In re McKeever
| Decision Date | 29 October 1991 |
| Docket Number | Bankruptcy No. 89 B 13233,90 A 52. |
| Citation | 132 BR 996 |
| Parties | In re Levander and Elnora McKEEVER, Debtors. Levander and Elnora McKEEVER, Plaintiff, v. Joe Ann McCLANDON d/b/a BMJ Company, Michael Harvey and Lake Shore National Bank, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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David S. Yen, Timothy J. Huffman, Legal Assistance Foundation of Chicago, Englewood Office, Chicago, Ill., for plaintiff.
Mitchell Cohen, Brown & Shinitzky, Chicago, Ill., for defendants.
Donald E. Johnson, Trustee, Hollis & Johnson, Chicago, Ill.
This matter comes before the Court on the Debtors' Amended Complaint to Recover Money or Property from Co-Defendants McClandon, Harvey and Lake Shore National Bank. The debtors seek to avoid and recover their former residence which was transferred to McClandon in a tax deed proceeding conducted under Illinois law. The defendant McClandon has filed a motion to dismiss the amended complaint on the grounds that it fails to state a cause of action upon which relief can be granted. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(b)(2)(H) and 28 U.S.C. § 1334. The parties have submitted memoranda of law in support of their arguments and this matter was taken under advisement by the Court. Having fully considered the submissions of the parties, the Court hereby finds that Count II and Count III of the Amended Complaint fail to state a cause of action and orders that these Counts be dismissed pursuant to Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6). The Court further orders that defendant's motion is denied as to Count I.
The debtors herein, Levander and Elnora McKeever, were the owners and residents of a single family home, located at 9021 South Bishop, Chicago, Illinois, which they purchased in 1972. In 1985 the debtors borrowed $21,000 from Michael Harvey and granted him a mortgage against the property. This mortgage was recorded with the Recorder of Deeds of Cook County, Illinois, in August 1985. Additionally, Lake Shore National Bank claims a second mortgage on the property which is disputed by the debtors.
Debtors failed to pay the second installment of real estate taxes for 1984 which were due in August 1985. Pursuant to the provisions of the Revenue Act of 1939, Ill.Rev.Stat. ch. 120, ¶ 482 et seq. (1989), relating to liens against and sales of real property for nonpayment of state real estate taxes, a tax sale was held and the delinquent second installment of 1984 real estate taxes was purchased by Joe Ann McClandon, an unrelated third party. Upon payment of unpaid taxes, interest, costs and fees, totaling $560.17, McClandon was granted a Certificate of Purchase by the Clerk of Cook County, on January 14, 1986, which became a lien on the property.
The debtors took no action to redeem the unpaid taxes and on April 13, 1988, McClandon filed an Application for Issuance of a Tax Deed in the Circuit Court of Cook County, Illinois. In connection with this procedure, notice was served upon the debtors informing them that McClandon's lien for the purchase of the delinquent second installment of 1984 taxes had not been satisfied, and that unless such lien was redeemed no later than August 10, 1988, a petition would be brought before the Circuit Court of Cook County requesting that a Tax Deed for the property be issued to McClandon. The complaint alleges that such notice was sent only to the debtors and not to the other parties holding liens on this property, Harvey and Lake Shore National Bank.
No party took any action to redeem the property from McClandon's tax lien within the allotted time and an order was issued by the Circuit Court of Cook County on August 30, 1988 directing the Clerk of Cook County to issue a tax deed to McClandon. As part of this procedure, McClandon was required to pay $4,645.11, representing all unpaid taxes for subsequent years that became due after the date she purchased the 1984 delinquent taxes. The Clerk of Cook County thereafter issued the Tax Deed to McClandon on September 8, 1988, as ordered.
No further action was taken in this matter until January 25, 1989, when McClandon moved in the Circuit Court of Cook County for an order evicting the McKeevers from the property. An order of possession was granted to McClandon and the debtors were evicted by the Sheriff of Cook County on April 15, 1989.
