Sale-in-error study shows how tax buyers transfer wealth from low-income areas
By Maria Pappas
My office redesigned this year’s property tax bills to clearly show where your tax dollars go. On the front of every bill, you can see how much of your hard-earned money goes to each taxing body
What is less visible, however, are the millions of dollars taken each year from the property tax system by wealthy investors. Hedge funds, private equity firms and others who buy tax debt siphoned nearly $280 million from Cook County governmental agencies over seven years beginning in 2015. Of that, 87% came from Black and Latino communities.
That money should have gone to help pay for schools, parks, police protection, public works and other essential services. Instead, property owners had to bear a greater share of the tax burden.
This transfer of wealth was documented in a study my office published in October 2022 about our property tax system’s little-known sale-in-error statute. The study showed how private investors known as tax buyers exploit loopholes to profit from already financially struggling communities.
The study prompted Illinois lawmakers to overhaul the sale-in-error statute, closing loopholes and making the system more equitable. It also made recommendations — many adopted — to various county agencies to reduce costly government mistakes.
Researchers from my office identified a flaw in the system after gathering and analyzing years’ worth of tax sale data. They reported their findings in a study that served as a catalyst to reform the system.
Here’s how tax buyers diverted wealth from communities: When you are unable to pay your tax bill by the due date, interest is added every month. If your taxes remain unpaid about 13 months after the due date, your debt will be put up for auction at the county’s Annual Tax Sale.
Tax buyers pay the county the delinquent taxes in exchange for a lien against the property. These investors aim to make money when the tax debt is repaid in full and with interest. If the debt goes unpaid, the tax buyer can take ownership of the property. But tax buyers rarely want to do that so they look for a way out of the deal.
My office’s sale-in-error study found that tax buyers got their money back plus interest for such frivolous reasons 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 of space;
- A home was listed as not having air conditioning when it did.
Taxes on sections of major Chicago highways have been mistakenly sold at tax sales. Churches, government-owned buildings and other property that is exempt from taxes have been wrongly listed as taxable. Often, investors who bought the tax debt are awarded their money back with interest.
The sale-in-error study prompted legislative reforms that were among the most significant changes to the Illinois Property Tax Code in decades. Among other changes, the legislation slashed the interest rate on late payments in half from 18% to 9% per year.
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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.
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