Illinois’ property tax sale system is slated for reform now that a measure backed by the Cook County treasurer’s office and the Chicago Community Trust has cleared the legislature and is headed to Gov. J.B. Pritzker’s desk, where he is expected to sign it into law.
“Over the past two generations, the tax sale system has evolved — whether intentionally or not — into a vehicle to strip wealth and drive inequality in some of our most vulnerable communities,” state Rep. Kam Buckner, a Chicago Democrat and one of the bill’s sponsors, said in a statement. “This bill seeks to rebalance the tax sale system in the interest of local governments, residents and community developers who actually want to reinvest in their neighborhoods from the ground up.”
The bill would reform the state’s system for selling delinquent property taxes. Under the current system, property owners who don’t pay their bills can see their taxes put up for auction. When sold, a lien is put against the home or business until the owner can pay the taxes back to the buyer, plus interest. Delinquent sales allow taxing bodies to collect revenues they’re owed while giving property owners extra time to pay their bills without losing their homes. Investors also can make a profit at a low risk. Most homeowners do eventually pay back their taxes with interest.
But a study from the treasurer’s office published last fall found a small number of private investors were exploiting the system using a “sale in error” loophole to undo the transaction and recoup their investment, plus interest.
The “sale in error” process was created to reverse tax sales that should never have occurred, such as those in which the property owner already paid the taxes before the sale.
According to the treasurer’s office, investors have used the provision to argue that sales should be void because of minor discrepancies in government records, such as saying a home had no air conditioning when it did, or a house had stucco when it was made of brick.
When a sale in error is made, the treasurer’s office repays the investors, including up to 1% interest per month and fees that accumulated over the time they held the delinquent property taxes.
These loopholes drain $40 million a year from local government coffers, often in Black and Latino neighborhoods where the properties are located, according to the treasurer’s office. In a study examining sales in error between September 2015 and September 2022, the office found a total of $277.6 million, including at least $27.7 million in interest, was sent back to tax buyers.
Under the legislation, which the Chicago Community Trust and other groups have been working on for years, investors could still argue there has been an error made by the county, but the error would have to be significant, a call that would be made by a judge, the treasurer’s office said.
Cook County Treasurer Maria Pappas’ office highlighted the effect of delinquent property taxes on local governments earlier this year with a report finding neighborhoods in the south suburbs had particularly low collection rates, leaving many communities in financial distress and unable to provide basic services.
The treasurer’s office said the low collection rates are in large part due to the high concentration of vacant lots in those neighborhoods, many of which were hit hard by the 2008 financial crisis.
[ Lucrative loophole benefits delinquent property tax buyers in Cook County at expense of government, taxpayers, new study says ]
The measure, which also seeks to curb the proliferation of vacant or abandoned properties, will allow local governments to take control of the properties if they are not purchased in the first round of the tax sale. The goal is to stop the properties from cycling through scavenger sales in Cook County, where chronically delinquent properties’ taxes are auctioned off.
The amendment also aims to help Cook County property owners who are behind on their property taxes by cutting interest rates on the payments from 1.5% to 0.75% per month starting this year.
As of May 3 of this year, for the 2021 tax year — which was billed in 2022 — owners of 73,733 properties in Cook County were behind on their taxes, a number that will drop as people make payments before the next sale season in February 2024, according to the treasurer’s office. Right after bills were due Dec. 30, more than 180,000 people were behind on their payments.
The treasurer’s office says the “vast majority” of late fees are leveled at low-income, Black and Latino homeowners and reducing the interest rates will save residents a total of $25 million to $35 million a year, or about half of yearly penalty payments to the county.
“The legislation — the result of two years of work by my research and policy teams — is the most significant property tax reform legislation the General Assembly has approved in decades,” Pappas said. “It is a key step toward greater equity in Illinois’ property tax system — one that is long overdue.”
Cook County Commissioner Bridget Gainer praised the bill’s passage as well. Gainer also serves as the chair of the county’s Land Bank Authority, which acquires vacant, abandoned, foreclosed or tax-delinquent properties and helps redevelop them.
During the County Board’s regular monthly meeting, Gainer traced efforts to reform delinquent tax policy and the scavenger sale back eight largely unsuccessful years. Reform efforts, she said, were stymied by powerful lobbyists for tax buyers.
The bill that cleared the General Assembly will fundamentally change the ability of the county’s land bank and every suburb in Cook County to get access to vacant property that will “no longer be held hostage” by tax buyers, Gainer said. “With this, we have the ability to facilitate and really fast-pace development in neighborhoods that clearly have a demand.”
The state Senate passed the bill Wednesday by a 51-3 vote, with the House having approved it in a 77-37 vote May 18.
Chicago Tribune’s A.D. Quig and Dan Petrella contributed.
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