In re Villasenor, Case No. 17 B 15830

• Decision Date: 05 December 2017
• Docket Number: Case No. 17 B 15830
• Citation: 581 B.R. 546
• Parties: IN RE: Frank VILLASENOR, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

581 B.R. 546

IN RE: Frank VILLASENOR, Debtor.

Case No. 17 B 15830

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed December 5, 2017

Entered December 6, 2017

Paul M. Bach, Bach Law Offices, P.O. Box 1285, Northbrook, IL 60065, 847 564–0808, 847 564–0985 (fax), paul@bachoffices.com, Counsel for Fair Deal of Illinois, Inc.

Robert V. Schaller, Schaller Law Firm, 700 Commerce Drive, Suite 500, Oak Brook, IL 60523, 630 655–1233, slfecfmail@gmail.com, Counsel for Debtor, Frank Villasenor

MEMORANDUM OPINION ON DEBTOR'S AMENDED OBJECTION TO PROOF OF CLAIM FILED BY FAIR DEAL OF ILLINOIS, INC. AS CLAIM NO. 2 [DKT. NO. 37]

Jack B. Schmetterer, United States Bankruptcy Judge

This matter comes before the Court on Debtor, Frank Villasenor's ("Debtor"), Amended Objection to Proof of Claim filed by Fair Deal of Illinois, Inc. ("Fair Deal") as Claim No. 2.

For the reasons stated below, Debtor's Objection will be overruled. The following undisputed facts appear from briefs of the parties.

UNDISPUTED FACTS

1. Debtor owns the property commonly known as 2310 S. California Avenue, Chicago, Illinois 60608, PIN: 16–25–112–059–0000 ("the Property"). (Dkt. No. 37.)

2. Debtor failed to pay the Cook County property taxes levied upon the Property in 2012. (Dkt. No. 37.)

3. Cook County subsequently sold the unpaid 2012 real estate taxes to Fair Deal as part of its "annual sale." (Dkt. No. 37.)

4. Debtor subsequently failed to pay real estate taxes for the subsequent tax years including 2013, 2014, 2015 and 2016. (Dkt. No. 37.)

5. Fair Deal paid these delinquent real estate taxes to Cook County each time they became due. (Dkt. No. 37.)

6. In all, Fair Deal indicates that it has paid the 2012 taxes, the 2013 taxes, the first of two tax installments in 2014, the 2015 taxes, and the first tax installment of 2016 based on their Claim No. 2. (Claim No. 2–1; Dkt. No. 37).

7. Neither party has indicated in their pleadings who paid the second installment of the 2014 taxes. (Dkt. No. 44.)

8. Debtor filed his Chapter 13 petition May 22, 2017. (Dkt. No. 37.)

9. Upon commencement of the Chapter 13 case, Fair Deal submitted its Proof of Claim in the amount of $17,768.50 based upon the total of the real estate taxes, interest, penalties and costs accrued through the filing date of the May petition. (Dkt. No. 37.)

10. Neither party disputes that this is the calculation of the claim. (Dkt. Nos. 37 and 44.)

11. Debtor previously filed four Chapter 13 plans in this case, each indicating that Fair Deal's claim is entitled to 12% interest (Dkt. Nos. 7, 20, 26, 34.)

12. Debtor's latest Chapter 13 plan, filed on November 13, 2017, indicates that Fair Deal will receive 0% interest. (Dkt. No. 49.)

13. Both parties agree that the redemption period for the property ended on June 16, 2017, pursuant to Illinois law. (Dkt. No. 44.)

14. On September 6, 2017, Debtor objected to Fair Deal's claim on the sole basis that the proper interest rate for the claim in his Chapter 13 plan should be 0%.

15. Both parties agree that the only issue before the Court is to determine the proper rate of postpetition interest on Fair Deal's claim. (Dkt. Nos. 37 and 44.)

JURISDICTION AND VENUE

Subject matter jurisdiction lies under 28 U.S.C. § 1334. Subject matter jurisdiction lies under 28 U.S.C. § 1334. The district court may refer cases arising under title 11 to a bankruptcy judge under 28 U.S.C. § 157, and this matter is referred here by District Court Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Venue lies under 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(B).

FAIR DEAL OF ILLINOIS, INC.'S CLAIM NO. 2

Initially, it is necessary to discuss precisely how both Debtor and Fair Deal of Illinois arrive at the $17,768.50 figure that the parties have agreed represents Fair Deal's total, secured claim value. According to Fair Deal's claim, the $17,768.50 figure represents the total amount paid by them, including fees, interest and penalties, after purchasing real estate taxes on the property known as 2310 S. California Ave, Chicago, IL. (Claim No. 2.) Fair Deal's claim also asserts that the property is worth $40,000.00, a fact which is not in dispute, rendering the entire amount secured. Id.

