Cook County homeowners who lose their properties because of unpaid property taxes would be in line for a share of the resale price under a proposed change to state law to prevent what critics call “equity theft.”
The bill, backed by county Treasurer Maria Pappas, calls for an open auction after a tax sale, through which a property owner could recoup some of its value. As it stands today, people who buy a home’s unpaid taxes can eventually get the deed simply by paying late property taxes and fees, effectively pocketing the home’s value.
Pappas may not have much choice but to seek changes. The Supreme Court recently sided with a Minnesota homeowner who lost her condo because of overdue taxes. Her attorneys successfully argued that systems similar to Cook County’s rob delinquent homeowners of equity. A similar local lawsuit from Cook County property owners is seeking class-action status.
“We want to find a way to resolve this in the General Assembly this year,” said state Rep. Will Guzzardi, D-Chicago, who is sponsoring the bill in the House. “It would be better to resolve this legislatively than watch this go through the courts and have our whole system be upended.”
Currently, a homeowner who fails to pay the full balance of their property taxes for 13 months will see that debt, plus interest and penalties, offered up at the county’s annual tax sale. Tax buyers can snap up and pay off a property’s tax debt, then turn around and charge the homeowner further interest and fees to clear the bill.
If the original property owner doesn’t settle up with the tax buyer within 30 months — often extended to three years — the tax buyer can petition a judge for the deed to the property and take ownership.
Most tax buyers aren’t in it to take over the properties themselves, experts say, but to make money from fees and interest payments. The county profits not from the sale of homes but from interest fees charged on late bills. It remains to be seen how tax buyers will change tack as a result of the proposed changes.
Pappas’ office is proposing a series of tweaks to the process in the Illinois General Assembly. Chief among them is the added step of the auction. If the sale value is more than the back taxes owed, the homeowner would be entitled to the difference.
According to the legislation sponsored by Guzzardi in the House and Sen. Celina Villanueva, D-Chicago, in the Senate, the minimum bid for the deed auction would equal the amount of late taxes, interest and fees owed on the property. If no one meets that minimum bid, the tax buyer gets the deed by default and the original property owner gets nothing. The auction functions as an “equity” test, in essence determining the home’s market value.
“Where you can, you’ve got to find a way to return the equity to the homeowner. That’s the goal of our bill,” Guzzardi said.
“We want to be proactive about building a system that is in compliance with the Supreme Court decision and more importantly, is in the best interest of the homeowners. They have a property right here and it shouldn’t be taken unfairly,” he said.
Cook County Board President Toni Preckwinkle’s office said it supports the proposed changes.
In 2023, the U.S. Supreme Court ruled in Tyler v. Hennepin County that the government of Hennepin County, Minn., was unfairly pocketing proceeds from homes and businesses sold after years of property tax delinquency.
Geraldine Tyler, who brought the original case, owed $15,000 in property taxes and other fines and late fees on her condo. The county foreclosed on it and sold it for $40,000 — keeping the $25,000 above the balance of her debts. The court ruled that Tyler was entitled to that $25,000.
Though Cook County doesn’t directly sell properties like other counties do, local property owners have still sued, alleging similar constitutional violations, according to Crain’s Chicago Business. Pappas’ office has fought one of those suits, arguing that the office has been following existing state law. Attorneys for the Cook County plaintiffs say their class could include about 2,000 property owners who unfairly lost their home equity.
Pappas’ office said its proposed changes are the latest to make the property tax system more fair and equitable throughout Illinois. Two years ago, her office successfully lobbied state lawmakers to cut in half the interest charged on late taxes in Illinois.
Properties with delinquent taxes are concentrated in Black and Latino neighborhoods, Pappas’ office has said. While tens of thousands fall behind on their taxes each year, only a fraction of properties are bought at the tax sale, and even fewer lose their deeds. About 40,500 properties were offered at the annual sale for the 2020 tax year, for example, but just 8,960 were bought, according to Treasurer data. The next year was similar: about 42,000 offered but 7,710 bought.
Tax buyers report that delinquent property owners overwhelmingly pay back their taxes within the redemption period, but in cases where tax buyers take ownership, they can profit heavily on flips.
If passed by state lawmakers and signed by the governor, the new process would essentially mirror mortgage foreclosure auctions. After passage, any tax deed that has not been issued yet but stems from a previous tax sale would run through the new judicial auction process.
As for owners who have already lost their property, only those who lost their deed in the two years before passage would be able to go to court, file a claim and possibly get paid out for the equity they missed out on.
Pappas’ bill also proposes new fines and fees on tax buyers in the hopes of boosting that payout fund’s meager balance: it currently has a $33.6 million backlog of cases to pay out.
Guzzardi expects to “hash out” any issues the tax buyer industry has with the bill — and its application in other counties around the state — during the upcoming session.
Aside from tweaking the law to comply with the Supreme Court ruling, Ianna Kachoris, the associate vice president of Community Impact at The Chicago Community Trust, said the bill could give lawmakers “an opportunity also to build in more robust protections for homeowners who have fallen behind on their property taxes to preserve what is often a family’s most significant asset. These include property tax payment plans and other relief options, particularly those whose property taxes may have unexpectedly risen.”
