New legislation takes aim at Cook County’s delinquent property tax system

A pair of bills backed by the Cook County Treasurer’s Office aims to reduce the burden on taxpayers behind on their property taxes and crack down on private investors who profit from the sale of delinquent taxes.

Legislation introduced Friday by State Sen. Ram Villivalam, D–Chicago, would reduce the amount of interest charged on late property tax payments and close a loophole in the state tax code that leads to local governments losing millions of dollars each year to private investors.

The bills were crafted by Treasurer Maria Pappas’s office based on two studies conducted by the office last year that found the county’s property tax system disproportionately affects Black and Latino communities.

“This approach to building a more equitable property tax system will help our most disinvested areas and work to close the racial wealth gap across our state,” Villivalam said in a statement to the Tribune.

Senate Bill 2020 deals with the county’s system for selling delinquent property taxes, which allows private investors such as hedge funds to pay the back taxes on a property and force the owner to repay the amount with interest if they want to keep their homes.

The small number of investors who aren’t repaid can take control of the property through the courts, but many don’t want to own those properties, so they’ll argue there was a “sale in error” in order to undo the transaction and recoup their investment, according to the treasurer’s office.

The “sale in error” process was created to reverse tax sales that should never have occurred, such as those in which the property owner already paid the taxes before the sale.

But according to the treasurer’s office, investors have used the provision to argue that sales should be void because of discrepancies in the county assessor’s description of the property, such as saying a home had no air conditioning when it did, or a house was made of stucco when it was made of brick.

When a sale in error is made, the treasurer’s office repays the investors, including up to 1% interest per month and fees that accumulated over the time they held the delinquent property taxes.

These loopholes drain $40 million a year from local government coffers, often in Black and brown neighborhoods where the properties are located, according to the treasurer’s office. In a study examining sales in error between September 2015 and September 2022, the office found a total of $277.6 million, including at least $27.7 million in interest, was sent back to tax buyers.

Under the bill proposed Friday, investors could still argue there has been a sale in error, but the error would have to be significant, a call that would be made by a judge, the treasurer’s office said.

Pappas highlighted the effect of delinquent property taxes on local governments last week with a report finding neighborhoods in the south suburbs had particularly low collection rates, leaving many communities in financial distress and unable to provide basic services.

The treasurer’s office said the low collection rates are in large part due to the high concentration of vacant lots in those neighborhoods, many of which were hit hard by the 2008 financial crisis.

Kristi DeLaurentiis, executive director of South Suburban Mayors and Managers Association, said loopholes in the property tax code need to be fixed, as municipalities and school districts are unnecessarily hampered by the refunds.

“(SB 2020) is a simple fix that can ease the financial burden placed on local governments, especially those within the south suburbs that have limited unrestricted resources,” she said.

State Rep. Debbie Meyers-Martin, a Democrat in the south suburbs, is also hoping to reform the property tax system with House Bill 1238. The bill, introduced last month, would create payment plans for people behind on their taxes, instead of making property owners pay in full to prevent the sale of their back taxes.

The other bill crafted by the treasurer’s office, Senate Bill 2395, aims to help residents who are behind on their property taxes by cutting interest rates on the payments from 1.5% to 0.75% starting this year.

More than 125,000 Cook County residents are behind on their taxes, a number that will drop as people make payments before the next sale season in February 2024, according to the treasurer’s office. Right after bills were due Dec. 30, more than 180,000 people were behind on their payments.

The treasurer’s office says the “vast majority” of late fees are leveled at low-income, Black and Latino communities and reducing the interest rates will save residents a total of $25 million to $35 million a year, or about half of yearly penalty payments to the county.

In Pilsen, which has seen property tax assessments skyrocket in recent years as a result of gentrification, some residents are pushing for steeper measures.

The community group El Pueblo Manda or The People Rule, wants a moratorium on property tax payments so no fees can accrue “until a just and fair tax is decided upon,” said organizer Laura Paz.

She said proposals from the treasurer’s office don’t go far enough to help many people in the majority-Latino neighborhood, including seniors who cannot afford to pay their property tax bills. Last year, the median property tax bill on the Lower West Side went up by 45.8%, according to a report by the treasurer’s office.

“Mexicans have worked hard, and for working hard and doing the right thing we get kicked in the butt,” Paz said. “It is inhuman.”

Hundreds of people attended a Feb. 1 meeting with Cook County Assessor Fritz Kaegi at Benito Juarez High School in Pilsen, with some holding signs that read “Pilsen is my home” and chanting “Pilsen not for sale.”

El Pueblo Manda believes people should be taxed based on their income, not on the value of their home, Paz said. On Thursday morning, the group will host a news conference outside of Pappas’s office asking for the moratorium.

Pappas told the Tribune her office is focused on getting these two bills passed this year and will work on other action items next year.

“This is a system that has been rooted in inequities for years,” Pappas said. “You do what you can this year; you get this passed … And next year, you work with community groups to see what else can be done.”