Approximately four months later, on August 10, 1989, the debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code. In their Schedule A-3, Unsecured Creditors Without Priority, debtors listed Joe Ann McClandon, in the amount of $6,218.75, with the notation that the debt may be entitled to secured status if the transfer of the debtors' former home at 9021 South Bishop were avoided. Likewise, Michael Harvey was listed as having a claim for $21,000, with the notation that he may be entitled to secured status upon avoidance of the transfer of home, and Lake Shore National Bank was listed in the amount of $6,073.20 as a disputed claim which, if valid, may be entitled to secured status upon avoidance. On Schedule B-1, Statement of Real Property, the debtors listed the property at 9021 South Bishop as real property in which they held an interest in the form of a right to recover the property transferred for less than reasonably equivalent value.
In their amended complaint, the debtors claim the payment of $4,645.11 in back taxes represents only 9.3% of the property's fair market value, alleged to be $50,000, resulting in an avoidable transfer for less than reasonably equivalent value. Section 548 grants this avoidance power to the trustee. The trustee appointed to administer the debtors' assets, however, declined to bring a § 548 or any other type of avoidance action in this case. At the pretrial conference the trustee indicated that he had taken a "no-asset" position due to the small amount of equity, if any, which would be left for unsecured creditors after payment of secured claims and the debtors' homestead exemption. Since the trustee did not assert the § 548 avoidance powers, the debtors themselves attempt to do so by virtue of § 522(h)(1) of the Bankruptcy Code.
The debtors filed an adversary complaint on January 22, 1990, which was later amended, seeking avoidance and turnover of the property on three grounds. First, the debtors assert that the transfer of their home by tax deed was a transfer for less than reasonably equivalent value, in that the total tax payment of $4,645.11 is approximately 9.3% of the $50,000 fair market value claimed by the debtor which could have been avoided by the trustee pursuant to § 548(a)(2), and thus § 522(h)(1) allows debtors to exercise the trustee's power to avoid the transfer to the extent of their homestead exemption. Second, debtors claim the transfer was invalid under Illinois law for failure to comply with the tax deed procedure requiring notice to all interested parties, specifically Michael Harvey. Lastly, the debtors allege to the extent that Illinois law does not require notice of the proceedings to be given to Harvey, such procedure is an unconstitutional deprivation of property in violation of the United States Constitution, making the transfer voidable by the trustee on behalf of an unsecured claimant pursuant to § 544(b), and thus the debtors can avoid it to the extent of their exemptions pursuant to § 522(h)(1).
The defendant tax sale purchaser McClandon has moved to dismiss the amended complaint for failure to state a cause of action under which relief can be granted. The defendant first mortgagee, Michael Harvey, filed an answer to the debtor's amended complaint which contains a prayer for relief asking that his position as mortgagee and first lienholder be maintained in priority ahead of McClandon.
The debtors have filed an amended adversary complaint seeking to avoid the transfer of their property by tax deed to the tax sale purchaser, on the grounds that they are entitled to a homestead exemption under Illinois law and this right of exemption allows them under §§ 522(g), (h) and (i) of the Bankruptcy Code to use the trustee's avoidance powers to set aside the tax deed transfer, recover the property and claim their homestead exemption. Defendant McClandon, the tax deed transferee, has filed a motion to dismiss the amended complaint for failure to state a cause of action on the grounds that (1) the debtors are not entitled to a homestead exemption under Illinois law which would allow them, under § 522, to use the trustee's avoidance powers to avoid a lien or transfer impairing such exemption when the trustee fails to do so, and (2) the tax deed transfer is not avoidable under any of the avoidance powers set forth in §§ 544, 545, 547, 548 or 549.
Pursuant to Bankruptcy Rule 7012(b), Rule 12(b)(6) of the Federal Rules of Civil Procedure applies to motions to dismiss adversary actions in bankruptcy proceedings for failure to state a claim upon which relief may be granted. A movant will prevail on a Rule 12(b)(6) motion only when, even assuming "the well pleaded factual allegations of the complaint and all reasonable inferences most favorable to the plaintiff which follow from the allegations are true," the complaint does not state a cause of action upon which relief may be granted. Corcoran v. Chicago Park Dist., 875 F.2d 609, 611 (7th Cir.1989). The complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle him to relief. Id. In ruling on the defendant's motion to dismiss, the Court will therefore assume that the facts pled in the debtors' complaint and the reasonable inferences most favorable to the debtor which follow therefrom are true.
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