In re LaMont

Citation:
Case No 13-1187 (7th Cir. Jan. 7, 2014)
Tag(s):
Ruling:
The Seventh Circuit Court of Appeals affirmed the bankruptcy and district court rulings, by holding that during the redemption period, the interest of a purchaser at tax sale is a secured claim that is treatable in bankruptcy and modifiable in a debtor’s Chapter 13 plan.
Procedural context:
This is an appeal brought by Lyubomir Alexandrov, as ultimate tax purchaser, objecting to the treatment of his interest as a claim and arguing that he should be permitted to obtain a tax deed to the debtor’s home.
Facts:
In Illinois, if an owner of real property does not timely pay county property taxes, the county may “sell” the property to a third party. This third party, a 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 tax payer does not redeem his property within the allotted time. In November 2008, the delinquent taxes of the debtors were purchased by Advantinet, which assigned its interest to Lyubomir Alexandrov. In December 2008, the debtors filed a voluntary Chapter 13 bankruptcy petition. In August 2011, Alexandrov filed a petition to obtain a tax deed and, once the redemption period expired, he applied for an order directing the county clerk to issue a tax deed. The circuit court would not enter an order while the bankruptcy petition was pending. In January 2012, Alexandrov filed a motion in the bankruptcy court seeking a declaration that the automatic stay did not prevent him from obtaining a tax deed from the property, or in the alternative, modification of the automatic stay. By this time, the Chapter 13 plan had been confirmed for nearly three years. The bankruptcy court denied Alexandrov’s motion, and instead treated his interest as a secured claim. The bankruptcy court held that Alexandrov’s interest had been adequately treated in the plan and the automatic stay did prevent him from obtaining a tax deed. The district court affirmed. Alexandrov appealed the district court ruling, arguing that his interest was not just a claim. He maintained that his interest was a real property interest that automatically divested the debtors of title to their home after the redemption period expired (an executory interest). Alexandrov argued that modification of the stay was therefore appropriate, even if the stay applied. The Seventh Circuit was faced with determining whether Alexandrov’s Certificate of Purchase was a claim against the debtors’ property or whether it was a kind of real property interest. In interpreting Illinois state law, the Seventh Circuit rejected the argument that a tax purchaser holds an executory interest. While acknowledging that Illinois provides a tax purchaser more rights than a mere lien holder, the Seventh Circuit pointed to Illinois cases that have consistently treated a tax purchaser’s interest as a tax lien, not a future interest in real property. The Seventh Circuit held that Illinois courts would not recognize a tax purchaser’s interest in real property as anything more than a lien on personal property, and therefore denied Alexandrov’s argument that he held an executory interest. The Seventh Circuit also faulted Alexandrov’s theory that property sold at a tax sale should be treated in the same way as property sold at a foreclosure sale. Specifically, the Court noted that while the contexts may be similar for a tax sale where a debtor files after the redemption deadline has passed, the circumstances are different if the petition is filed when time remains to redeem. Relying on Illinois case law, the Court noted that the debtors here still had legal and equitable title to the property, despite Alexandrov’s Certificate of Purchase. The Seventh Circuit held that the property subject to the Certificate of Purchase was therefore property of the estate, falling within the protection of the automatic stay.
Judge(s):
Manion, Kanne and Sykes

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