How a Treasurer’s Office Study Closed a Loophole that Allowed Wealthy Investors to Siphon Hundreds of Millions of Dollars from Low-Income areas

For years, wealthy investors exploited loopholes in the property tax system to funnel money from local schools and governments into their collective wallets.

But the loopholes were closed after a Cook County Treasurer’s Office study put a spotlight on the state’s costly sale-in-error law that the investors themselves helped craft.

That study showed that hedge funds, private equity firms, and other buyers of tax debt siphoned nearly $280 million from Cook County governmental agencies over seven years beginning in 2015.

And 87% of that money came from poorer Black and Latino communities.

That’s more than a quarter billion dollars that should have gone to help pay for schools, parks, police, public works and other essential services that instead went to wealthy tax buyers.

Researchers found that tax buyers were exploiting so-called “errors” to back out of deals that normally would require them to take ownership of a delinquent property.

Here’s how the process works. When a property owner is unable to pay their property taxes within 13 months of the due date, the unpaid debt may be put up for auction at the county’s Annual Tax Sale.

Enter the tax buyer, who pays the county what’s owed in delinquent taxes in exchange for a lien or claim against the property. These investors aim to make money when the tax debt is repaid with interest. If the debt goes unpaid, the tax buyer can take ownership of the property. But tax buyers often aren’t interested in owning and fixing up a property. Instead, they look to exit the deal, often with interest earned on what they initially paid, by petitioning the court to find that the tax sale was made in error.

The sale-in-error study showed that tax buyers got their money back with interest for frivolous reasons such as:

A house was listed as made of stucco when it was made of brick.
A two-story commercial building was listed as having zero square feet.
A home was listed as not having air conditioning when it did.

Churches, government-owned buildings and other properties that are exempt from taxes have also been wrongly listed in tax sales.

Some tax buyers gamed the system by identifying potential erroneous tax sales before buying the liens, with the intention of petitioning the court for a sale-in-error after allowing statutory interest to accrue for years.

Based on the sale-in-error study, the Treasurer’s team worked with Illinois lawmakers to rewrite the law so that it limits tax buyers’ ability to back out of deals by finding frivolous errors in property description data.

And the work isn’t done. The Treasurer’s Office policy team regularly meets with Springfield lawmakers to try to reform the property tax system by making it more equitable and transparent.

Click here to subscribe FREE to Ray Hanania's Columns

Author
Recent Posts

Ray Hanania

Ray Hanania is an award-winning opinion columnist, author & former Chicago City Hall reporter (1977-1992). A veteran who served during the Vietnam War and the recipient of four SPJ Peter Lisagor Awards for column writing, Hanania writes weekly opinion columns on mainstream American & Chicagoland topics for the Southwest News-Herald, Des Plaines Valley News, the Regional News, The Reporter Newspapers, and Suburban Chicagoland.

His award winning columns can be found at www.HANANIA.COM Subscribe FREE today

Hanania also writes about Middle East issues for the Arab News, and The Arab Daily News criticizing government policies in the Israeli-Palestinian conflict.

Hanania was named "Best Ethnic American Columnist" by the New America Media in November 2007, and is the 2009 recipient of the SPJ National Sigma Delta Chi Award for column writing.

Email Ray Hanania at [email protected].

Follow RayHanania at Twitter