In MB Financial Bank N.A. v. Brophy, No. 128252 (Sep. 21, 2023), the Illinois Supreme Court clarified that in non-quick take actions (aka straight takings), the date on which title transfers — which is the date on which the owner actually is deprived of the property — is when the owner is relieved of the obligation to pay property taxes. Until then, the owner is on the hook, even though the owner is under the cloud of condemnation. .

In 2005, the City of Joliet filed a condemnation action to take an apartment building owned by MB Financial Bank. This was not a quick take action, but rather a straight taking. Which meant that neither title nor possession transferred from the owner to the condemnor. These would have to wait until ascertainment of the amount of compensation, the agreement of the City that it wanted to pay that amount, and the actual payment of the adjudicated compensation. Only then would title transfer from MB to the City. Even though that took 12 years.

During the pendency of the litigation — during which the apartment building continued to operate under MB’s management — MB continued to pay property taxes.

It was 2017 before the City acquired title to the property.

After the transfer, MB sought a refund of the taxes it paid after the condemnation complaint was filed. The rule in Illinois was that although title may pass in straight takings at some later date, the date of the transfer of title “relates back” to the date of the complaint. That rule was based on City of Chircago v. McCausland, 379 Ill. 602, 41 N.E.2d 745 (1942), which held that a condemnor becomes the owner of property retroactive to the date of the complaint. Accordingly, the court of appeals held that MB was entitled to a refund.

The Illinois Supreme Court reversed, concluding that the McCausland rule has been “repealed” by subsequent decisions, including the U.S. Supreme Court’s opinion in Kirby Forest Indus., Inc. v. United States, 467 U.S. 1 (1984), and the rule was not one of retroactivity, but “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.” Slip op. at 7. The value of the property isn’t fixed at the date the complaint is filed:

McCausland also based its holding on the premise that the value of the condemned property was fixed as of the date the condemnation action was filed. See id. at 604. This point was important because it meant that the property owner was not entitled to any increase in value after the date the condemnation action was filed. And, having been divested of that aspect of ownership, it followed that the owner should not have to pay taxes during that time. However, in light of Kirby and First National Bank of Franklin Park, this reasoning also is no longer accurate. Property owners now have a constitutional right to have their property valued at the time compensation is paid. Further, the General Assembly has provided a statutory mechanism for determining the value of the property in compliance with Kirby. See 735 ILCS 30/10-5-60 (West 2018).

Slip op. at 8.

The court rejected the property owner’s argument that McCausland remains good law, and concluded:

[O]verruling precedent is appropriate “when the intervening development of the law has ‘removed or weakened the conceptual underpinnings from the prior decision, or where the later law has rendered the decision irreconcilable with competing legal doctrines or policies.’ ” Neal v. United States, 516 U.S. 284, 295 (1996) (quoting Patterson v. McLean Credit Union, 491 U.S. 164, 173 (1989)); People v. Castleberry, 2015 IL 116916. That is the case here. The legal premises on which McCausland rested—that a taking occurs at the time a condemnation action is filed and that the valuation of the property is fixed at that point—no longer exist. Accordingly, McCausland is overruled.

Slip op. at 10.

Finally, the court also rejected the argument that the filing of the complaint cast a cloud over the property, and the cloud lasted 12 years. Thus, it would be unfair to require the owner to pay property taxes when operating under the gun of eminent domain. The court held this argument was “unpersuasive,” because the mere filing of an eminent domain complaint is not a taking. Slip op. at 10-11. In straight takings, the condemnee remains the owner until the adjudicated compensation is paid.

Thus even though living under the eminent domain cloud, the owner continued to use the property, “retaining the right to any profits generated by the apartment complex and the right to receive the same governmental services provided to all property owners in the City.” Slip op. at 11.

Barista’s note: don’t forget that in straight takings, until the condemnor actually pays the adjudicated compensation, it remains free to walk away. If it does so, it may be on the hook for damages and just compensation for the (temporary) cloud. But that is a different issue than the one resolved here.

MB Financial Bank, N.A. v. Brophy, No. 128252 (Ill. Sep. 21, 2023)