Standard Bank & Trust Co. v. Barnard

Citation: 228 Ill. App. 3d 719Docket: Nos. 1—89—2647, 1—89—2648 cons.

Court: Appellate Court of Illinois; August 28, 1991; Illinois; State Appellate Court

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Respondent Leslie C. Barnard, operating as Elsie Bee, along with intervenors Joseph Berke and American National Bank and Trust Company, appeals an order that vacated a tax deed previously issued to them for a Cook County property due to nonpayment of taxes. The property, sold for $774.80 on December 30, 1986, was subject to a tax sale after the 1985 taxes were unpaid. Notices regarding the tax sale were sent to Midwest Bank on April 8, 1987, and subsequent notices were mailed to Heritage Standard Bank in September 1988, informing them of the redemption period ending February 15, 1989. 

Respondent filed for a tax deed on September 28, 1988, claiming to have inspected the property, which was vacant with some signs of farming activity but no visible occupants. An affidavit was submitted stating that all interested parties were notified, and a public notice of the tax sale was published in November 1988. During a hearing, respondent confirmed he had checked public records to identify parties with interests in the property, identifying Heritage Standard Bank as the record owner and Midwest Bank as the last assessed party. Additionally, it was noted that taxes for 1986 and 1987 were paid, but the first installment of 1988 taxes remained unpaid. Respondent's attorney asserted that all necessary notices were properly served in accordance with the Revenue Act.

Proofs from the county clerk’s office confirmed that Gallagher, Henry (G&H) made tax payments dated February 27, 1989. The trial court established jurisdiction and found that notices for the tax sale were properly served, that all parties entitled to notice received it, and that the property had not been redeemed by the expiration date of February 15, 1989. An order for a tax deed was issued on February 28, 1989.

On May 2, 1989, Heritage Standard Bank filed a petition claiming the tax deed order was void, with subsequent filings by new attorneys lacking proof of service. Robert E. Gallagher, managing partner of Orchard Hill Building Company, stated he was unaware of the tax deed until April 18, 1989, and argued that his attorney was not authorized to accept service. The trial court denied the motion to strike the petition for insufficiency of service. A temporary restraining order was placed on the property, which was later reaffirmed.

A third petition was filed by the bank on May 23, 1989, alleging that the property was actively farmed and assessed as farmland, which should have been discoverable. The petition contended that the trial court was not informed of the three-year redemption period and that the beneficiary of the land trust did not receive notice of the hearing. Gallagher supported this with an affidavit asserting he did not receive notice of the tax sale or the redemption period. The petition concluded that the issuance of the tax deed was void ab initio due to the incorrect redemption period, which should have extended to December 30, 1989.

On May 30, 1989, Joseph D. Berke, the sole beneficiary of a land trust, filed a petition to intervene, claiming he paid $1.2 million for the property on April 18, 1989, which had been conveyed into the land trust by the respondent. Berke asserted he was a bona fide purchaser for value under Illinois law. The respondent subsequently filed a motion to strike and dismiss Berke's petition, supported by an affidavit detailing his prior inspection of the property, his lack of knowledge regarding its agricultural status and redemption period, and his actions of conveying the property into the land trust before selling it to Berke. The affidavit also noted that Berke was not involved in the tax deed proceedings.

The interveners moved to dismiss Berke's petition, while Berke asserted he was unaware of the circumstances surrounding the respondent’s acquisition of the property and provided documentation related to his purchase, excluding a title commitment. The motions to dismiss were denied, and a preliminary injunction was placed against both parties regarding the property.

During the trial, testimony from Thomas J. McGovern indicated that the property had been classified as agricultural based on records and questionnaires from 1985 to 1988. Donald E. Yunker, a local farmer, confirmed he farmed the property from 1985 through 1989. Robert E. Gallagher, managing partner of Orchard Hill, mentioned their intention to farm the property for ten years before converting it for residential development. The property had previously been owned by George Eck before G&H acquired it.

