by In a chapter 13 bankruptcy filed prior to the expiration of the redemption period, a real property tax purchaser’s claim is treated as a secured claim which may be modified in the plan. Alexandrov v. LaMont (In re LaMont), No. 13-1187 (7th Cir. Jan. 7, 2014). This case involved Illinois property tax law, 35 ILCS 200/, under which the “tax purchaser” holds a “Certificate of Purchase” subject to the delinquent debtor’s right of redemption. If the debtor does not redeem the property by paying the delinquent taxes within approximately two years, the tax purchaser may take the necessary steps to acquire title to the property. This case involves the issue of how the tax purchaser’s interest is treated when the debtor enters bankruptcy prior to the expiration of the redemption period.
In December, 2008, after the county had sold the tax lien to the tax purchaser, the LaMonts filed a chapter 13 bankruptcy petition listing the county as a tax creditor. Their confirmed plan included a provision for repaying their delinquent taxes to the county. The redemption period expired in January, 2012, and, six months prior to that date, as required by the statue, Alexandrov petitioned the county for a tax deed. When the county refused to issue him a tax deed while the bankruptcy was pending Alexandrov sought an order from the bankruptcy court either declaring that the automatic stay did not apply to prevent acquisition of the tax deed, or lifting the stay so he could move forward. The bankruptcy court treated Alexandrov’s claim as a secured claim against estate property and refused to lift the stay. The district court affirmed.
While the case was on appeal, the debtors successfully completed their plan. Relief for Alexandrov, therefore, depended upon whether his claim was deemed a secured claim (a tax lien), in which case it was satisfied through the chapter 13 plan payments, or a property interest (executory interest upon expiration of the redemption period), in which case the automatic stay should not have been applied to it.
The court began with section 101(5) of the Code defining a “claim” in broad terms as:
(A) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured;
- or
(B) right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment,
whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured,
- or unsecured.
Alexandrov argued that for bankruptcy purposes his Certificate of Purchase gave him an executory interest in real property and that this interest should be treated similarly to the interest of a foreclosure purchaser. The court found, however, that Illinois courts consistently treat tax purchasers as tax lienholders. Quoting Petition of Conrad Gacki Profit Sharing Fund (PJA Investments, Ltd. v. Conrad Gacki Profit Sharing Fund), 634 N.E.2d 1281, 1282–83 (1994), the court said, “a certificate holder has no real property interest in the land until the certificates have been redeemed and the petition for a tax deed has been granted.” Before the redemption period expires, the debtors remained legal and equitable owners of the property. (The court noted that the situation may have been different if the debtors had filed for bankruptcy after the redemption period had run).
The court also rejected Alexandrov’s argument that his claim was not against the debtors’ or estate property because he had no right of recovery against the debtors. Rather, his claim was against the county either for the value of his tax lien in the event that the debtors redeemed the property or for the property deed. Citing Johnson v. Home State Bank, 501 U.S. 78, 83 (1991), the court found that Alexandrov’s tax lien fell under the Bankruptcy Code’s definition of “claim” as a claim against the debtors’ property even if not against the debtors personally. “[T]he tax purchaser still owns, as modified, the county’s equitable remedy against the property for nonpayment of taxes.”
Turning to the issue of whether the debtors may, in their chapter 13 plan, pay off the tax lien beyond the redemption period, the court found that under section 1322(b), they could. It found that Alexandrov did not have an unmodifiable security interest in the debtors’ residence because his claim was not based on a security agreement as required by section 101(51). Rather, he had a secured claim that could be modified to permit plan payments beyond the redemption period.
Having found that Alexandrov had a claim against estate property, the court held that the automatic stay applied, and, because by the time the case came to argument, the debtors had successfully completed the plan, there was no justification for modifying the stay.
Other states with similar tax lien laws are: Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming. The District of Columbia is also a tax lien jurisdiction. Huntington.