Nov 17, 2016

A bend in the road is not always the end of the road

The Illinois Property Tax Code (the Code) 35 ILCS 200/21-345 provides that “a right to redeem exists in any owner or person interested in a property, other than an undisclosed beneficiary of an Illinois land trust.” Therefore, if property taxes are sold in Illinois, it is not the end of the road for the wary lender. Lenders have the right to redeem. To do so, lenders should request an estimate of redemption from the County Clerk and pay the stated redemption amount. The county will then cancel the tax sale certificate and reimburse the tax buyer (the Buyer). That is a best case scenario because the parties return to status quo and the lender maintains its lien on the property.   

However, what if the redemption expires before anyone redeems? Does the Buyer automatically get title to the property? Is it possible to unwind a tax sale? What if a tax deed is issued and recorded? Is that the end of the road? Fortunately, the answer in many cases is no, it’s just a “bend in the road.” Lenders who want to maintain their interest in a property that was sold after the redemption expires should seek legal counsel to help them explore the options available that will allow them to protect their interest.

To obtain a tax deed, Buyers have the onerous burden of proving to the court that they complied with all of the requirements set forth in the Code and that they strictly complied with 35 ILCS 200/22-10 through 22-25 in pursuing the tax deed. Sections 22-10 through 22-25 delineate the exact form and content of the statutory notices (the Notices) that must be sent to interested parties as a prerequisite for obtaining a tax deed. Lucky for lenders and other interested parties who miss redemption dates, strict compliance is a hard burden for many Buyers to bear. Courts have found that even typographical or scrivener’s errors in the Notices can warrant denial of a tax deed if an objection is raised. This author has even been successful challenging issuance of a tax deed because the Buyer used the wrong sized font on its Notices. Therefore, there are often grounds available for lenders to attack the Buyer’s case prior to or after the Buyer obtains a tax deed. 

In cases where the redemption has expired but the Buyer hasn’t obtained an order directing issuance of a deed yet, the lender can file objections to its issuance. The most common objections are based on defects in or timing of service of the Notices. However, there are numerous other reasons to object including, but not limited to, the Buyer’s failure to conduct a diligent inquiry to ascertain all parties who hold an interest in the property, errors in the property description, improper service, bankruptcy filing by an owner, proof that taxes were paid prior to the sale, violations of sovereign immunity by wiping out the interest of a State, municipality or United States, or a showing that the property is exempt from taxation and was sold in error.    

The Code provides that once the tax deed is actually issued, however, it is incontestable unless the order is appealed or relief petitioned. So, if a deed is already issued, a lender can still challenge the deed by petitioning the court to vacate the tax deed under Sections 2-1203 or 2-1401 of the Illinois Code of Civil Procedure. If less than 30 days have passed since the deed was issued, a petition can be brought under 2-1203 if the lender can show that there was an error in issuing the deed because of one of the objections discussed above.    

If more than 30 days passed since the deed was issued, the lender must bring a petition under 2-1401. The courts will apply a far stricter standard in reviewing a petition to vacate a deed under this section. Therefore, the grounds for relief under this section are limited to: (1) proof that the taxes were paid prior to sale; (2) proof that the property was exempt from taxation; (3) proof by clear and convincing evidence that the tax deed was procured by fraud or deception by the tax purchaser or its assignee; or (4) proof by a party holding a recorded ownership or other recorded interest in the property that they were not named in the publication notice required in the Code, and that the tax purchaser did not make a diligent inquiry and effort to serve that party with the notices required by Sections 22-10 through 22-30 of the Code. 

Bottom line is don’t get stalled if you encounter a bend in the road. Your legal counsel is here to guide you through and advise you how to get around the many roadblocks involved in tax sales.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Amy T. Grace, Associate

This alert originally appeared in the Winter 2016 Banking Focus newsletter.