Smith v. SIPI, LLC, et al. (In re Smith)
- Citation:
- Smith v. SIPI, LLC (In re Smith), No. 1:13-cv-06422 (7th Cir. Jan. 20, 2016)
- Tag(s):
-
- Ruling:
- A tax sale lawfully conducted according to Illinois's interest rate auction system does not necessarily establish a transfer for reasonably equivalent value within the meaning of 11 U.S.C. 548(a)(1)(B). Here, the 7th Circuit found that the debtors' residence was not sold for "reasonably equivalent value" when the auction sale price was between 3.8% and 8.8% of the fair market value.
- Procedural context:
- Married debtors filed for bankruptcy under Chapter 13 in 2007 and filed an adversary proceeding to avoid the tax sale of their residence as a fraudulent transfer. The bankruptcy court ruled in favor of the debtors and the district court reversed.
- Facts:
- The debtors lived that their residence (the "Residence") between 1998 and 2009. In 2004 the debtor-wife inherited the Residence, which was encumbered by a lien for unpaid taxes in 2000. In 2001, the county auctioned the Residence and SIPI, LLC ("SIPI"), paid approximately $5000. No one redeemed the Residence after the auction. In 2005, SIPI obtained and recorded its tax deed and sold the Residence to Midwest Capital Investments, LLC ("Midwest") for $50,000. The Residence was worth somewhere between $50,000 (the amount Midwest paid to SIPI) and $110,000 (an appraiser's opinion of the Residence's value).
The 7th Circuit also found 1) that the debtors had standing to bring the adversary proceeding against SIPI and Midwest; 2) that the debtors were only entitled to a homestead exemption in the amount of $15,000 because only the debtor-wife had title to the Residence on the petition date; 3) that SIPI was the initial transferee for purposes of section 548 of the Bankruptcy Code; and 4) that Midwest had a valid defense under section 550(a) of the Bankruptcy Code because it had no affirmative knowledge of the insolvency of the debtors.
- Judge(s):
- Bauer, Williams, and Hamilton
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