A new Senate bill amendment backed by the Cook County treasurer’s office and the Chicago Community Trust seeks to reform Illinois’ property tax sale system.
Backers such as state Rep. Kam Buckner, a Chicago Democrat, say the bill would cut the cost for homeowners trying to pay off property tax debt in half, close a loophole that critics said allowed private investors and hedge funds to profit off local governments and help get vacant or abandoned properties back on the tax rolls.
The treasurer’s office and the Chicago Community Trust introduced separate and overlapping bills aimed at reforming the delinquent property tax system earlier this year. A merged proposal cleared the House Revenue and Finance Committee Thursday and is on track for House floor approval later this month.
Rep. Buckner told the Tribune the way the property tax sale system works in the state now closes neighborhoods off to reinvestment.
“(This amendment) will give us a way to build community wealth and reduce barriers to investment in communities,” said Buckner, who represents the 26th District. “I think it is going to be a big boon for the entire state of Illinois.”
The amendment, Senate Bill 1675 Amendment 1, 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, too, 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 in order 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.
But 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 proposed amendment, 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.
A second part of the amendment that seeks to curb the proliferation of vacant or abandoned properties will allow for local governments to take control of the properties if they are not purchased in the first round of the tax sale throughout the state and stop them from cycling through the scavenger sale in Cook County, where chronically delinquent properties’ taxes are auctioned off.
DaJuan Robinson, owner of DNA Construction, said that he believes that if the amendment becomes law, many developers like himself will have easier access to buying vacant properties, as the current tax sale system makes him feel like he is “playing with monopoly money on Wall Street.” Robinson was outbid on properties by tax buyers when he participated in an annual tax sale.
“The capacity of my business is all dependent upon the availability of properties that we can get our hands on,” Robinson said. “The more access we have to these vacant properties, the more money my business can make, and we can…
Read More: Illinois’ property tax sale system on path to potential reform – Chicago Tribune