MEMORANDUM DECISION
Bеfore the court is Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC’s Motion to Modify the Automatic Stay as to 6402 S. Ingleside, Chicago, Illinois Regarding PIN 20-23-104-053-0000 (the “Motion”) brought jointly by U.S. Bank Custodian for TLCF 2012A, LLC (“U.S. Bank”) and Axert, LLC—6402 S. Ingleside Series (“Axert” and collectively with U.S. Bank, the “Tax Purchaser”).
The determination of the Motion rests on whether the Tax Purchaser has met the necessary elements to be granted relief from stay, which in turn rests on whether the Debtor has a right to treat the Debt- or’s Property and thereby the Tax Purchaser’s claim through her chapter 13 plan. For the reasons set fоrth more fully below, upon review of the parties’ respective filings and after conducting hearings on the matter, the court finds that a debtor whose period for redeeming taxes sold in Illinois has passed prior to commencing his or her bankruptcy case may nonetheless treat those taxes under a chapter 13 plan if a tax deed has not yet been issued and recorded. As a result, the Tax Purchaser has not established grounds to be granted relief from stay.
JURISDICTION
The federal district courts have “original and exclusive jurisdiction” of all cases under
A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a ease under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. § 157(b)(1) & (c); Wellness Int’l Network, Ltd. v. Sharif, — U.S. —,
Motions to terminate, annul, or modify the automatic stay are core proceedings arising under the Bankruptcy Code, in which the bankruptcy court is empowered to enter orders. 28 U.S.C. § 157(b)(2)(G); In re Mahurkar Double Lumen Hemodialysis Catheter Patent Litig.,
Accordingly, determination of the Motion is within the scope of the court’s jurisdiction and constitutional authority.
BACKGROUND
The facts of this matter are essentially undisputed. Prior to the commencement of her bankruptcy case, the Debtor fell behind in her property tax payments to Cook County, Illinois (“Cook County”) with respect to the Property. On August 6, 2013, Cook County sold certain of the Debtor’s taxes to U.S. Bank for $2,120.69. Subsequent tax arrearages were paid by U.S. Bank, in the amоunt of $11,309.05.
One day later, on April 20, 2017 (the “Petition Date”), the Debtor filed a second chapter 13 bankruptcy case, the above-captioned case (the “Present Case”). In the Present Case, the Tax Purchaser has participated, bringing the Motion less than two weeks after the Petition Date.
PROCEDURAL HISTORY
This matter has given rise to an extraordinary number of hearings and filings.
In addition to reviewing the Motion, the court has considered the arguments of the parties at the hearings on May 18, 2017, June 29, 2017, July 20, 2017, August 31, 2017, September 21, 2017, September 28, 2017 and November 16, 2017 (the “Hearings”). The court has also reviewed and considered the following filed documents relating to the Motion:
(1) Debtor’s Response to Motion To Modify Automatic Stay Filed by Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC [Dkt. No. 21];
(2) Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC’s Reply to the Debtor’s Response to the Motion To Modify the Automatic Stay [sic] 6402 S. Ingleside, Chicago, Illinois Regarding Pin 20-23-104-053-0000 [Dkt. No. 22];
(3) Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC’s Supplemental Brief in Support of Its Motion To Modify the Automatic. Stay as to 6402 S. Ingleside, Chicago, Illinois Regarding Pin 20-23-104-053-0000 [Dkt. No. 41];
(4) Debtor’s Response to Movant’s Supplemental Brief in Support of Its Motion To Modify Automatic Stay [Dkt. No. 45];
(5) Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC’s Supplemenal [sic] Brief to the Court’s Tenative [sic] Ruling Filed on September 14, 2017 to the Motion To Modify the Automatic Stay [sic] 6402 S. Ingle-side, Chicago, Illinois Regarding Pin 20-23-104-058-0000[Dkt. No. 81]; and
(6) Debtor’s Response to Movant’s Supplemental Brief to the Court’s Tenative [sic] Ruling Piled on September 14, 2017 to the Motion To Modify thе Automatic Stay [Dkt. No. 94],
The court has taken into consideration any and all exhibits submitted in conjunction with the foregoing. In addition, there have been numerous scheduling orders and motions seeking extensions of the time periods set thereby—too numerous to set forth herein. Finally, in an accommodation to the parties and their concerns regarding time frames applicable to this matter, and in a step not previously taken by the court, the court issued a Scheduling Order and Tentative Ruling [Dkt. No. 58] (the “Tentative Ruling”) on September 14, 2017. In the Tentative Ruling, the court shared its observations on the parties’ arguments to date, but reserved a final ruling on the matter. This Memorandum Decision supersedes the Tentative Ruling in all respects.
