by Anthony Yim, ATG Law Clerk

Obtaining an Illinois tax deed is a tricky affair. Not only does the potential buyer have to observe detailed notice requirements, but he or she also must seek certification with a court system that is biased against the buyer. This uphill battle is because Illinois tax deed procedure allows an individual to eventually purchase property at a fraction of the fair market value.

The procedure initiates when property owners are delinquent on their property taxes. After two years, the county has the discretion to foreclose on the lien and auction off the debt at either a tax sale or a scavenger sale. When an individual purchases the debt, they must give proper notice to the property owners of their debt and the correct redemption time. If the property owners fail to redeem, then the tax deed petitioner may petition the court to grant a tax deed, which is fully merchantable. The tax deed procedure can be found in the Property Tax Code, 35 ILCS 200/22-5, et seq.

These proceedings originated during the Depression, when the state sought to return delinquent property into the stream of commerce. However, the courts view the procedure of obtaining tax title under the strictest of scrutiny. Gacki v LaSalle Nat Bank, 282 Ill App 3d 961, 669 NE2d 936, 218 Ill Dec 615 (2nd D 1996). If a procedural mistake is made, the courts will almost certainly deny the order for tax title.

This article elaborates the multiple ways a tax deed can be successfully challenged. Note: These terms and procedures are unique to Illinois. Other states may attach different meanings to the same terms.

The Tax Deed and Recording

During a tax deed hearing, if the court finds that all the requirements have been proven, the circuit court will enter an order directing the county clerk to issue a tax deed to the petitioner. However the tax deed must be recorded within one year after the expiration of the redemption period, or else it is absolutely void with no right of reimbursement. The question of whether the statute of limitations can be tolled has not been fully resolved with the courts, and potential tax purchasers should not rely on these cases.1 When recorded, the tax deed vests in the grantee the title to the property described. All tax deeds convey merchantable title.

Due Process Requirement Upheld

The United States Supreme Court has upheld the validity of tax deed procedures and has laid out Constitutional standards of due process in Mullane v Central Hanover Bank & Trust Co, 399 US 306, 70 S Ct 652, 94 L Ed 865 (1950). Specifically, the Mullane Court held as follows:

An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. [Citations]. The notice must be of such nature as reasonably to convey the required information.... But if with due regard for the practicalities and peculiarities of the case these conditions are reasonably met, the Constitutional requirements are satisfied.

The Illinois Supreme Court has followed suit and has found that the current tax deed procedures are consistent with the due process criteria set down byMullane. SeeRosewell v Chicago Title and Trust Company, 99 Ill 2d 407, 459 NE2d 966, 76 Ill Dec 831 (Ill 1984), holding that the Revenue Act of 1939 did not violate due process requirements; see alsoBalthazar v Mari LTD., 301 F Supp 103 (N D Ill 1969), upholding the constitutionality of tax delinquency statues of Illinois.

Collateral Attack at Any Time

A tax deed may be attacked at any time on the grounds that it is absolutely void for want of jurisdiction to enter the original judgment and order of sale. Jurisdictional defects have been limited by the statutes and courts to the following: that the property was under the exclusive jurisdiction of a bankruptcy court; that the court lacked jurisdiction to divest a governmental entity of its interest in the property; or that the taxes were either paid or exempt from taxation. IICLE Real Estate Taxation 5.101 (1997).

Contesting the Tax Deed - Pre-Tax Sale Bankruptcy

Bankruptcy procedures provide another way of successfully challenging tax deeds. If the property owner files for bankruptcy prior to the tax sale or scavenger sale, state courts lose their jurisdiction over the property to order the tax sale. 28 USC § 1471. In addition, bankruptcy courts have held that a tax sale conducted after the filing of a bankruptcy petition violates the automatic stay provision of Section 1471. If a tax deed should be issued based on such a void order and such a void sale, it, too, is void and may be set aside at any time and in any type of proceeding. In re Young, 14 B R 809 (Bankr N D Ill 1981).

Contesting the Tax Deed - Post-Tax Sale Bankruptcy

Another way property owners can attack a tax sale is by filing for bankruptcy up to one year after the transfer of property. Bankruptcy courts have set aside tax deed conveyances as fraudulent transfers under the Bankruptcy Code. Section 548 of the Bankruptcy Code states that a transfer may be set aside if the following conditions are met:


  1. The transfer was on or within one year before the date of the filing of the petition for bankruptcy;


  2. The property owner received less than a reasonably equivalent value in exchange for such transfer or obligation; and


  3. The property owner was insolvent on the date that such transfer was made or such obligation was incurred.

All tax deed conveyances technically meet the requirements of a fraudulent transfer under the Bankruptcy code, and thus can be set aside. In In re McKeever, 132 B R 996 (Bankr N D Ill 1991), a 1984 property tax debt was sold on January 14, 1986. The tax purchaser extended the redemption period to August 10, 1988, and filed a petition for tax deed. When the property owner failed to properly redeem the property, the tax purchaser applied for a tax deed on August 30, 1988. The state court issued the deed on September 8, 1988, and it was timely recorded. After both title and possession were transferred, the prior property owner filed for bankruptcy on August 10, 1989, exactly one year after the expiration of the redemption period. The court ruled that "transfer" under the Bankruptcy Code was defined by the expiration of the redemption period, and not the actual date of the entry of judgment and order of sale for delinquent taxes by the county.