The company paid real estate taxes for the years 1986, 1987, and the first installment of 1988. Gallagher testified about an October 3, 1988, letter from the bank to Orchard Hill, which included a take notice, but he claimed he did not receive the notice that the property was sold for delinquent taxes. Gallagher noted that while he scanned all mail, it was possible, though unlikely, that the letter could have reached someone else in the company. An earlier letter, dated August 16, 1988, informed about other properties sold for delinquent taxes. Respondent, who had experience with tax sales dating back to 1973, served a take notice on the last known owner, Midwest Bank, and conducted a record search that identified Rita Larson as the record owner of the property. He described the property as large and vacant, primarily farmed, with no buildings or known occupants present during his visit. Respondent sent two notices to the bank, assuming there might be a loan on the property, but did not include a three-year redemption period due to his ignorance of it. Sheriff’s returns confirmed that both notices were served to the bank on October 4, 1988. Respondent testified that he provided truthful information during the application for a tax deed and denied any fraud. At the February 27, 1989, hearing, he was unaware of the three-year redemption period and confirmed that taxes for 1986, 1987, and part of 1988 had been paid by G&H. After obtaining the tax deed, he sold the property to Berke in a tax-free like-kind exchange to defer tax obligations. Berke, a real estate broker and tax buyer, relied on a title commitment for the purchase. The trial court's findings indicated that the respondent negligently investigated the property use and misrepresented evidence, leading to a conclusion that full disclosure would have denied the tax deed. The court deemed the failure to comply with the three-year redemption requirement for farmland as tantamount to fraud, resulting in the tax deed being declared void.

Respondent argues that the trial court incorrectly did not strike the notice of motion due to improper service of the section 2.1401 petition on his attorney rather than directly on him, as required by Supreme Court Rules 105 and 106. Although Respondent filed a special appearance, he waived any objection to personal jurisdiction by participating in further proceedings after his motion to strike was denied. The case Slade v. Bowman supports this waiver principle. Respondent also contends that the petition lacked allegations of due diligence, citing three reasons: the bank did not contest its receipt of notice regarding the tax sale, the petition failed to indicate that the bank's lack of defense was not its fault, and the bank received notice approximately five months before the hearing. According to Section 253 of the Revenue Act, real property sold for delinquent taxes may be redeemed within two years, or three years for certain farmland, with specific notice requirements for owners and interested parties regarding the sale and redemption deadlines. Notice must be served personally or left at the usual place of abode and mailed, with special provisions for trustees. A tax sale purchaser can petition for a tax deed if the property is not redeemed within the designated period, and must provide notice of this petition similarly. Tax deeds are generally incontestable except through appeal or a section 2.1401 petition, which requires the petitioner to demonstrate due diligence in presenting their defense and in filing the petition. If the petitioner fails to show that the lack of defense was not due to their own fault, the petition must be dismissed.

The bank withdrew its initial petition and the subsequent petitions did not clarify the absence of a defense in the tax deed proceedings. Evidence from the trial indicated that the bank informed the land trust beneficiary, who is responsible for managing the property and paying taxes. The bank’s actions were deemed diligent, as it notified the beneficiary regarding the tax deed proceedings, which was essential for contesting the tax sale. The bank filed its first section 2.1401 petition promptly on May 2, 1989, after discovering the tax deed, asserting that the beneficiary was not notified and first learned of the tax deed on April 18, 1989, six weeks post-issuance. Although the beneficiary is considered notified when the trustee receives notice, the lack of notice excused Orchard Hill's absence in the proceedings.

The respondent contended that even if the tax deed order had an incorrect redemption period, it was not void unless the trial court lacked jurisdiction. Jurisdiction in tax deed cases is in rem, established when the county collector applies for judgment and order of sale. A void order can be contested at any time, but a judgment is only void if the court lacked jurisdiction, exceeded its authority, or lacked inherent power. The trial court had the necessary subject matter jurisdiction over tax deed cases and gained personal in rem jurisdiction through the collector’s application. The court lacked jurisdiction only if taxes were paid or if the property was exempt, which was not the case here. Hence, the failure to notify the farmer and beneficiary did not negate the court's jurisdiction in the tax deed proceedings, and the order was valid unless there was a clear usurpation of the court's power.

