S.I. Securities v. Powless

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State: Illinois

Court: 5th District Appellate

Docket No: 5-09-0110 Rel

Case Date: 05/12/2010

Preview:Rule 23 order filed April 12, 2010; Motion to publish granted May 12, 2010.

NO. 5-09-0110 IN THE APPELLATE COURT OF ILLINOIS

FIFTH DISTRICT ___________________________________________________________________________ S.I. SECURITIES, ) Appeal from the ) Circuit Court of Petitioner-Appellant, ) Williamson County. ) v. ) No. 00-TX-10 ) JAMES K. POWLESS et al. , ) ) Respondents, ) ) and ) ) PHILLIP CASTELLANO, ) Honorable ) Ronald R. Eckiss, Respondent-Appellee. ) Judge, presiding. ___________________________________________________________________________ JUSTICE STEWART delivered the opinion of the court: On August 16, 2000, the circuit court of Williamson County, Illinois, entered a judgment for a tax deed in favor of the petitioner, S.I. Securities. On May 9, 2003, respondent Phillip Castellano filed a petition pursuant to section 2-1401 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2-1401 (West 2002)) to vacate the judgment for the tax deed. The circuit court granted Castellano's petition and vacated the judgment, and S.I. Securities filed a timely notice of appeal. On appeal, S.I. Securities contends, among other things, that the circuit court erred in considering the merits of Castellano's section 2-1401 petition because it was not timely filed. Castellano contends that his petition was timely filed and, alternatively, that the judgment for the tax deed was void and could be collaterally attacked at any time. For the following reasons, we reverse the circuit court's judgment that granted Castellano relief under section 2-1401 of the Code.

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BACKGROUND The Property Tax Code (35 ILCS 200/1-1 et seq. (West 2002)) governs the issuance of tax deeds. Pursuant to section 21-90, the county collector may offer property for public sale when a judgment has been rendered against that property for the nonpayment of real estate taxes. 35 ILCS 200/21-90 (West 2008). The buyer of property at such a sale does not receive title to the property but, instead, receives a "certificate of purchase." 35 ILCS 200/21-250 (West 2008). The issuance of a certificate of purchase does not affect the delinquent property owner's legal or equitable title to the property. Phoenix Bond & Indemnity Co. v. Pappas , 194 Ill. 2d 99, 101 (2000). Before a redemption period expires, the property owner has the opportunity to redeem the property by paying the tax arrearage and costs. 35 ILCS 200/21-345 through 21-355 (West 2008). After receiving the certificate of purchase, the tax purchaser may file a petition in the circuit court asking the court to enter an order directing the county clerk to issue a tax deed to the property. 35 ILCS 200/22-30 (West 2008). Before the tax purchaser is entitled to a tax deed, however, the redemption period must expire without any redemption by the property owner, and the tax purchaser must prove that he strictly complied with the requirements for certain statutory notices to the property owners, occupants, and parties interested in the property. 35 ILCS 200/22-10 through 22-25 (West 2008). The legislature intended a tax deed, once it is issued, to be virtually incontestable except by direct appeal. The legislature's intent was to provide a tax buyer with a new and independent title, free and clear from all previous titles and claims of every kind, and assurance to the tax buyer that his title and rights to the property would be unimpaired. Killion v. Meeks, 333 Ill. App. 3d 1188, 1193 (2002). The legislature drafted the Property Tax Code in this manner because, prior to 1951, there was an alarming increase in the rate of tax delinquencies, and "almost any defect or deficiency, no matter how minute, in a tax

