Legislation to reform Illinois’ arcane tax sale system moving in Springfield


SPRINGFIELD — A bill that would reform Illinois’ arcane tax sale system is working through the legislature in the waning days of spring session as lawmakers seek to close loopholes that often leave properties languishing down the path to blight and, ultimately, demolition.

The legislation, sponsored by state Rep. Kam Buckner, D-Chicago, aims to essentially get these properties out of a limbo status by making it easier for homeowners and business owners to pay back their delinquent taxes or, if the property has been abandoned, allowing local governments to intervene and take possession earlier than is allowed under current state law.

Delinquent property taxes are put up for auction annually. Once they are sold, a lien is placed on the property and the owner has three years to pay back the tax buyer with interest. This gives people time to pay what they owe while ensuring that local units of government receive the tax revenue they levied for.

“It is a necessary evil,” said Macon County Clerk Josh Tanner. “… If the tax buyers did not buy the delinquent taxes, then the taxing bodies would not get their tax revenue that they’re expecting to receive.”

Most times, property owners do pay back what they owe.

But when they don’t, tax buyers can recoup their investment in another way.

They do this through a “sale in error” statute that allows the tax buyer to back out of sale after three years and recoup their investment with interest. Though there are legitimate reasons for them to be issued, Illinois’ statute is so broad that some are for the most trivial reasons, such as an assessor describing a home as not having air conditioning when it did.

This has allowed mostly out-of-town buyers to abuse the state’s tax sale system by profiting off the properties in question with basically no risk.

But perhaps the worst part is that after a “sale-in-error” is granted, the property’s unpaid tax bill is put back up for sale and the three-year cycle starts over again. This has allowed vacant properties across Illinois to languish for years and become dilapidated to the point where demolition is the only option.

“Unfortunately, people have been able to hold these properties and then claim a sale of error and push it back out into the market,” Buckner said. “So it really is an investment with zero risk.”

Buckner said the flaws in the program have “created some spaces of stagnation and communities … where people aren’t able to develop and build” given that many tax buyers have no intention of purchasing the property itself.

If Buckner’s proposal is approved, the state’s “sale in error” provision would be significantly narrowed to close loopholes that allowed the use of such trivial excuses. And local municipalities and counties would be allowed to take possession of these properties after just one failed sale instead of cycling through the system for years.

It would also cut the monthly interest rate on delinquent taxes from 1.5% to .75% to give homeowners a better chance of paying it back.

“At the end of the day, it’s fundamentally going to achieve one goal, which is to shorten the time in which a property basically sits in what I call purgatory, or in a zombie status,” said Decatur deputy city manager Jon Kindseth.

The idea behind the legislation started in earnest at a conference hosted by Center for Community Progress, a nonprofit dedicated to addressing vacant properties, last year in Texas.

Leaders from Chicago, Decatur, Kankakee, Peoria and Rockford along with those from other states talked about strategies for dealing with blighted properties. In those conversations, it became clear that other states were handling tax sales better than Illinois.

Utilizing the nonprofit’s expertise on the subject, the municipalities collectively “wrote the legislation,” Kindseth said.

“I think we all would like to just throw out the property tax statute and start all over,” Kindseth said. “But we ultimately decided that that was not the best approach to do it. We just needed to focus on incremental changes and improvements, and that’s ultimately what is included in the bill.”

A study put out by the research unit of Cook County Treasurer Maria Pappas in October 2022 further confirmed the flawed system, finding that more than 11,000 properties were returned under “sales in error” in the previous seven years. Tax buyers recouped nearly $280 million, including nearly $28 million in interest from Cook County taxing districts.

But it’s more than just a Chicago problem.

In Macon County, there were 1,326 tax sales in 2019. While the property owner paid back their taxes or the property was sold in more than 90% of those cases, there were 65 sales in error issued. Of the 1,180 tax sales in 2020, 40 sales in error have been issued.

Only a handful of sales in error have been issued in Macon County in the two most recent years as they are still in the three-year window.

In changing the law, Kindseth said they hoped to “give a little more of a balance to local communities that ultimately have to deal with these vacant and distressed properties.”

“Certainly, the goal of shortening the time frame is to basically eliminate the demolition pipeline,” Kindseth said.

The bill would build on efforts already being taken locally. 

Decatur, for instance, entered into an agreement last year with the Central Illinois Land Bank Authority to rehab vacant properties in the city and prevent them from deteriorating to the point where demolition is necessary.

The program started with $500,000 in federal COVID-19 relief funds as seed money, which was to be used on 10 properties. Earlier this week, the Decatur City Council voted to expand this “abandonment to rehab” program to allow the land back to take vacant and abandoned properties after two years of tax delinquency rather than the usual four.

“This is a another tool in our toolbox,” Kindseth said. 

The legislation moving through Springfield that would aid those ongoing efforts is opposed by the Illinois Tax Purchasers Association.

“The proposed amendment casts a wide net in the ocean to gobble up all these properties that would normally be re-offered in an annual sale,” said attorney Joseph Ryan, who testified on behalf of the organization in committee Wednesday morning.

The legislation was approved in House committee Wednesday morning. 

Contact Brenden Moore at brenden.moore@lee.net. Follow him on Twitter: @brendenmoore13

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Region: Decatur,City: Decatur,Politics,Region: Central

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May 18, 2023 at 06:04AM

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