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Articles Tagged with bona fide purchaser

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7th Circuit Court Seal

Smith v. Sipi, LLC
7th Circuit U.S. Court of Appeals
Docket 15-1166 Date:Jan. 20, 2016

In this case from right in our neighborhood – Joliet, Illinois – the Bankruptcy Court and 7th Circuit agree that using the market value of property instead of its artificially low disposal price in a tax sale reflects the real intent of both Bankruptcy law and Illinois law. At the same time, both Courts agree that one taking from a tax-sale buyer is entitled to bona fide purchaser protection.

Background

The Smiths lived in a single-family home in Joliet, Illinois. In 2004 Mrs. Smith inherited the property. While living there in 2000, she and her husband failed to pay the real estate taxes, giving rise to a tax lien in favor of Will County. At a 2001 auction, SIPI purchased the tax lien and paid the delinquent taxes of $4,046.26 plus costs.Mrs. Smith did not redeem that tax obligation and SIPI recorded its Tax Deed in 2005; ultimately selling the property to Midwest for $50,000.

Procedural History

In 2007 the Smiths filed for Chapter 13 Bankruptcy protection and successfully sought to avoid the Tax Sale. Both the Bankruptcy Court and the 7th Circuit Court of Appeals agreed that under the terms of 11 U.S.C. 548(a)(1)(B) the property was not transferred for reasonably equivalent value. However, both Courts did find that Midwest was a “subsequent transferee in good faith” (i.e. a bona fide purchaser) entitled to retain the value of the property it had purchased.

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