After three years of non-compliance with a 2023 U.S. Supreme Court ruling, Illinois lawmakers have passed a measure that would fundamentally change how counties and taxing bodies in the state can recoup delinquent property taxes.
For years, Illinois counties have sold property tax debt to investors who can ultimately seize the properties if their owners fail to redeem the delinquent property taxes. The nation’s highest court ruled it was unconstitutional to withhold the surplus equity from property owners who lose their properties in the process. Illinois is the only state affected by the ruling that has not yet reformed its property tax debt system.
Late Saturday night, by an 80-to-35 vote, the Illinois House of Representatives approved a measure to comply with the ruling. The Illinois State Senate approved the measure two days earlier. It now awaits Gov. JB Pritzker’s signature.
Under House Bill 4537, the Cook County Treasurer’s office will have six more annual tax sales, with the final one held in 2030, according to Justin Kirvan, policy director for the Cook County Treasurer’s Office. Kirvan said the legislation calls for Cook County to concurrently run a pilot program allowing the county to withhold 100 delinquent tax certificates at each of the next six tax sales. Only properties where the owners have claimed a homeowners exemption are eligible, and their certificates must be among properties with the lowest tax debt. Those selected will be enrolled into a payment plan that will get them paid up after a three-year redemption period. In the current system, property owners have two-and-a-half years to clear their debt, and there is no payment plan available.
The legislation also sets up a surplus equity fund for property owners who are at risk of losing their properties after their delinquent tax certificates have been purchased at the last two tax sales. In those cases, the tax buyer may pursue the deed to the properties, resulting in a foreclosure. Kirvan says property owners can file a claim to recover any lost equity in their home from the surplus equity fund, which is financed through additional fees paid by the property tax buyers.
The measure was sponsored by State Sen. Celina Villanueva (D-Chicago) and State Rep. Curtis Tarver (D-Chicago). In a statement, Villanueva said the legislation “is about upholding Illinoisans’ constitutional rights and ensuring our state’s tax sales process places fairness over profit.”
In the current system, Cook County can put tax liens on properties with at least one year of delinquent property taxes and sell those tax liens or certificates to tax buyers at the annual tax sale.
During the redemption period, homeowners must pay the tax buyers for the original debt, plus fees and interests, as set by the tax buyers. Typically 90% to 95% of property owners settle their debt within the allotted two and a half years, according to property tax attorneys. But for those who do not redeem, a tax buyer can petition the court for the deed of their home. Once tax buyers secure the deed, property owners are out of any equity in the home.
In the new system, after the county holds six annual tax sales, delinquent tax certificates will still be sold. But if a tax buyer or other interested party wants to pursue the deed to the home, an auction will be held and the proceeds will pay off the tax debt. The starting bid is set at the total amount of the delinquent property taxes. If the winning bid exceeds the total debt, the remainder is considered the surplus equity which goes to the original homeowner. Those property owners can also participate in the public auction.
For tax certificates not purchased at the tax sale, the county will offer those homeowners the opportunity to enroll in a payment plan.
Mixed reviews
Opponents of the bill are concerned that the auction does not offer homeowners the full equity that their homes are worth. To that, Kirvan suggests that property owners are still able to sell their homes during the redemption timeline, pay their outstanding tax debt, and keep what’s left.
During Saturday’s discussion on the house floor, lawmakers expressed concern about the Illinois Tax Purchasers Association’s opposition to the bill. The legislation arguably disrupts how much tax buyers can profit from the tax sales. The association did not respond to multiple requests for comment.
In a statement, Cook County Board President Toni Preckwinkle called the legislation a step towards equity: “This bill sunsets the practice of private tax buying in Cook County and replaces it with a more equitable process that better protects property owners.”
The Chicago Sun-Times reported that Cook County was found liable — in a recent class-action lawsuit in federal court — to pay the damages for a total of 2,500 property owners that did not receive their surplus equity once the delinquent property taxes were paid. John Bouman, the lawyer for the plaintiffs, said the issue is the lost equity not the tax sales. If the state is unable to resolve the equity issue, more homeowners could be added to the class. “If the legislation is successful in eliminating the source of the constitutional violation,” Bouman said, “if it fixes that, then there … won’t be any more people entering into our class who need to get their money back.”