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deed proceeding that led to the issuance of a tax deed made a deed suspect and generally void." Killion , 333 Ill. App. 3d at 1191. To accomplish its legislative purpose, the

legislature drafted section 22-45 of the Property Tax Code (35 ILCS 200/22-45 (West 2002)), which at the relevant time read as follows: "Tax deeds issued under Section 22-40 are incontestable except by appeal from the order of the court directing the county clerk to issue the tax deed. However, relief from such order may be had under Section 2-1401 of the Code of Civil Procedure in the same manner and to the same extent as may be had under that Section with respect to final orders and judgments in other proceedings. The grounds for relief under Section 2-1401 shall be limited to: (1) proof that the taxes were paid prior to sale; (2) proof that the property was exempt from taxation; (3) proof by clear and convincing evidence that the tax deed had been procured by fraud or deception by the tax purchaser or his or her assignee; or (4) proof by a person or party holding a recorded ownership or other recorded interest in the property that he or she was not named as a party in the publication notice as set forth in Section 22-20[] and that the tax purchaser or his or her assignee did not make a diligent inquiry and effort to serve that person or party with the notices required by Sections 22-10 through 22-30." In the present case, the judgment directing the county clerk to issue the disputed tax deed to S.I. Securities was entered on August 16, 2000. The county clerk subsequently issued the tax deed to S.I. Securities on September 18, 2000, and S.I. Securities recorded the tax deed the same day. No one appealed from the August 16, 2000, judgment that directed the county clerk to issue the tax deed. Therefore, the only vehicle for vacating S.I. Securities' tax deed was section 2-1401 of the Code (735 ILCS 5/2-1401 (W est 2002)).

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Section 2-1401 establishes a comprehensive, statutory procedure that allows for the vacatur of a final judgment older than 30 days. People v. Vincent, 226 Ill. 2d 1, 7 (2007). Section 2-1401(c) of the Code, however, provides that a section 2-1401 petition must be filed no later than two years after the entry of the order or judgment sought to be vacated. 735 ILCS 5/2-1401(c) (West 2008). Section 2-1401(c) establishes an exception to the two-year time limitation as follows: "Time during which the person seeking relief is under legal disability or duress or the ground for relief is fraudulently concealed shall be excluded in computing the period of 2 years." 735 ILCS 5/2-1401(c) (W est 2008). In the present case, Castellano initiated his section 2-1401 proceeding on May 9, 2003, which was more than two years after the entry of the August 16, 2000, judgment that he sought to vacate. However, following an evidentiary hearing, the circuit court found that S.I. Securities had fraudulently concealed the grounds for relief from the judgment and that Castellano timely filed his section 2-1401 petition due to the fraudulent concealment. In addition, as to the merits of the petition, the circuit court found that Castellano proved, by clear and convincing evidence, that S.I. Securities procured its tax deed by fraud or deception. See 35 ILCS 200/22-45(3) (West 2008). Accordingly, the circuit court entered a judgment that vacated the August 16, 2000, judgment for a tax deed, and S.I. Securities appealed. The circuit court's judgment that granted Castellano relief under section 2-1401 involves two separate and distinct issues of fraud. First, the circuit court found that Castellano proved that S.I. Securities fraudulently concealed the grounds for the section 21401 relief. Second, the circuit court found that Castellano proved that S.I. Securities committed fraud in obtaining the tax deed. We initially focus our analysis on appeal on the first issue of fraud, i.e., concealing the grounds for the section 2-1401 petition, because if Castellano failed to establish a

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fraudulent concealment sufficient to toll the two-year statute of limitations, his petition was untimely and the circuit court was without jurisdiction to address the merits of the petition.1 We have identified the following testimony, evidence, and procedural history in the record that are relevant to our analysis of fraudulent concealment. The property at issue was originally described in the county recorder's records as "Lot Four in Kent's Second Addition to the City of Marion, Illinois." We refer to this original property description as "Lot Four in Kent's Second Addition" or "Lot Four." As of January 23, 1995, the record titleholder to Lot Four was James K. Powless, as the trustee of a certain land trust. The beneficial owners of this land trust were Marion and Roberta Castellano. Marion Castellano is the brother of the respondent, Phillip Castellano. On January 23, 1995, a street that was adjacent to Lot Four in Kent's Second Addition, known as Monte Drive, was vacated. By a new plat that was recorded on February 21, 1995, Lot Four in Kent's Second Addition and Monte Drive of Kent's Second Addition were replatted into "Lot One and Lot Two in Kent's Third Addition to the City of Marion." We refer to these new lots as "Lot One and Lot Two in Kent's Third Addition" or "Lot One" and "Lot Two." The new Lot One in Kent's Third Addition was created with a portion of the old Lot Four in Kent's Second Addition. The new Lot Two in Kent's Third Addition was created with the remaining portion of the old Lot Four in Kent's Second Addition along with the