An order modifying a child custody arrangement was deemed void due to lack of jurisdiction, as it stemmed from a contempt petition related only to visitation. In cases regarding foreclosure, courts exceeded their jurisdiction by failing to meet statutory requirements, such as not providing service dates. A court's judgment is not considered void even if it exceeds authority, as demonstrated in a case where a default judgment was entered erroneously against a defendant who had responded. Several cases illustrate that orders not strictly complying with statutory provisions, such as tax deed orders or incorrect property descriptions, are not automatically void. A tax deed order was upheld despite being entered before the redemption period expired, emphasizing that relief from such orders requires proof of fraud. A tax deed obtained by fraud is voidable and can be vacated, but a section 2.1401 petition cannot contest issues already decided unless fraud is involved. The definition of fraud includes wrongful intent or deception. The trial court's refusal to dismiss a petition arguing that a tax deed order was void was correct, as such orders can be challenged at any time. Moreover, claims of fraud related to the respondent's knowledge and testimony about the property’s farming status were inconclusive, raising questions about whether there was intent to deceive. The evidence did not definitively point to fraudulent behavior by the respondent regarding the extent of farming on the property or the identification of the farmer involved.

Respondent's misrepresentation during the trial regarding efforts to identify the farmer was found to be fraudulently misleading. Although he claimed to have attempted to ascertain the farmer's identity, his only action was a visit to the property, where he noted the absence of anyone. Additionally, he falsely stated that the bank was the sole interested party, despite G&H being listed on tax payment proofs. This misleading assertion could have influenced the trial court's decision, potentially prompting it to require notice to G&H, a party capable of redeeming the property. The trial court properly granted relief under section 2.1401 due to respondent's fraudulent conduct.

However, if Berke qualified as a bona fide purchaser for value under section 2.1401(e), the trial court lacked the authority to vacate the tax deed order. This section protects the rights of parties not involved in the original action, provided they acquired property for value before the petition was filed. The intent of this provision is to safeguard bona fide purchasers from the impacts of a decree affecting property title if they were not parties to the original case and there was no clear lack of jurisdiction in the record. A purchaser cannot be deemed bona fide if they had constructive notice of another's claim to the title.

A purchaser with notice of facts that would alert a reasonable person to inquire further is deemed to have knowledge of other discoverable facts. In the case of foreclosed property, if a buyer has notice of the owner's claim, they are not considered a bona fide purchaser and can be subject to relief. The burden of proof typically lies with the petitioner seeking relief, but in cases involving alleged bona fide purchasers, that burden may shift to them to prove their bona fide status. Testimony from Berke, a buyer, indicated he was unaware of the three-year redemption period for farmland and relied on a title commitment that was not properly filed. However, Berke failed to demonstrate a lack of actual or constructive notice of the original owner's interests in the property. Consequently, he did not prove he was a purchaser for value under the relevant statute, leading to the trial court's decision to vacate the tax deed. The court's decision was also supported by equitable principles, which are permissible regardless of the statutory framework. Additionally, the trial court correctly applied a three-year redemption period for farmland, as the statute did not restrict this right to land farmed by the owner.

Respondent contends that the trial court incorrectly granted injunctive relief, specifically a temporary restraining order and a preliminary injunction. Such injunctive relief is an interlocutory order appealable as of right within 30 days. If a motion to dissolve a temporary restraining order is denied and not appealed, it becomes a final order, establishing the law of the case. Relevant case law indicates that if an appeal is not perfected, the judgment is res judicata, preventing review of that order in subsequent appeals. Thus, any injunctive relief granted in this case cannot be contested on appeal.

Additionally, Respondent claims the trial court wrongly vacated the tax deed order without reimbursing it for incurred taxes and costs. Petitioner does not dispute Respondent's entitlement to reimbursement. Under Section 270 of the Act, when a tax deed is set aside, the court must mandate that the claimant reimburse the holder of the tax deed for all related costs, including taxes, legal fees, and other specified expenses. The trial court is instructed to ensure payment to Respondent in accordance with this statute upon remand. The judgment of the trial court is affirmed, and the case is remanded with directions.