Though these items do not constitute an exhaustive list of the filings in the bankruptcy, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi, Case No. 93C188,
DISCUSSION
The central question here, whether the Tax Purchaser is entitled to relief from stay under section 362(d) of the Bankruptcy Code, is inextricably intertwined with the much-beleaguered Illinois tax purchase system. That system is set forth at length in an earlier opinion of the court. In re Bates,
These cases make clear that the passing of the redemption period is not a material event as it relates to the rights in question. A debtor whose period for redeeming taxes sold in Illinois has passed prior to commencing his or her case may nonetheless treat those taxes under a chapter 13 plan if a tax deed has not yet issued and recorded.
The court will first discuss the Bates decision as it reflects on this matter. Following that, it will consider the more recent Seventh Circuit decisions. Finally, the differing result dictated by those Seventh Circuit cases will be applied to the facts at bar.
A. Bates and Redemption Rights
Illinois creates a system not unlike many other states, where its right to payment of delinquent real estate taxes may be monetized by the State through a sale. Buyers of those rights accede in many ways to the rights of the State as to collection mechanisms and other remedies. Bates,
With few exceptions, Bates has guided this court’s and other courts’ analysis of the intersection of Illinois tax sale law and bankruptcy law for over fifteen years. But see Smith v. Phoenix Bond & Indem.,
The issue that Bates so well defines is the central issue here: How may a debtor in a chapter 13 case treat a property on which Illinois real estate taxes have been sold, but for which no tax deed has yet been issued or recorded? That issue turns on the nature of a tax purchaser’s rights and is complicated by both the Illinois nomenclature regarding tax sales and the Illinois procedure for redeeming sold taxes.
As to the nomenclature, it is this court’s view that much confusion arises out of the Illinois statutes. See 35 ILCS 200/21-200 to 230 (the revenue provisiоns of the Illinois Property Tax Code). For example, Illinois law describes the sale process as follows: “The collector, in person or by deputy, shall ... proceed to offer for sale, separately and in consecutive order, all 'property in the list on which the taxes, special assessments, interest or costs have not been paid.” 35 ILCS 200/21-205 (emphasis added). This seems to imply that a tax sale is a sale of the underlying real property, rather than what is actually sold—a right to payment of delinquent real estate taxes and related costs, with collection remedies including a possible later transfer of ownership in the property.
Perhaps swayed by this terminology, Bates considers both the rights of a debtor whose delinquent real estate taxes аre subject to such a sale and the rights of the tax purchaser in the terms of Illinois redemption rights, one of the debtor’s remedies regarding the sale. Redemption is the right of a debtor under Illinois law to pay the previously sold taxes (and any related special assessments, interest and penalties) during a defined period, 35 ILCS 200/21-345 to 397, thereby nullifying the tax sale. 35 ILCS 200/21-390 (“The receipt of the redemption money ,., shall operate as a release of the claim to the property ....”).
Regarding those redemption rights, Bates states that “[a]s long as the redemption period has not expired prior to the bankruptcy filing, there is a claim that can be treated during the bankruptcy case— through sale of the collateral in Chapter 7 or plan treatment in Chapter 13—even thоugh the redemption period expires during the pendency of the case.” Bates,
Bates concludes that a debtor may only treat a tax purchaser’s claim in bankruptcy if the redemption period had not expired prior to the commencement of the case, equating any treatment in bankruptcy to redemption itself. Id. at 465 (“[T]he only permissible treatment of the [tax purchaser’s] claim is through redemption.”). This treats the rights of a debtor as contingent upon the existence of the redemption right, and makes the passing of that redemption right a bar to bankruptcy treatment.
