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* Crain’s last year…
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.
This is about selling homes over unpaid property taxes when the equity in those homes was worth more than the debt. The argument is that homeowners were unconstitutionally stripped of that excess equity.
* Crain’s today…
A federal judge’s opinion this week made the ice even thinner under Illinois’ already precarious method of recouping delinquent property taxes, which has been under fire since a 2023 Supreme Court decision found the method unconstitutional.
Hanging in the balance is the millions of dollars — or more — that Illinois counties could be required to repay former property owners, if the opinion by U.S. District Judge Nancy J. Rosenstengel of the Southern District of Illinois leads to a court decision against the counties. Her decision allows a proposed class-action lawsuit to move forward, against the request of the treasurers of five Illinois counties.
Rosenstengel’s Sept. 30 opinion is among the first from a judge to expressly say counties in Illinois may be liable for violating property owners’ constitutional rights. It’s a complex issue, but boils down to a question of whether and how numerous former property owners in Illinois will be compensated for a violation of their property rights.
* From Judge Rosenstengel’s opinion…
The St. Clair County Defendants argue that the issuance of the tax deed on behalf of the State is the “taking” that Plaintiffs complain of. But it is not the bare issuance of the tax deed transferring the property that violates the Constitution. It is the issuance of a tax deed without providing just compensation for the surplus value of the property that the Supreme Court has deemed a violation of the Fifth Amendment.
Because the Plaintiffs are challenging the Treasurers’ discretionary policy decision not to provide just composition after the property is transferred — and not any action mandated by State law — the Treasurers’ are not protected by sovereign immunity.
* Back to Crain’s…
Rosenstengel’s opinion suggests the county treasurers should instead have developed a system that gets the taxes for the county and returns excess equity to the property owner.
Thoughts?
* Related…
* Evanston RoundTable | Cook County’s annual tax sale to be postponed for 7 months: At Pappas’s urging, the Illinois General Assembly last week passed legislation that allows the Treasurer to postpone the annual tax sale previously set to be held this August. The legislation also provides that during the delay no additional interest will be charged on delinquent bills subject to the sale. Once the legislation officially becomes law, she will be allowed to delay the sale until March 2026.
posted by Isabel Miller
Thursday, Oct 2, 25 @ 10:31 am
Previous Post: When RETAIL Succeeds, Illinois Succeeds
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And as I reread, that was the judge’s point and the way it was operationalized in Hennepin County in Minnesota after the initial decision. It’s not that hard, it just takes more specific accounting.
Comment by ArchPundit Thursday, Oct 2, 25 @ 10:37 am
Seems to me as if the fairest way to do it would be for tax debt purchasers to be just that: debt collectors. If they then want the deed to the property, they should go through the foreclosure process like virtually all other creditors would.
Comment by fs Thursday, Oct 2, 25 @ 10:45 am
Only good thing to come from this Supreme Court.
Comment by hmmm Thursday, Oct 2, 25 @ 10:46 am
Last state? Oh my, that’s disturbing.
What is so difficult about realizing that taking someone’s excess financial equity is wrong?
I struggle with the larger implications of morality revealed in a report like this. Illinois wants to promote the image that it cares for “the folks” that live here, and then silently continues to condone things like this.
Change the policy already. Treasurers should be embarrassed by this unjustifiable greed.
It would be beautiful if treble damages were an option.
Comment by 40,000 ft Thursday, Oct 2, 25 @ 10:50 am
=== And as I reread, that was the judge’s point and the way it was operationalized in Hennepin County in Minnesota after the initial decision. It’s not that hard, it just takes more specific accounting. ===
What makes it difficult is that the tax buyers that ultimately are deeded the property do not pay the fair market value of the properties, they only pay the outstanding tax amounts that are owed by the homeowners.
So in this case, the only money turned over to the County is the money paid for the delinquent taxes. It is the tax buyer that gets the windfall of owning a property without paying full market value of the property.
State law already establishes an indemnity fund for the purpose of providing homeowners that lose their homes through the tax sale process. It is my understanding, however, that the indemnity fund has not been funded adequately to pay out all claims. Maybe the indemnity fund process needs to be reexamined so that it can serve its purpose.
Comment by Remember the Alamo II Thursday, Oct 2, 25 @ 10:53 am
=== Change the policy already. Treasurers should be embarrassed by this unjustifiable greed. ===
It’s not the policy of County Treasurers it is state law under the Property Tax Code. The code allows tax buyers to obtain the deed to the property, and it does not provide a mechanism outside of the indemnity fund to compensate homeowners that lose their homes in a tax sale.
Comment by Remember the Alamo II Thursday, Oct 2, 25 @ 10:56 am
===It is my understanding, however, that the indemnity fund has not been funded adequately to pay out all claims. Maybe the indemnity fund process needs to be reexamined so that it can serve its purpose.
You could probably get there that way so I’m fine with that. It gets complicated when there is low demand property and that system makes sense in those cases, but at a systems level shouldn’t we be getting as close to market value as possible in properties that do hold value?
Comment by ArchPundit Thursday, Oct 2, 25 @ 11:06 am
Absolutely disgraceful. This practice should be embarrassing to our congress and governor alike. It’s not the sort of thing they should have to be told to fix. Shameful.
Comment by Irreverent Thursday, Oct 2, 25 @ 11:12 am
More often than not the tax buyer does not want the property the buyer just wants to earn the high interest. And most property sold does not have a mortgage on it because mortgage companies do not want to loose their mortgage so they pay and probably foreclose. In a foreclosure the home owner gets any excess payment from sale unlike a tax deed
Comment by DuPage Saint Thursday, Oct 2, 25 @ 11:13 am
Just learning about this. Have to admit it seems unfair for the buyer to get more value than the back taxes. Hope it gets fixed.
Comment by Friendly Bob Adams Thursday, Oct 2, 25 @ 11:29 am
Asa former McHenry County Treasurer who conducted tax sales and made them more competitive by obtaining more bidders, I do not understand how a Federal judge thinks a county treasurer can change state law.
That is what would be necessary to fulfill this, as reported by Crain’s:
“Rosenstengel’s opinion suggests the county treasurers should instead have developed a system that gets the taxes for the county and returns excess equity to the property owner.”
Comment by cal skinner Thursday, Oct 2, 25 @ 11:30 am
= in the wake of a U.S. Supreme Court ruling last year that declared the practice unconstitutional=
Illinois legal landscape catching up to SCOTUS rulings is good - same fate likely awaits cases dealing with FOID and semi-auto bans in light of Bruen.
Comment by Think again Thursday, Oct 2, 25 @ 12:07 pm
Alamo II, I was citing the citation of Judge Rosenstengel’s opinion — “Because the Plaintiffs are challenging the Treasurers’ discretionary policy decision not to provide just composition after the property is transferred — and not any action mandated by State law — the Treasurers’ are not protected by sovereign immunity.”
Is the judge correct or is this taking required by state law?
Comment by 40,000 ft Thursday, Oct 2, 25 @ 12:08 pm
== In a foreclosure the home owner gets any excess payment from sale unlike a tax deed==
But don’t banks often sell it for way less than it’s worth because they don’t care if the owner gets their equity back?
Comment by Big Dipper Thursday, Oct 2, 25 @ 12:19 pm
@Big Dipper. At a foreclosure sale banks almost always bid their mortgage amount and fees. If it is a low Mrtg amount generally an individual will come in and over pay the mrtg amount. Then bank gets its money and sheriff is supposed to give excess to the old owners. Banks don’t want to end up with property usually.
Comment by DuPage Saint Thursday, Oct 2, 25 @ 12:29 pm