. The statute does not indicate whether the tax purchaser must seek a sale-in-error declaration within a certain period of time after learning of the taxpayer's bankruptcy. Apparently— and to the chagrin of the Clerk of Cook County (who has filed an amicus brief in this matter)— the tax purchaser can wait until just before the deadline to obtain a deed (which may be tolled) to seek a sale-in-error declaration, accruing interest at the county's expense the entire time.

Facts of This Case

In this case, Todd and Christina LaMont (the " debtors" or " taxpayers" ) own a home in the Village of Minooka in Grundy County, Illinois. The Village levied a special assessment in relation to some local improvements.[3] The debtors did not timely pay these taxes. In November 2008, Grundy County sold the debtors' property at an annual sale to Advantinet, which assigned its interest to Lyubomir Alexandrov. In December 2008, the debtors filed a voluntary Chapter 13 bankruptcy petition. It is not clear when Alexandrov first received notice of the bankruptcy proceeding because the debtors listed the Village of Minooka as the creditor for their unpaid taxes in their bankruptcy petition.

With or without knowledge of the debtors' bankruptcy, ...

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