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An exception to this rule is when the petitioner establishes that the judgment was

void. Void judgments can be attacked at any time, and section 2-1401 petitions attacking void judgments are not subject to section 2-1401's two-year statute of limitations. 735 ILCS 5/2-1401(f) (West 2008); Ford Motor Credit Co. v. Sperry, 214 Ill. 2d 371, 379 (2005). We will address Castellano's argument that the circuit court's judgment was void later in this decision.

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vacated Monte Drive. At some point, a home was constructed on the new Lot Two in Kent's Third Addition. The home was built on a portion of what was formerly Monte Drive and on a portion of what was formerly the old Lot Four in Kent's Second Addition. Nothing in the record established when this house was built. In 1996, the old Lot Four in Kent's Second Addition no longer existed, but apparently Lot Four was, nonetheless, assessed for 1996 property taxes payable in 1997. No testimony was offered at the trial to explain the 1996 real estate tax assessment for Lot Four in Kent's Second Addition, and we cannot determine from the record if only Lot Four in Kent's Second Addition was assessed for 1996 taxes or if Lot One and Lot Two in Kent's Third Addition were also assessed for 1996 real estate taxes, resulting in a double taxation of the property. At that time, the recorded titles to Lot One and Lot Two in Kent's Third Addition were held by James K. Powless, as trustee, and in 1996, Powless, as trustee, was listed as the party in whose name the taxes on Lot Four were last assessed. For reasons that remain unexplained in the record, Powless never paid or challenged the 1996 real estate taxes assessed for the nonexistent Lot Four. On October 27, 1997, S.I. Securities purchased a tax sale certificate, number 00621-97, for unpaid 1996 taxes for a Lot Four in Kent's Second Addition. The record on appeal indicates that on February 18, 1999, Powless, as trustee, executed a trustee's deed that transferred title to Lot Two in Kent's Third Addition to Marion and Roberta Castellano. This deed was recorded on February 19, 1999. On February 23, 1999, Marion and Roberta executed a mortgage to New Century Mortgage Corp. (New Century) on Lot Two in Kent's Third Addition, and the mortgage was recorded on March 1, 1999.2

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On September 12, 2003, Wells Fargo Bank Minnesota, N.A. (Wells Fargo), as an

assignee of New Century, also filed a motion to vacate the tax deed, alleging that it did not

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On March 1, 1999, a company named American Traditional Homes, Inc., entered into a contract for deed with Marion and Roberta to purchase Lot Two in Kent's Third Addition. In an affidavit that Phillip Castellano filed in support of his section 2-1401 petition, he alleged that he was the sole shareholder of American Traditional Homes, Inc., and that the corporation had been dissolved. Apparently neither the March 1, 1999, contract for deed nor a notice of the contract was ever recorded; no evidence in the record on appeal indicates that the contract, or notice of the contract, was ever recorded. On March 17, 1999, American Traditional Homes, Inc., also acquired title to Lot One in Kent's Third Addition from James K. Powless, as trustee. This deed was also not immediately recorded. Meanwhile, S.I. Securities still had the tax sale certificate of purchase that it acquired on October 27, 1997, for Lot Four in Kent's Second Addition (now Lot One and a portion of Lot Two in Kent's Third Addition). As noted above, at some point a home had been constructed on Lot Two in Kent's Third Addition, and the home was located on a portion of what was formerly Lot Four in Kent's Second Addition. Phillip Castellano testified that he moved into that house in 1999 and continuously lived in the house at all the relevant times afterwards. On March 28, 2000, S.I. Securities filed a petition for a tax deed alleging that the pastdue 1996 taxes for Lot Four were never paid. In an affidavit filed by S.I. Securities in support of its petition for a tax deed, its agent stated that all the subsequent taxes that had become due and payable for Lot Four had been paid. S.I. Securities' agent stated in the affidavit that S.I. Securities gave notice of the tax proceeding to, among others, James K. ___________________ receive notice of the tax proceeding. The record indicates that S.I. Securities settled with Wells Fargo, and on December 21, 2005, the circuit court granted W ells Fargo's motion to dismiss its petition with prejudice.