B. Smith I, Smith II and LaMont
■ As noted аbove, under the reasoning set forth in Bates, courts in this and other jurisdictions have treated the passing of the redemption period prior the commencement of a bankruptcy as a bar' to treating a tax purchaser’s claim in a bankruptcy plan. See, e.g., In re McKinney,
This is much the same as how the confirmation of a foreclosurе sale quite literally forecloses in a later bankruptcy ease a debtor’s rights to treat property so sold. See, e.g., Colon v. Option One Mortg. Corp.,
What Bates did was use the rights of redemption to define the balance between the rights of the debtor and the rights of the tax purchaser. More reсent cases from the Seventh Circuit,, however, strike that balance differently.
1. Smith I and Smith II
As noted above, the parallel between tax sales and foreclosures has driven in many ways the analysis of the courts. Unlike in foreclosures where the interests after sale are ministerial, Goldberg,
Smith I and Smith II reflect an ongoing dispute between chapter 13 debtors and a tax purchaser who had obtained a tax deed on the debtors’ residence within the two-year fraudulent transfer look back period applicable in the debtors’ bankruptcy case.
In Smith I, an appeal was taken to the Seventh Circuit after the bankruptcy court’s dismissal of the debtors’ fraudulent transfer adversary proceeding for failure to state a claim was affirmed by the district court. Smith I,
In considering the issue, the Seventh Circuit—as did the court in Bates—
The tax sale of the debtor’s property only entitles the taxbuyer to a certificate of purchase, 35 ILCS 200/21-250, which “has no effect on the delinquent property owner’s legal or equitable title to the property,” In re Application of County Treasurer,394 Ill. App. 3d 111 ,333 Ill. Dec. 346 ,914 N.E.2d 1158 , 1165 (2009) (citation omitted). It is not until the expiration of the debtor’s redemption period and issuance of the tax deed that the taxbuyer acquires title and the right to be placed “in possession of the property.” 35 ILCS 200/22-40(c). Yet even the issuance of the tax deed is not alone sufficient to secure the taxbuyer’s rights against a BFP, since the tax deed “shall not be of any force or effect until after it has been recorded in the office of the recorder.” Id. § 22-60. If the taxbuyer fails to record within one year after the redemption period expires, the deed “shall ... be absolutely void with no right to reimbursement.” Id. § 22-85. These statutes make clear that it is the recording of the tax deed, not the earlier expiration of the redemption period, that marks the “perfection” of the tax-buyer’s interest against a “bona fide purchaser. ” 11 U.S.C. § 548(d)(1).
Id. at 658-59 (emphasis added). “[AJfter the expiration of the redemption period but before the issuance and recording of the tax deed, the debtor retains significant ownership rights while the taxbuyer acquires only a contingent right to a tax deed.” Id. at 660. For that reason, the Seventh Circuit concluded that mere issuance of a certificate of purchase was not the date of transfer for avoidance purposes, reversing the dismissal and remanding for the bankruptcy court to conduct the adversary proceeding. Id.
In Smith II, after the bankruptcy court had rendered judgment in the avoidance action in favor of the debtors but the district court had reversed, the parties returned to the Seventh Circuit. At issue was whether the district court was correct in its conclusion that the tax purchaser was sheltered from liability as a bona fide purchaser (“BFP”) given that it had complied with the Illinois tax purchase statutes. Smith II,
In considering whether the tax purchaser was a BFP entitled to shelter from the liability in section 548, the Smith II panel considered whether the tax purchaser had paid reasonably equivalent value for its rights obtained in the tax sale. Not surprisingly, the Seventh Circuit concluded it had not, stating that “Illinois’s tax sale method is not designed to produce bids that could fairly be called ‘reasonably equivalent value.’ [I]n an Illinois tax sale, there is ‘no correlation between the sale price and the value of the property.’ ” Id. at 238 (citations omitted).
