Cook County’s handling of defaulting property tax sales is the subject of a federal lawsuit filed Thursday by two low-income homeowners and two community groups representing black and Hispanic Chicagoans.
The civil suit alleges that the district treasurer’s practice of turning over tax-arrearing properties to private buyers unfairly starved the original homeowners of equity, violated their civil liberties and the Fair Housing Act, and stole their property without due process.
“Many low-income homeowners have only one asset they can pass on to future generations: the value of their home,” said John Bouman, attorney and director of the nonprofit Legal Action Chicago, which represents the plaintiff homeowners. “By depriving homeowners who don’t pay their property taxes of the entire value of that wealth, and disproportionately affecting Black and Hispanic homeowners, the tax sales system widens the racial wealth divide that has plagued this region for years.”
The lawsuit centers on the annual tax sale coordinated by the Cook County Treasurer’s Office and names both Treasurer Maria Pappas and Cook County as accused.
If homeowners don’t pay their property taxes for 13 months, the county can auction their arrears of taxes to third-party buyers. Owners have up to 30 months to repay their debt plus penalties and interest. If they don’t pay, the tax buyers can seize the property, including value in excess of what was owed for taxes and associated penalties and interest.
Suppose a homeowner’s non-payment results in $10,000 in tax-related debt on a $100,000 property. If the homeowner is unable to pay the full overdue amount during the repayment period, the tax buyer can obtain ownership of the home. The original owner, the lawsuit argues, “receives nothing and loses up to $90,000 in equity, while the tax buyer gets the windfall of a $100,000 property for which he paid $10,000.”
The lawsuit argues that confiscating the homes – which are often worth exponentially more than the original tax liability, interest and penalties – without compensation is unlawful. Because the vast majority of homeowners whose taxes will end up in the sale are Black and Hispanic — 75% of the properties on offer in the 2021 tax sale were in predominantly Black and Hispanic neighborhoods, according to the Treasurer — the practice is discriminatory and violates federal housing and civil rights laws, allegations the lawsuit.
State law offers a way for homeowners who lose their property to a tax buyer to get money back: the indemnity process, which allows the original owner to argue in court that they were unaware that defaulting on tax payments could result in the loss of their home. If the original owners are successful, they are eligible for a payout from the county’s compensation fund.
But according to a recent study by Illinois Answers, even if they succeed, the fund will be “$22 million in debt and eight years behind on paying people.”
The lawsuit alleges the compensation process was also “effectively hidden from the public and inherently reasonable.”
“There is no notification of the fund and process to homeowners; there must be a formal court record and eventual court hearing; even innocent homeowners may be denied compensation; there are eligibility requirements that exclude some homeowners; the compensation fund is never adequately or adequately funded; and even successful homeowners have to wait many years to get paid. In the end, very few homeowners ever receive compensation of an amount that comes close to the true and fair value of the homeowner’s lost equity. The settlement fund does not help homeowners access their home equity early enough to help them secure new homes,” the lawsuit states.
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Plaintiffs include Michael Bell, owner of a $115,000 home on the 2200 block of East 100th Street in Chicago. After his mother’s death in 2017, Bell took over the property but was unemployed from 2018 to 2019 and, according to the lawsuit, was unable to pay his 2018 property taxes. In the spring of 2019, the taxes for his home were sold to the Lien Group; The delinquent charges totaled more than $11,000 over time and he was forced to cede ownership, the lawsuit says.
“The lawsuit is not intended to reclaim the home or fight the eviction, but instead aims to ensure that Bell is compensated for the value of the home – essentially the equity that was deprived of him – so that he has the financial means to move on.” to secure new housing,” said a spokesman for Legal Action Chicago.
The lawsuit seeks the same remedy for the entire class of people who lose their property in these tax sales. Plaintiffs include another homeowner and community activist organizations, the Southwest Organizing Project and Palenque LSNA.
Pappas’ office had no immediate response to the lawsuit. She has been a vocal critic of the system, which she has admitted disproportionately affects black and Hispanic communities. She has proposed a series of reforms to the state’s tax sales law, including allowing homeowners to choose a payment plan, lowering the interest rates tax buyers can charge and a decision not to offer taxes for sale if the owner owes less than $1,000 $ is a senior, or is disabled (so long as they agree to a payment plan).
“We expect and hope that because of her public statements, Treasurer Pappas wants to take responsibility for reforms in Springfield to help people stay in their homes,” Mike Truppa, spokesman for Legal Action Chicago, said in an email . “There are other necessary reforms that should take place in the legislature and we hope that they will be at the forefront of them. The goal should be to keep more people in their homes and reduce the impact on people in minority communities, the elderly and people with disabilities.”