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Seventh Circuit Holds Illinois Tax Sales May Be Set Aside as Fraudulent Transfers

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January 27, 2016
Client Alert

Generally, a sale or other transfer of an insolvent debtor’s property may be set aside as a fraudulent transfer if the transfer was for less than “reasonably equivalent value.”

The United States Supreme Court has held that sales such as mortgage foreclosure sales that comply with state law are deemed to be for “reasonably equivalent value” as a matter of law.

On January 20, 2016, the Seventh Circuit held in In re Smith that Illinois real property tax sales cannot be deemed to be for “reasonably equivalent value” as a matter of law. Applying the general rule of §548(a)(1)(B), the Court noted that tax sales do not involve competitive bidding and the bid amount bears no relationship to the value of the underlying real estate.

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