While Smith IT s holding may not appear directly applicable to the question of a debtor’s interest in the property underlying a tax sale, such is not the case. Given the holding of Smith II, a court would be hard pressed to remove the automatic stay’s protection to permit an act that would be avoidable in a subsequent bankruptcy, and quite frankly might be avoidable in the presеnt case under section 549(a)(2)(B). See 11 U.S.C. § 549(a)(2) (a “trustee may avoid a transfer of property of the estate ... that occurs after the commencement of the case; and ... that is not authorized under this title or by the court,”). Relieving the stay is quite simply
It is not necessary to follow this reasoning to its conclusion, however, as Seventh Circuit has further guided the determination of this matter in LaMont.
2. LaMont
The LaMont case is more directly on point to the case at bar.
In LaMont, a tax purchaser sought relief from stay in a debtor’s chapter 13 case in order to obtain a tax deed on the debt- or’s property. LaMont,
On further appeal, the Seventh Circuit considered whether relief from stay was appropriate in light of the parties’ rights under Illinois law and the Bankruptcy Code. In so doing, it made several salient observations useful here. LaMont,
First, tax purchasers’ rights under Illinois law are different than foreclosure creditors’ rights. Id. at 405; cf. Colon,
Second, tax purchasers under Illinois law do not have a right to payment from debtors, but rather a lien against the property combined with equitable remedies (e.g., to payment from the taxing authority should the debtor redeem the property, to rescind the sale of the overdue property taxes as a sale in error and, when the necessary conditions are met, to seek a tax deed). Id. at 406-07; see also A.P. Properties, Inc. v. Goshinsky,
Third, by treating the tax purchaser’s claim under a chapter 13 plan, a debt- or is not redeeming. LaMont,
Fourth, the automatic stay applies to tax purchasers with rights to receive a tax deed on the property. LaMont,
Last, “[t]he redemption period expires when it expires.” Id. The determinations made in LaMont did not, in and of themselves, toll the redemption period. Id. The redemption period remained the same despite the running of the rights of the tax purchaser to be granted a tax deed on the
In light of the foregoing and the facts in the ease, the Seventh Circuit reversed the district court and affirmed the bankruptcy court’s denial of stay relief. Id, at 410.
LaMont would be directly controlling on the issue at bar, but for one crucial fact. In LaMont, the debtor had filed the case prior to the running of the redemption period. That is not the case here. However, as will be discussed, that is a distinction without much difference.
C. The Case at Bar and Redemption Revisited
While LaMont concluded that, if a bankruptcy case is commenced prior to the running of an applicable redemption period a debtor may treat a property on which taxes had been sold under a chapter 18 plan, thus affirming Bates’s holding in this regard, it did not reach the question not befоre it then but before this court today: May a debtor, if a case is commenced after the running of an applicable redemption period, treat a property on which taxes had been sold under a chapter 13 plan?
Bates said no and LaMont reserved on this issue, stating “[t]he circumstances may be similar in the tax sale context when a debtor files a bankruptcy petition after the redemption deadline has passed, ... but the circumstances are different if the petition is filed while time remains to redeem.” LaMont,
The Tax Purchaser here would have the court put great stock in the wording of that reservation. While it is true, the wording seems to imply that the Seventh Circuit believes there is a difference, the court sees the language above as nothing morе than the Seventh Circuit reserving on an issue not before it. Had it said more, it would have been dicta, and dicta can cause trouble for all concerned.
So that question is left for this court to determine, and the answer is, in this court’s view, readily apparent in light of Smith I, Smith II and LaMont.
Recall that the outcome in Bates was let by the balance between the rights of the debtor and the rights of the tax purchaser. Bates concluded that the finger on the scale was the existence of the redemption rights.