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Powless as trustee and to Marion and Roberta Castellano. In addition, the agent stated in the affidavit that the time for the redemption of the taxes was extended to July 31, 2000, and that S.I. Securities gave Powless, Marion, and Roberta statutory notice of their right to redeem the taxes for Lot Four in Kent's Second Addition. There is nothing in the record that established that Phillip Castellano had a recorded interest in the property at issue at any time prior to S.I. Securities filing its petition, and S.I. Securities did not give Phillip Castellano any notice of the tax proceeding. However, as noted above, Phillip Castellano was living in a house that was built on a portion of the former Lot Four in Kent's Second Addition and had been living there since sometime in 1999. In the affidavit in support of its petition for a tax deed, S.I. Securities' agent made the following statement: "S.I. SECURITIES has visited, or caused to be visited, the above-described land or lot and found that there were no occupants in actual possession of such real estate." S.I. Securities also published a notice of the pending tax proceeding in the local newspaper, the Marion Daily Republican. On August 16, 2000, S.I. Securities appeared in court on its petition for a tax deed, and no one appeared to contest the petition. Accordingly, the circuit court entered an order directing the county clerk to issue a tax deed to S.I. Securities conveying title to "Lot Four (4) in Kent['s] Second Addition to the City of Marion, Williamson County, Illinois." The county clerk subsequently issued a tax deed to S.I. Securities for Lot Four in Kent's Second Addition, and S.I. Securities recorded the tax deed on September 18, 2000, in the Williamson County recorder's office, the same day it was issued. At the hearing on the section 2-1401 petition, Phillip Castellano maintained that he had no knowledge of the tax deed proceeding or of the issuance of the tax deed until October

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15, 2002, when a general partner of S.I. Securities, Barrett Rochman, came to Castellano's residence and advised him that, by virtue of the tax deed, he owned a portion of the land on which Castellano's house sat. In addition, by this time, Castellano had begun constructing another home on Lot One in Kent's Third Addition that was located entirely on a portion of the old Lot Four in Kent's Second Addition. On May 9, 2003, Castellano initiated the section 2-1401 proceeding that is the subject matter of this appeal. The section 2-1401 petition requested the circuit court to vacate the tax deed. Castellano alleged that he never received notice of the tax proceeding and that S.I. Securities acquired the tax deed with a false statement in its affidavit that it had visited the lot and found that there were no occupants in possession of the real estate. According to Castellano's petition, S.I. Securities knew that he resided in the house that occupied a portion of what was formerly known as Lot Four in Kent's Second Addition prior to the time it filed the August 15, 2000, affidavit that alleged that the lot was vacant. Castellano's initial section 2-1401 petition was ultimately superceded by his sixth amended petition to vacate the tax deed, which he filed on April 17, 2006. Castellano acknowledged that he initiated his section 2-1401 proceeding beyond two years from the date of the August 16, 2000, judgment, but he alleged that S.I. Securities committed affirmative acts of fraudulent concealment which justified the late filing of the section 2-1401 petition. As justification for tolling the two-year statute of limitations, Castellano alleged the following facts to establish that S.I. Securities fraudulently concealed the grounds for relief: "a. S.I. Securities is a sophisticated tax sale purchaser and has, upon

information and belief, sought issuance of tax deeds in many proceedings. b. Upon information and belief, S.I. Securities, during the times relevant hereto, had employed its own in-house attorney to prosecute said matters for them, and that Attorney Michael Langenstein was so employed.

