Illinois Falls in Line With Kirby Forest and Reverses Big Tax Refund

by: Joseph Grather
1 Nov 2023


The Illinois Supreme Court filed an opinion on September 21, 2023 in MB Financial Bank v. Brophy (opinion here). 

In 2018, the property owner filed a complaint seeking a refund for overpayment of taxes on the low-income apartment building known as Evergreen Terrace it operated in Chicago.  The property owner claimed that it had overpaid taxes in the total amount of  $6,000,000 – the total taxes paid from the date the City filed its condemnation action on October 7, 2005 to the date the city took title on August 25, 2017.  The trial court dismissed the action by pre-trial motion for two procedural reasons: 1) owner had no standing to claim the property was tax-exempt; and 2) owner paid taxes during the period in question therefore it waived any claim under voluntary payment doctrine.  The appellate court reversed and ruled that the owner was entitled to the refund.

“The appellate court then found that the plaintiffs were entitled to a refund.  Citing a line of cases beginning with McCausland, 379 Ill. 602, the appellate court concluded that, once the condemnation proceedings were complete and title to the property was conveyed to the City in 2017, the title “related back” to the date the condemnation complaint was filed in 2005. Because the City therefore “owned” the property during the 12-year period the condemnation case was being litigated, the City was retroactively responsible for the property taxes during that time.” Slip op. at 4.

One very important fact.  The underlying condemnation action was removed to federal court because the United States Department of Housing and Urban Development had an interest in the property.   And we all know from Kirby Forest in a straight condemnation action in federal court –  title to the property does not transfer until the judgment is paid.  Here, the judgment was not paid until August 25, 2017.  Another important fact is that the owner maintained full use & enjoyment of the property during the dozen years the case was pending in the federal courts. 

The Illinois Supreme Court explained why McCausland was no longer good law:

“The appellate court in this case acknowledged that McCausland had addressed only the situation where a lien was placed on land for taxes that had gone unpaid during a condemnation proceeding. The appellate court determined, however, that McCausland applies here, stating that “[i]t would be nonsensical to hold that a condemnee who fails to pay taxes during the pendency of the condemnation proceedings is not liable for the taxes but find liable a condemnee who continues to pay the taxes to protect its interest should it win the lawsuit or the municipality abandon the proceedings.” 2021 IL App (3d) 200192-U, ¶ 17.  The appellate court therefore held that the plaintiffs were not legally responsible for any property taxes paid after the City’s condemnation  complaint was filed in 2005. We disagree.  The problem with relying on McCausland in this case is that, following this court’s decision in Forest Preserve District of Du Page County v. First National Bank of Franklin Park, 2011 IL 110759, McCausland is no longer good law. In First National Bank of Franklin Park, this court clarified when property is deemed taken in an eminent  domain proceeding and when the valuation of the property must take place. Relying on the United States Supreme Court’s decision in Kirby Forest Industries, Inc. v. United States, 467 U.S. 1 (1984), this court held that a taking in Illinois occurs on the date the government deposits the compensation award to the property owner and acquires the title and right to possess the property. First National Bank of Franklin Park, 2011 IL 110759, ¶ 40. With respect to valuation, this court stressed that, under Kirby, the value of the property cannot be fixed as of the date the condemnation action is filed. Id. ¶¶ 45-46. As Kirby explained, if the property is assessed on a date that provides the property owner “substantially less than the fair market value of his property on the date the [government] tenders payment, it violates the Fifth Amendment.” Kirby, 467 U.S. at 17. Thus, to comply with constitutional requirements, the property owner must be given the  opportunity to seek an appraisal of the property if it has risen in value between the date the condemnation action is filed and the date compensation is paid. First National Bank of Franklin Park, 2011 IL 110759, ¶ 70.” Slip op. at 7.

We have been very in-tune with date of value arguments over the last two decades here at the firm because that’s about the time we asked a trial court to adopt Kirby Forest as the rule of law.  It took us a couple of tries, but since 2008 Kirby Forest has been firmly embedded in New Jersey jurisprudence.  While I have been focused as owner’s counsel in condemnation and redevelopment cases over that time-period, my brothers and sisters in the tax-appeal bar probably feel this owner’s pain of losing a $6 million-dollar refund more than I – Doh!