Smith I, Smith II and LaMont, however, make it clear that the debtor’s rights with respect to the property are not substantively affected by the running of that period. In Smith I, the Seventh Circuit stated that “after the expiration of the redemption period but before the issuance and recording оf the tax deed, the debtor retains significant ownership rights while the taxbuyer acquires only a contingent right to a tax deed.” Smith I,
On the other hand, rights of a tax purchaser have been, if anything, diminished. Not only is that tax purchaser now subject to potential fraudulent conveyance actions even if the sale was conducted in accordance with Illinois law, Smith II,
It is clearly not, therefore, the running of the redemption period alone that is the tipping point of the parties’ rights here. The running of the redemption period is not meaningful as to a debtor’s rights under 11 U.S.C. § 1322. Instead, it is the obtaining and recording of the tax deed. As the Seventh Circuit stated, “[t]hese statutes make clear that it is the recording of the tax deed, not the earlier expiration of the redemption period, that marks the ‘perfection’ of the taxbuyer’s interest.” Smith I,
That is not to say that the running of the redemption period is not meaningful in other ways. As Bates makes clear, bankruptcy claims are measured at the commencement of the bankruptcy case. Claims in bankruptcy are assessed as of the date the bankruptcy case was filed. Bates,
Here it appears clear that, even taking into account possible tolling arguments relating to the Debtor’s prior case, the redemption period ran аt some point prior to the Petition Date. Because that is not meaningful to the question before the court, it is not necessary to make a finer determination.
The Tax Purchaser may, of course, challenge that treatment and, as it has done here, seek relief from stay if the circumstances support such a request. Here, the sole argument raised by the Tax Purchaser in the Motion, however, was that the prepetition expiration of the redemption period barred the Debtor’s treatment of the Property and the Tax Purchaser’s claim in her case.
Because, however, some courts have insisted on more even where the law is clear, the court will put a finer point оn it.
Relief from stay is appropriate only when it can be shown that the prerequisites for relief under section 362 apply. 11 U.S.C. § 362(d). An interested party must request that the court, following notice and a hearing, grant relief from stay if specific circumstances are shown. Section 362(d)(1) mandates that the stay may be lifted “for cause,” which includes “lack of adequate protection of an interest in property of such party in interest.” Cause has not been clearly defined by the courts and it is usually determined on a case-by-case basis. In re Wilson,
In Femstrom, [t]he Seventh Circuit adopted a three-factor test in order to determine whether “cause” exists to modify the automatic stay. Fernstrom,
As is clear from the wording of this three-factor test, the Seventh Circuit’s formulation of “cause” was derived from the facts and circumstances presented in that case, namely a request to continue a civil suit. Id. at 732-33. As is the case here, a motion for relief from stay does not always seek relief to allow a party in interest to continue a civil suit, and the three-factor test is inartful outside of the circumstances for which it is intended.
Better Seventh Circuit precedent here is thаt of LaMont itself. LaMont makes no mention of Femstrom, yet simply concludes that “because the debtors have satisfied their obligations under the plan, there is no reason to modify the stay.” LaMont,
In chapter 11 cases, “the extent to which a debtor must prove the possibility of an effective reorganization in a lift stay proceeding is judged on a sliding scale and depends on the stage of the ease. In re Cadwell’s Corners P’ship,
Here, the Motion was brought eleven days after the Petition Date, at a point when the Debtor was not yet even required to file a plan. Fed, R. Bankr. P. 3002(b), A normal case’s progression has, in the court’s view, been subsumed in this dispute. As has been noted above, this matter has given rise to an extraordinary number of hearings and filings. Even as it attempted to finish this Memorandum Decision, the court was required to divert attention to a new request by the Tax Purchaser to dismiss the case.
While the Tax Purchaser may be within its rights to act as it has done, it cannot avoid the negative consequences of those actions, namely that this case is still in its infancy despite being six months old. The court has yet to be able to conduct a confirmation hearing on any of the Debt- or’s plans. The Debtor, in turn, has presented no less than six amended plans— each in an attempt to address the myriad of issues raised by the Tax Purchaser, The most recent plan, the Sixth Modified Chapter 13 Plan, dated November 14, 2017 [Dkt. No. 100], contains a treatment of the Tax Purchaser, and at this “early” stage, that is enough to. satisfy the sliding scale of Cadwell’s Corners,
Though, as stated above, Femstrom is not directly relevant here, the foregoing factors can as needed be stated in the terms of Fernstrom. Cf. Gan B, LLC v.