Fair Deal is not seeking any additional postpetition interest or penalty on the amount that it paid to purchase the 2012 taxes, totaling $1,553.03. (Dkt. No. 44.) Fair Deal is also not seeking interest or penalties with regards to its accrued costs and fees, totaling $2,117.52. Id. In its Response, Fair Deal waives the right to postpetition interest on this sum of $3,670.55 ($1,553.03 paid for the 2012 taxes and $2,117.52 in costs and fees).Id.

Fair Deal is seeking postpetition interest or penalty only on the $14,097.95 that it has paid to cover real estate taxes on the Property after 2012. Id. Fair Deal paid the 2013 taxes ($3,483.02), the first of two tax installments in 2014 ($1,783.75), the 2015 taxes ($3,846.13), and the first installment of 2016 taxes ($2,151.17). (Claim No. 2.) With the accrued prepetition interest on these payments, Fair Deal has paid $14,097.95 for the tax years after 2012. Id. Fair Deal has not indicated that it has paid any other tax installments, including the second installment of 2016 taxes and those coming due in 2017. Id.

In the claim, Fair Deal indicated that it was entitled to 24% interest. Id. In the most recently amended Chapter 13 plan, the Debtor indicates that Fair Deal is entitled to no interest. (Dkt. No. 49.) The only question before this Court is determining what amount of interest, if any, the $14,097.95 portion of Fair Deal's claim representing real estate taxes paid subsequent to 2012 is entitled to.

DISCUSSION

Both parties have correctly noted that the treatment of tax liens in bankruptcy are governed by 11 U.S.C. 511(a). That provision of the Bankruptcy Code requires courts to turn to applicable nonbankruptcy law to determine the rate of interest on tax claims. 11 U.S.C. 511(a). For the purposes of section 511(a), the applicable nonbankruptcy law to be applied will be Illinois law. Both parties rely wholly on the Illinois statute. Neither offers evidence on any other subject. A Seventh Circuit Panel recently decided that, pursuant to Illinois law, a tax purchaser held a tax lien. In re LaMont , 740 F.3d 397, 408 (7th Cir. 2014). It was also held that in Illinois a tax purchaser stands in the shoes of the county. Id. at 406.

The Illinois Property Tax Code is the law that governs the correct interest rate to be paid to a real estate tax purchaser. 35 ILCS 200 et seq. However, unlike the Tennessee statute discussed in State of Tennessee v. Hildebrand (In re Corrin) , which both Debtor and Fair Deal cite in their pleadings, the Illinois Property Tax Code does not directly address this issue. Thus, a close reading of the relevant Illinois code sections, coupled with the guiding principal from In re LaMont that a tax purchaser stands in the shoes of the county, is required to determine the appropriate amount of interest to which Fair Deal of Illinois is entitled in the instant matter.

Three separate provisions of the Illinois Property Tax Code deal with interest rates to applying to real estate tax purchasers and each of these will be addressed in turn.

First, 35 ILCS 200/21–25 states in relevant part that:

Notwithstanding any other provision of law, if a taxpayer owes an arrearage of taxes due to an administrative error, and if the county collector sends a separate bill for that arrearage as provided in Section 14–41, then any part of the arrearage of taxes that remains unpaid on the day after the due date specified on that tax bill shall be deemed delinquent and shall bear interest after that date at the rate of 1 1/2% per month or portion thereof.

35 ILCS 200/21–25. Thus, until the date of a tax sale, real estate tax arrearages may accrue up to 18% per annum in interest pursuant to Illinois law. However, the tax sale in this case occurred well before the initiation of Debtor's bankruptcy proceedings, and any additional interest under this provision would be prepetition interest. In the instant case, both Debtor and Fair Deal agree that no prepetition interest is being sought. Thus, 35 ILCS 200/21–15 does not apply and 18% percent per annum is not the correct interest rate.

Second, 35 ILCS 200/21–355 describes a "penalty" that a tax purchaser may levy upon a delinquent tax payer for the duration of the redemption period, lasting between 30 and 36 months, depending on whether the tax purchaser allows for a six month extension. In relevant part, the statute states that:

(b) the accrued penalty, computed through the date of redemption as a percentage of the certificate amount, as follows:

(1) if the redemption occurs on or before the expiration of 6 months from the date of sale, the certificate amount times the penalty bid at sale;

(2) if the redemption occurs after 6 months from the date of sale, and on or before the expiration of 12 months from the date of sale, the certificate amount times 2 times the penalty bid at sale;

(3) if the redemption occurs after 12 months from the date of sale and on or before the expiration of 18 months from the date of sale, the certificate amount times 3 times the penalty bid at sale;

(4) if the redemption occurs after 18 months from the date of sale and on or before the expiration of 24 months from the date of sale, the certificate amount times 4 times the penalty bid at sale;

(5) if the redemption occurs after 24 months from the date of sale and on or before the expiration of 30 months from the date of sale, the certificate amount times 5 times the penalty bid at sale;

(6) if the redemption occurs after 30 months from the date of sale and on or before the expiration of 36 months from the date of sale, the certificate amount times 6 times the penalty bid at sale.

35 ILCS 200/21–355(b). In Illinois, tax bidding operates differently than in traditional auctions. Tax...