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c. On July 18, 2003, and again on M ay 3, 2004, S.I. Securities transferred its interest in the reference property to Jefferson Properties, LLC, a company, upon information and belief, that is controlled by the same person as S.I. Securities. *** d. The officers listed with the Illinois Secretary of State for both entities are Barrett Rochman[] and Kenneth Rochman, with the same address listed for both. *** e. S.I. Securities, by and through its agents, had knowledge that after they received a certificate of purchase as to said premises[] that [ sic ] Phillip Castellano[] built one home upon a portion of said premises[] and built a part of another home[] on another portion of said premises. f. That, after entry of the tax deed, S.I. Securities, by and through its agents, had knowledge that ongoing construction was taking place upon said premises. g. That, as a sophisticated tax purchaser, S.I. Securities was aware of their conduct in failing to name parties in possession, and the statutes and case law that would effectively prevent said parties from contesting the tax deed, unless such Motion to Vacate was filed within two years. h. That, with said knowledge, S.I. Securities, and its related entity, Jefferson Properties, LLC, waited approximately two years and two weeks from the date said tax deed was recorded[] to contact the Petitioner. i. That on or about October 15, 2002, Barrett Rochman, general partner of S.I. Securities[,] came to the residence of Phillip Castellano, located upon said premises, and advised him of their tax deed to said premises." The circuit court conducted a trial on Castellano's section 2-1401 petition on December 3, 2008. At the trial, Castellano testified in support of his petition, and S.I. Securities presented the testimony of two of its employees. Unfortunately, the trial testimony was somewhat vague and unspecific at times with respect to certain events.

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S.I. Securities employee Keith Wall testified that he was an abstractor and that he had inspected Lot Four in Kent's Second Addition for S.I. Securities. Counsel for S.I. Securities asked Wall when he first inspected the property, and he testified that, in general, he inspects properties after the tax sale, before the next year's taxes, to determine whether S.I. Securities should pay the upcoming taxes or not. When asked again about when he first inspected the property, he stated: "It was purchased at the tax sale, I think, maybe in October or September of that year. And then before we paid the next year's taxes, I looked at it in the summertime. It was probably June or July, something like that." He testified about this first inspection of the property as follows: "I went by and saw that it was a vacant lot. There was, looked to me, like some scattered blocks on the property that had grass growing up a little bit, and there was a very large lot. I went back to the courthouse, looked at the aerial, came back[,] and looked at it just to make sure." Wall then testified about visiting the property a second time for S.I. Securities. Wall initially testified that he did not go back to inspect the property a second time "until they had a tax deed on the property." He testified that he went out there to post a "sign for a vacant lot" and testified that the sign was a "for sale sign." He testified that when he arrived at the property for the second visit, he noticed that there was a "shell of a house" on the previously vacant lot and that he, therefore, did not post the "sign." He testified that he then measured the lot for the first time and determined that the property line to Lot Four crossed over into a part of the house that Castellano then lived in. Whether Castellano's house existed when W all first visited the property is entirely unclear from the record. During direct examination, S.I. Securities' counsel asked Wall the following question: "So the vacant lot that you saw the first time is what you believed to be the boundaries complete?" Wall responded, "Between the two houses, yeah." This testimony

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seems to indicate that the house on Lot Two might have been present during Wall's first visit to the property, but whether Wall was referring to Castellano's house on Lot Two as one of the "two houses" he saw during his first visit or whether the houses he saw were neighboring houses on either side of Lot Four is uncertain and not clarified in the record. Although Wall initially testified during direct examination that he revisited the property only after S.I. Securities had obtained its tax deed and that he went out to the property to post some sort of a "sign," a short time after giving this testimony, he contradicted this time frame during further questioning on direct examination. The following colloquy took place during the direct examination between counsel for S.I. Securities and Wall: "Q. During

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