Judge rules Cook County tax sale illegal; lawmakers yet to act

A federal judge ruled Cook County is illegally settling minor property tax debts by seizing the full value of properties. Illinois law still allows the practice.

A federal judge recently ruled Cook County’s property tax sale system unconstitutional, but Illinois has yet to change state laws to stop the practice of seizing a property for a minor tax debt, then letting a tax buyer keep all the money from the property’s sale.

Litigation is ongoing to determine whether the county is responsible for paying the homeowners for their losses as a result of these tax sales.

Under current state law, when someone falls behind on their property taxes, the county sells that debt to private investors called tax buyers. If the homeowner cannot repay the debt plus interest within what is typically a 30-month redemption window, the tax buyers can take the deed to the home.

The investors get to keep the entire value of the property — not just the amount they are owed. The property owner loses everything, including their equity in the property that exceeds the tax debt.

That’s how Michael Bell, the lead plaintiff, lost a fully paid-off $115,000 South Side home after falling behind on roughly $11,000 in taxes while unemployed. Bell didn’t want to fight to reclaim the home, but he argued he was entitled to the $100,000 in equity that vanished when a tax buyer took the title. Thousands of other homeowners are in similar situations.

Since 2019, more than 1,000 Cook County homeowners, including 125 senior citizens, have lost their homes and all their equity, often over tax debts of less than $1,000. Their homes were worth more than $108 million total, but the families received nothing. In May 2022, 37,000 properties were slated for delinquent tax sale in Cook County; 54% had debts under $1,000.

Illinois lawmakers temporarily delayed tax sales this year, but that did nothing to stop litigation such as Bell v. Pappas, which has been underway since 2022. Illinois lawmakers have known since 2023 that the system was unconstitutional, after the U.S. Supreme Court unanimously ruled the practice of home equity theft unconstitutional in Tyler v. Hennepin County, a case out of Minnesota.

Geraldine Tyler, a grandmother, had her condo seized for a $2,300 tax debt that grew to $15,000 with interest and fees. The tax buyer kept the entire $40,000 from the condo sale and Tyler sued.

The Tyler case established that governments cannot keep more than what is owed in back taxes. Other states have changed their laws. Illinois has not.

Researchers estimate tax buyers in Illinois collected at least $148 million more than what was owed between 2014 and 2021. If courts require counties to repay homeowners, local taxpayers could be left footing the bill.

Illinois needs to update its tax sale laws to ensure homeowners keep their equity. One proposal, House Bill 3146, would require surplus value from a tax sale to be returned to the homeowner, which was the standard required by the Fifth Amendment and affirmed in the Tyler ruling. Pappas has pushed for similar reforms, recommending auction rules that ensure homeowners are paid any amount above their tax debt.

But the legislature has failed to reach consensus. Between the rush to fund Chicago area transit and pass last-minute budgets, lawmakers may have thought they had bigger fish to fry. But the nearly three-year delay in fixing these laws since the Supreme Court ruling is adding up, and taxpayers may soon pay the price for the inaction.

Ending this unconstitutional system is only part of the needed change. Illinois imposes the highest effective property tax rate in the nation, driven in large part by soaring pension costs.

Cook County residents saw their latest property tax bill grow by a whopping 16%. In Chicago alone, nearly every tax dollar raised since 2014 has gone to fund pensions.

High property taxes and rising assessments are pushing more families into delinquency. So long as taxes keep rising, more families will fall behind and more will risk losing everything.

Lawmakers have a hefty to-do list going into the upcoming legislative session. They should:

• Align Illinois law with the U.S. Constitution by ensuring homeowners keep their equity.
• Pursue pension reforms that reduce liabilities to deliver property tax relief to residents, reducing the high burden they already face.
• Impose stricter limitations on costly tax increment financing districts.

Illinois residents deserve a system that protects, not destroys, the wealth of families who worked their whole lives to build it. U.S. District Judge Matthew Kennelly’s ruling in the Cook County case is a wake-up call. The only question left is: will Illinois lawmakers listen?