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Class action lawsuit filed over Illinois counties selling houses for unpaid taxes and not reimbursing owners for their equity

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Illinois

* Dennis Rodkin at Crain’s…

A new lawsuit aims to abolish the long-standing practice of Illinois counties selling properties over their unpaid taxes in the wake of a U.S. Supreme Court ruling last year that declared the practice unconstitutional.

“County governments across Illinois have been illegally seizing property value from taxpayers across Illinois for decades,” said Daniel Suhr, an attorney with the Chicago-based law firm Hughes & Suhr, which filed the suit. “The US Supreme Court made that eminently clear in its decision, and our lawsuit is an effort to make victims of this unconstitutional policy whole.”

At stake is potentially hundreds of millions of dollars in home equity that property owners lost when Illinois counties sold their homes or commercial property for back taxes. A study by the Pacific Legal Foundation estimated that in the years 2014 to 2021, property owners in 11 Illinois counties sacrificed about $300 million in equity when their properties were sold for tax debt.

“It’s equity theft,” Suhr said.

Again, this is about selling houses for owed back taxes when the equity in those houses exceeded the money owed. The contention is the homeowners were unconstitutionally robbed of that excess equity.

* From the class action lawsuit…

The Fifth Amendment to the U.S. Constitution, incorporated against the States through the Fourteenth Amendment, prohibits the government from taking private property without paying just compensation to the property’s owner.

For decades, the counties of Illinois have violated this prohibition.

The violation proceeds as follows. First, people or businesses fall behind on paying their property taxes—often, only a few thousand dollars in back taxes. In response, the county treasurer executes a tax deed taking the property, either into the hands of the county directly or to a tax-lien buyer who has purchased the back taxes on the property. Either way, that taking is for the entire value of the property, not only the value of the taxes owed. That surplus value—the difference between the taxes owed and the value of the property—is never returned to the former owner.

The U.S. Supreme Court recently held, unanimously, that this practice of seizing the surplus value in connection with property taken to satisfy a tax lien violates the Fifth Amendment’s Takings Clause. Tyler v. Hennepin County , 598 U.S. 631 (2023)

The victims of that policy are spread across Illinois’s 102 counties, though they are most often poor, elderly, and vulnerable. Stealing the surplus value from these individuals is not just unconstitutional, it is unconscionable.

This lawsuit seeks redress for these unconstitutional, uncompensated takings. More precisely, this suit seeks relief on behalf of a class of all victims of the counties’ property value theft. And it seeks this relief against a class consisting of every Illinois County.

Thoughts?

posted by Rich Miller
Tuesday, Apr 16, 24 @ 12:10 pm

Comments

I had always assumed that the sale was made by the county, the taxes were deducted from the amount, the rest was refunded to the lienholders and finally the remaining to the former owner. The fact that doesn’t seem to be the case is appalling.

Comment by cermak_rd Tuesday, Apr 16, 24 @ 12:20 pm
On the face of it, it seems like the counties should just keep the back taxes and a reasonable collection fee, and return the excess to the property owner. If a tax lien buyer makes off with the property, they should be made to pay the excess to the former owner before they get the deed. There would probably be a lot less predatory tax lien buyers if this were the case.

Comment by Six Degrees of Separation Tuesday, Apr 16, 24 @ 12:20 pm
SCOTUS has already ruled home equity is protected by the Fifth Amendment’s Takings Clause. [Not the biggest fan of PLF, but they represented the home owner in this case.]

https://pacificlegal.org/states-bring-back-home-equity-theft/

Comment by Anyone Remember Tuesday, Apr 16, 24 @ 12:28 pm
Not only should the homeowners receive any balance in excess of back taxes, they should get interest now. And fees should be capped.

Some smart Cook County lawmaker should be filing legislation on this in 3, 2, 1….

Comment by Thomas Paine Tuesday, Apr 16, 24 @ 12:29 pm
I never thought of it that way, but yeah…if the government gets more money than what was owed (including late fees and administrative charges for the hassle of selling the property) then this is clearly a taking of private property that doesn’t have a public benefit. I suppose you could say the taking is a deterrent to the behavior of not paying your property taxes, but that wouldn’t be enough to justify the taking.

Comment by Just Me 2 Tuesday, Apr 16, 24 @ 12:32 pm
===SCOTUS has already ruled home equity is protected by the Fifth Amendment’s Takings Clause===

Yes, it’s mentioned multiple times in the piece.

