Illinois Lawmakers Take on “Equity Theft” in Tax Lien Sales

A long-favored pipeline for acquiring distressed Cook County real estate could soon dry up as lawmakers look to revamp the tax sale process.

State legislators introduced a proposal to alter how tax-delinquent properties are handled in Cook County, adding an auction step that could make it more difficult to acquire properties at low costs, the Chicago Tribune reported.

The proposal, backed by Cook County Treasurer Maria Pappas, seeks to prevent homeowners from losing all their equity when their properties are sold due to unpaid taxes. Under the current system, homeowners who go 13 months without paying their full property tax balance will have their debt, plus interest and penalties, included in the county’s annual tax sale.

Tax buyers, who purchase the right to collect unpaid property taxes from delinquent owners, can cover the overdue amount and later charge the homeowner additional interest and fees to reclaim their property.

Should the owner fail to settle the debt within a set period, typically 30 months, the tax buyer can petition for the deed and take ownership.

The proposal, sponsored by state Rep. Will Guzzardi and state Sen. Celina Villanueva, would introduce a step before that transfer, requiring a public auction where the minimum bid matches the unpaid taxes, interest and penalties. If the sale price exceeded that amount, the original owner would receive the surplus.

The legislative maneuver follows a recent U.S. Supreme Court ruling, which found that seizing a property and keeping excess proceeds from a sale violated property rights. Cook County’s system has faced legal challenges on similar grounds, with a pending lawsuit seeking class-action status on behalf of property owners who lost their equity through tax sales.

Supporters of the proposal argue that it would make the tax sale process fairer while keeping Cook County in compliance with federal rulings. The legislation would also impose fees on tax buyers to fund payouts for past cases where homeowners lost their equity.

— Andrew Terrell