Although this is contrary to the policy reasons of tax deeds, Illinois federal courts have yet to repudiate McKeever and Congress has taken no action to remedy this loophole. In the Northern District of Illinois, McKeever is still controlling authority. See Moureau v Glen Investments, 147 B R 441 (Bankr N D Ill 1992), upholding McKeever.

Contesting the Tax Deed - Direct Attack within Thirty Days

A direct attack may involve anything that might have been raised as a defense at the hearing on the application for tax deeds. Nix v Smith, 32 Ill 2d 465, 207 NE2d 460 (Ill 1965). The person seeking to set aside the tax deed must allege that there was some error in the trial court's findings concerning compliance with the requirements of the Property Tax Code. There are no limitations on the types of allegations that may or may not be raised. Application of County Collector, 2 Ill App 3d 737, 277 NE2d 532 (3rd D 1971). Tax deeds have been successfully overturned by the following issues: (1) incompetency of the property owners, Matter of County Collector, 188 Ill App 3d 1068, 545 NE2d 145, 136 Ill Dec 621, app den, 129 Ill 2d 563, 550 NE2d 554, 140 Ill Dec 669 (1st D 1989); (2) failure to follow notice requirements, Gage v Bailey, 100 Ill 530 (Ill 1913); (3) misdescription of land, Esker v Heffernan, 159 Ill 38, 41 NE 1113 (Ill 1895); (4) improper service of notice, Burton v Perry, 146 Ill 71, 34 NE 60 (Ill 1893); and (5) fraud, Schott v Short, 131 Ill App 2d 854, 268 NE2d 712 (3rd D 1971).

Originally, once a tax deed had been issued, it was incontestable except by appeal from the order of the court directing the county clerk to issue the tax deed. 35 ILCS 200/22-45. This appeal was limited to Section 2-1401 of the Code of Civil Procedure, which only allows appeals from final orders and judgments in other proceedings. A prompt petition for appeal did not affect the order or judgment, or suspend its operation. 735 ILCS 5/2-1401.

However, the appellate court of Illinois has held that Section 200/22-45, limiting the grounds for relief, is unconstitutional. In re Application of the County Collector, 281 Ill App 3d 467, 667 NE2d 109, 217 Ill Dec 316 (2nd D 1996). In that case, the previous property owner alleged that proper notice was not given. However he contested the trial court's issuance of a tax deed pursuant to Section 2-1203 of the Code of Civil Procedure instead of Section 2-1401. Section 2-1203 allows a motion to be filed within 30 days in non-jury cases and stays enforcement of the judgment.

The court held that by limiting the appeals process, the state legislature was unconstitutionally infringing on the separation of powers doctrine. Thus a direct attack may be filed within 30 days of an appeal with respect to final orders and judgments through Section 2-1203 of the Code of Civil Procedure or by filing a notice of appeal. S Ct Rule 303.

Contesting the Tax Deed - Collateral Attack within Two Years

If the 30-day appeal period has passed, direct attack is impossible. It may pass unnoticed, especially when the grounds for attacking the tax deed relate to the tax deed petitioner's diligence in finding the names and addresses of owners, occupants, and parties interested. Persons not served may discover the existence of the tax deed only when the tax deed grantee demands possession.

The only option available is an appeal through Section 2-1401 of the Code of Civil Procedure. The section contains three procedural requirements. The first is that in order to set aside a tax deed, the petition must be filed up to two years after the entry of the judgment. The second is that the petitioner must demonstrate that he or she is free from fault or negligence in failing to bring the grounds for relief to the court's attention within time to prevent entry of the order for tax deed or in failing to institute a direct attack. Third, the petitioner must claim title or interest in the property. Although title and interest is usually acquired before the tax deed, courts will allow standing in title or interest acquired after the issuance of the tax deed. In re Application of Hamilton County Treasurer, 96 Ill App 3d 158, 420 NE2d 1179, 51 Ill Dec 621 (5th D 1981).

However, Section 2-1401 provides a bar to recovery if the tax title has been conveyed for value to a third party who had no interest in the tax deed procedure. This provision codifies the common law principle of protection for bona fide purchasers. Freisinger v Interstate Bond Co, 24 Ill 2d 37, 179 NE2d 608 (Ill 1962).

Illinois tax deed laws originally limited collateral attacks to proof by clear and convincing evidence of the following: (1) the tax deed had been procured by fraud or deception by the tax purchaser or his or her assignee; (2) the property taxes were paid prior to sale; (3) the property was exempt from taxation; or (4) the party did not make a diligent inquiry and effort to serve the person or party with the appropriate notices. 35 ILCS 200/22-45. Now that the appellate court has struck down this section, it is unclear as to what effect this will have on future litigation. The Illinois legislature has not passed any new legislation to remedy the defect.

In conclusion, courts construe tax deeds and tax deed procedure strictly and in favor of the delinquent taxpayer/owner. That owner has multiple theories available to him or her to attack a tax deed, even after the tax deed is issued. Therefore, in pursuing a tax deed, or insuring title to a tax deed, attorneys must observe great caution and precision to be certain that the deed will convey good title.

1. Compare Application of County Treasurer, 255 Ill App 3d 349, 587 NE2d 1232, 167 Ill Dec 617 (1st D 1992), where the appellate court tolled the statue of limitations due to the inability of the district court to legally order a tax deed to issue, versus In re Application of Rosewell, 209 Ill App 3d 187, 568 NE2d 89, 154 Ill Dec 89 (1st D 1991), where the "refusal or inability" of the court to act on the application did not dictate that the statute of limitations be tolled.

© ATG atgc0700vol24