Comment by Rich Miller Tuesday, Apr 16, 24 @ 12:34 pm
The Court decided this on a Minnesota case that was particularly egregious. The State Legislature is setting up a fund to help counties with the costs.

Comment by ArchPundit Tuesday, Apr 16, 24 @ 12:35 pm
Legislation to address this has been introduced - See SB 3396 and there is also a bill in the House as I recall

Comment by Just the Facts Tuesday, Apr 16, 24 @ 12:37 pm
An auction sale on the courthouse steps is not the way to get the most value out of a house. That is a choice of the government, and they can/should make a better one. They just don’t want to get involved more deeply in ownership and preparation.

Comment by Jibba Tuesday, Apr 16, 24 @ 12:44 pm
===SB 3396===

Never got a hearing, back in Assignments.

Comment by Rich Miller Tuesday, Apr 16, 24 @ 12:56 pm
May have Sale types mixed up.
Thought that Tax Buyers pay the taxes at a bid rate
Then multiple time frames for Notice and Redemption
Takes a long time before Tax Buyer can get a Deed
And don’t think County gets anything at that time
So ?

Comment by Red Ketcher Tuesday, Apr 16, 24 @ 1:03 pm
How much is at stake here? I imagine this could be a big budget hit if it goes back decades. I could also see SCOTUS eventually applying this logic to civil asset forfeiture.

Comment by thechampaignlife Tuesday, Apr 16, 24 @ 1:25 pm
I’d be curious how they came up with Fair Market Value for the homes in East St. Louis and elsewhere. The complainants also got a little too cute when saying “only a few thousand dollars in back taxes”

Comment by Jocko Tuesday, Apr 16, 24 @ 1:25 pm
Rich - SB 3396 is scheduled for a subject matter hearing tomorrow in Senate Revenue. Something on this subject could end up in a property tax omnibus.

Comment by Just the Facts Tuesday, Apr 16, 24 @ 1:39 pm
===scheduled for a subject matter hearing==

Thanks!

Comment by Rich Miller Tuesday, Apr 16, 24 @ 1:46 pm
Rarely, are unpaid taxes the only issue with a property. I just don’t see this as a big issue here. With the time and notice requirements of the process it would take a uniquely uninformed person to lose a property that actually has equity.

Comment by What's in a name? Tuesday, Apr 16, 24 @ 2:13 pm
“uniquely uninformed” is a bit off. This issue hits people who do not have mortgages (the banks make sure the taxes are paid), so they own free and clear. Many are older and/or disabled or just swept away by debt and lost jobs. uninformed is one way to describe it. so is helpless. The reform should not only pay them for the equity, but should focus on the front end: how to keep them in their homes. FYI, there’s already a case covering Cook County and another covering several collar counties.

Comment by Maywood Johnny Tuesday, Apr 16, 24 @ 4:36 pm
+1 to Maywood’s comment.

Comment by Friendly Bob Adams Tuesday, Apr 16, 24 @ 4:43 pm
ILs system is significantly different than Minnesotas. Here the county collector only receives the taxes. A tax purchasor buys the taxes at a competitively bid interest rate, they get that interest plus the principal. Think of it like a mortgage. Later legal action by the tax purchasor where a homeowner fails to redeem (pay off the principal and interest) can result in the tax purchasor being awarded the property. That’s very different from MN where the county sells the property and keeps any surplus. Here the county receives only the taxes owed (which it then distributes to all taxing bodies). It’s the middleman. Even then, people who fail to pay their taxes and lose their property to a tax deed can seek reimbursement (up to 250k as I recall) from the indemnity fund created by statute. Folks are reading Tyler too broadly and not taking into account the key distinguishing factors in IL law.

Comment by Just Another Anon Tuesday, Apr 16, 24 @ 5:06 pm
While Illinois law is somewhat different, I’m wondering who will be the responsible party for paying reimbursement if the class action suit succeeds?

Will it be the private tax buyer, who believed they were following the law as established by the State?

Or will it be the individual counties that facilitated the seizure and subsequent sale for (unredeemed) back property taxes?

My guess is they are looking at the counties, since they generally have the deeper pockets.

Comment by RNUG Tuesday, Apr 16, 24 @ 11:36 pm
The government empowering a private buyer to do the dirty work of stealing someone’s home and equity doesn’t make it any less a violation of the Fifth Amendment

Comment by JB13 Tuesday, Apr 16, 24 @ 11:42 pm