First, the Tax Purchaser’s attempt to pursue a tax deed during the pendency of the stay would prejudice the bankruptcy estate. Id. As the Debtor’s schedules indicate, there appears to be equity in the Property that is significant. The treatment of the Property is of concern not just to the Debtor and the Tax Purchaser, but all creditors.
Second, the hardship to the Debtor outweighs any hardship to the Tax Purchaser, id., “because the latter may simply pursue a sale-in-error declaration if it is denied relief, whereas the former must forfeit [her] residence if [the Tax Purchaser] is granted relief from the stay and successfully obtains a tax deed. A sale in error would allow [the Tax Purchaser] to recoup the funds it outlaid on the Property’s tax arrearages; [the Debtor], on the other hand, has no way to recoup her investment” in the Property.” Id.
As in Gan B, even if the third Femst-rom factor militates in favor of the Tax Purchaser, “the first two factors nonetheless significantly favor maintaining the stay.” Id.
CONCLUSION
For all of the foregoing reasons, the Motion fails. The Motion should be, and by order issued concurrently herewith will be, DENIED.
ORDER
The mattеr before the court arises out of Axert, LLC—6402 S. Ingleside Series and US Bank Custodian for TLCF 2012A, LLC’s Motion To Modify the Automatic Stay as to 6402 S. Ingleside, Chicago, Illinois Regarding Pin 20-23-104-053-0000 [Dkt. No. 13] (the “Motion”); the court having jurisdiction over the subject matter; due notice having been given; the court having considered the arguments of the parties in the Motion and the filings related thereto, and during the multiple hearings on the Motion; and for the reasons more fully set forth in the Memorandum Discussion issued concurrently herewith;
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
The Motion is DENIED.
Notes
. Neither U.S. Bank nor Axert has filed a proof of claim in this case. As a result, the court has only the filings with respect to the present dispute with which to determine U.S. Bank's and Axert’s respective relationship to the Debtor and the Property. Exhibits to the Motion adequately establish U.S. Bank's standing as a tax purchaser with respеct to the Property. No such documentation has been submitted with respect to Axert, and Axert's individual standing' is questionable. The Motion merely states that Axert "is in the process of purchasing the Certificate of Purchase.” While this is inadequate to establish Axert’s standing in this matter, for the purposes of determining the jointly brought Motion, it is unnecessary to delve further. U.S. Bank has standing to be heard on a motion for relief from stay, see In re Whitlock-Young,
. The Motion alleges that a third party paid $9,131.62 for the second Cook County real estate tax installment of 2013, both installments of 2014, and the first installment of 2015. The Motion further alleges that the first installment for 2016 is unpaid and the second installment for 2016 would have come due in July, 2017.
. The Debtor аpparently originally scheduled U.S. Bank under the name of "US Bank Oust For LLC,” but later, on December 9, 2016, amended her schedules to reflect U.S, Bank's correct name and address.
. Other than the minute order, there is no indication that U.S. Bank participated in the First Case in any way.
. This might appear to put tax purchasers at risk of losing their interests by failing to act, for under Illinois law, a tax purchaser must timely enforce its rights to a tax deed or lose them. LaMont,
. Admittedly, including that from the undersigned.
. For example, though no tax deed was issued, one wаs apparently requested. Some disagreement exists between the parties as to when the request was made. The Debtor argues that the request was made during the pendency of the Debtor’s first bankruptcy case and, because such an act is subject to the automatic stay, LaMont,
. It should be noted that in the myriad of filings relating to the Motion, the arguments have ebbed and flowed. As this court has previously stated, ”[t]he late introduction of a new theory is, of course, improper. A movant generally may not introduce new issues on reply, as this does not provide the nonmoving party an opportunity to respond and therefore prevents the record from being fully developed for the court's consideration. Aircraft Gear Corp. v. Marsh, Case No. 02 C 50338,
. It is generally accepted that residences in individual chapter 13 cases are "necessary to an effective reorganization,” 11 U.S.C. § 362(d)(2)(B), even though the terminology of that section is better suited for chapter 11 cases. See, e.g., In re Spencer,