Cook County sued over property tax sales system that ‘widens the racial wealth gap,’ plaintiffs’ lawyer says

Cook County’s handling of delinquent property tax sales are the subject of a federal lawsuit filed Thursday by two low-income homeowners and two community groups that represent Black and Latino Chicagoans.

The civil suit alleges the county treasurer’s practice of turning over properties with delinquent taxes to private buyers unfairly starves the original homeowners of equity, violates their civil rights and the Fair Housing Act and takes away their property without due process.

“Many low-income homeowners have just one asset to pass on to future generations: the value of their home,” said John Bouman, lawyer and director of the nonprofit Legal Action Chicago, which is representing the homeowners who are suing. “By depriving homeowners who fail to pay their property taxes of the entire value of this asset, and by disproportionately affecting Black and Latino homeowners, the tax sale system widens the racial wealth gap that has plagued this region for years.”

The suit revolves around the annual tax sale coordinated by the Cook County treasurer’s office, and names both Treasurer Maria Pappas and Cook County as defendants.

When property owners fail to pay their property taxes for 13 months, the county can auction off their delinquent taxes to third-party buyers. Owners are given up to 30 months to repay their debts, plus penalties and interest. If they don’t pay up, the tax buyers can confiscate the property, including the value above what was owed for taxes and related penalties and interest.

For example, say a homeowner’s failure to pay results in $10,000 in tax-related debt on a property worth $100,000. If the homeowner is unable to pay the full past-due amount during the redemption period, the tax buyer can get title to the home. The original owner, the lawsuit argues, “receives nothing and loses as much as $90,000 in equity, while the tax buyer receives the windfall of a property worth $100,000 for which they paid $10,000.”

The suit argues that seizure of the homes — which are often worth exponentially more than the original tax debt, interest and penalties — without compensation is unlawful. Because the vast majority of property owners whose taxes end up in the sale are Black and Latino — 75% of properties offered in the 2021 tax sale were in predominantly Black and Latino neighborhoods, according to the treasurer — the practice is discriminatory and violates federal housing and civil rights laws, the lawsuit contends.

State law provides one way for homeowners who lose their property to a tax buyer to get money back: the indemnity process, in which the original owner can argue in court they were unaware that falling behind on tax payments could result in the loss of their homes. If the original owners succeed, they are entitled to a payout from the county’s indemnity fund.

But according to a recent Illinois Answers investigation, even if they succeed, the fund is “$22 million in debt and eight years behind in paying people.”

The lawsuit claims the indemnity process is also “effectively hidden from public view and inherently adequate.”

“There is no notice of the fund and process to the homeowners; there must be a formal court filing and ultimately a trial; even blameless homeowners can be denied compensation; there are eligibility requirements that rule out some homeowners; the indemnity fund is never adequately or sufficiently funded; and even successful homeowners must wait many years to be paid. In the end, vanishingly few homeowners ever receive indemnity in an amount close to the true and reasonable value of the homeowner’s lost equity. The indemnity fund does nothing to help homeowners access their home equity soon enough to help them secure new housing,” the lawsuit said.

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The plaintiffs include Michael Bell, owner of a home worth $115,000 in the 2200 block of East 100th Street in Chicago. After his mother died in 2017, Bell took ownership, but he was unemployed from 2018 to 2019 and failed to pay his property taxes for 2018, according to the lawsuit. In spring 2019, the taxes to his home were sold to the Lien Group; the delinquent charges added up over time to more than $11,000 and he has been forced to cede ownership, the suit states.

“The suit does not seek to regain the home or fight the eviction, but instead to ensure that Bell is compensated for the value of the home — essentially the equity he was deprived — so that he has the financial wherewithal to secure new housing,” said a spokesperson for Legal Action Chicago.

The suit seeks the same remedy for the entire class of people who lose their property in these tax sales. The 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’s been a vocal critic of the system, which she has acknowledged disproportionately affects Black and Latino communities. She’s proposed a series of reforms to the state’s tax sale law, including giving property owners the option of a payment plan, cutting down on the interest rates that tax buyers can charge, and opting not to offer taxes up for sale when the owner owes less than $1,000, is a senior, or is disabled (as long as they agree to a payment plan).

“We expect and hope that, based on her public statements, Treasurer Pappas would want to lead the charge for reforms in Springfield to help people stay in their homes,” Legal Action Chicago spokesperson Mike Truppa said in an email. “There are other needed reforms that should occur in the legislature, and we hope she’s out front on that. The goal should be to keep more people in their homes and to reduce the impact on people in minority communities, senior citizens and people with disabilities.”