Illinois Tax Sale Reform News: What Deed Holders Now Must Know

A new court ruling, plus a new state law, is strengthening Illinois deed holders at risk of losing their hard-earned home equity because of unpaid property taxes.

It’s about time. Thousands of Illinois deed holders have lost their homes and all of their home equity over relatively minor tax debts.

Consider the Kidd household. After medical bills overwhelmed the family, the Kidds neglected to pay their property taxes for two years. When they approached the Cook County Treasurer’s office to work out a payment plan for a past-due amount of just over $2,000, they were shocked to learn that their deed had already been transferred in a property tax sale.

Something smells rotten about this, because it is. What happened to the Kidds offends the Constitution.

What’s Going on With Cook County, Illinois, and Its Approach to Unpaid Property Taxes?

Cook County includes Chicago and 133 Chicago suburbs. Here, any amount of neglected property tax debt can steer a deed into a tax sale.

Since 2019, tax buyers (typically corporations and LLCs) have taken more than a thousand Cook County homes away from their owners. Just like the Kidds, most of these deed holders owed less than $2,000 before fees and interest accrued, according to Injustice Watch. The nonprofit’s Investigative Project on Race and Equity found that Illinois has enabled tax buyers to enrich themselves at the expense of Cook County deed holders—especially in predominantly Black neighborhoods. 

Investors buy up tax liens by paying the overdue taxes to the county. Then, a struggling deed holder gets two and a half years to pay the property tax buyer (and pay continuing taxes in the meantime) before the buyer keeps the deed and the struggling former owner is either evicted or expectedto pay rent to the investor.

A tax lien investor has been able to walk off with the deed and keep all the owner’s equity.In other words, investors could foreclose on the tax liens and keep any leftover equity if the debtors failed to pay off the debt, fees, and interest within 30 months. This sort of wealth-stripping has been struck down as a form of unconstitutional taking in every other state. Illinois is the last holdout.

In the Kidd family case, the overdue tax bill amounted to $2,344. With penalties and fees, the bill swelled to a five-figure total. The Kidds were evicted. They asked Legal Action Chicago to take on their case. The group sued Cook County. The suit is based on the Fifth Amendment to the U.S. Constitution.

Now, change has come. The Kidds fought hard for it. More than 2,000 households, including the Kidds, are pursuing class actions. They’re all hoping they’ll be reimbursed for at least some of their lost home equity. (Nine other counties, in addition to Cook, face similar legal actions.) Under the court’s latest ruling, they can claim compensation if they lost their deeds in property tax sales after December 15, 2020.

A lien clouds title until it is paid off and legally released. A property tax lien can lead to foreclosure and eviction when the deed holder does not resolve it.

Illinois Just Enacted Major Property Tax Reforms to Stop “Home Equity Stripping” Over Unpaid Tax Bills

Legal challenges like the Kidd family’s are about to be a thing of the past, in any case. Governor J.B. Pritzker has just signed House Bill 4537, a law that will now protect Illinois deed holders from being stripped of their surplus home equity after property tax foreclosures. Under the new tax sale system, if a property is sold, any proceeds that remain after repayment of taxes, fees, and interest will go to the owner who built that equity.

The new law:

• Establishes public property tax auctions for Illinois foreclosures. The county will manage payment plans and allow installment payments. Notably, though, many deed holders could now face higher interest rates over the three-year redemption period.

• Creates a “surplus equity fund” to pay former deed holders who prove in state court that the value of their foreclosed homes exceeded their tax debt and any other outstanding debts.

• Brings Illinois in line with the U.S. Supreme Court’s 2023 ruling in Tyler v. Hennepin. This landmark case holds that deed holders experiencing foreclosure are entitled to any home equity left over when their homes sell.

• Grants more time for deed holders to repay back taxes, moving the time limit from 30 to 36 months.

• Discontinues property tax sales to private investors as of 2030 (in Cook County only). Given that foreclosed deed holders will get 36 months to pay off the amounts they owe, the county’s first public auction cannot occur before 2030.

Although Illinois law still makes the rules relatively complicated, its new law does clear a path for financially stressed deed holders to preserve some of their equity.

Main Criticisms of the New Law Could Lead to Later Changes

Lawmakers and supporters of the bill expect to modify the new law as they work with it. So it’s important to mention certain aspects of the law that could, by popular demand, be tweaked:

• Although tax buyers will be paying into the new surplus equity fund, deed holders struggling with tax debts will also be tapped for money. They’ll be paying a total of 10% of their past-due debt for administration of the fund.

• If the new fund runs out of money, all counties will have to pay for successful claims against them within 12 months. This provision adds to county taxpayers’ responsibilities for keeping the fund afloat.

What’s missing from the law? Injustice Watch points to a few aspects of the new law that could use deeper reforms:

• Under the new law, starting bids in Cook County auctions will amount to what the debtor owes. Calling for bids that reflect a heftier chunk of a foreclosed home’s market value would give the debtors a much better chance of recovering their home equity.

• The law lacks provisions to exempt seniors, veterans, or people with disabilities from the tax foreclosure and auction process.

• The law doesn’t provide “property tax circuit breakers” that offer relief to deed holders whose property tax payments exceed a certain portion of their income.

It will be interesting to watch the continued progress in Illinois law. Meanwhile, if you have case-specific questions about the information discussed here, consult your professionals. Deeds.com does not provide financial or legal advice.