Cook County treasurer scrutinizes sweetheart deals for tax buyers

Investors given back money from local governments, plus interest, over typos

Cook County Treasurer Maria Pappas (Cook County Government)
Cook County Treasurer Maria Pappas (Cook County Government)

Discovering a property had air conditioning when a government website said it didn’t was a dealbreaker for one Cook County buyer of delinquent property taxes.

Another backed out of taking over a property through foreclosure after a three-cent mistake — a document the tax buyer filled out himself misstated by less than a nickel how much a property owner needed to pay to get current on taxes and fees.

In all cases, a judge agreed to return the tax buyer’s money because of the errors, and take funding out of local government coffers in the proces. That included the buyer who made what the Cook County Treasurer’s Office called a “self-inflicted error” for the three-cent problem.

The idea behind letting investors buy taxes is to give the county a way to keep a full flow of property tax revenue while allowing homeowners a chance to get caught up on past-due obligations over time. The tax buyers, meanwhile, get a return in the form of interest on the loans, with the right to foreclose and assume control of the property if the owner doesn’t keep up.

Tax buyers who break deals based on typos or other small errors on government websites are getting what looks to be a sweeter deal. They offer private financing for tax-indebted residents, getting interest rates that range from 9 percent to zero charged every six months–the rate was lowered from a previous maximum of 18 percent as of earlier this year, under state rules. If and when the bet goes sour — when the resident fails to meet the terms of the loan — the tax buyers can back out of the deal based on some small paperwork error, take a pass on foreclosing on the property, and get their principal back in full from the county, often with the interest.

Cook County and its local taxing bodies such as school districts, townships and — which altogether charged more than $15 billion in property taxes in 2019, including the $781 million the county government itself charged — lose the tax revenue they thought they had maintained with the program. And the property will remain in arrears, another step toward the deterioration of property and its value dotting Chicago’s South Side and working class suburbs on its edge.

Treasurer Maria Pappas has put such refunds — and the real estate investors in late tax payments who receive them, plus interest in many cases — under the microscope. A study by her office released Wednesday morning reveals nearly $280 million between 2015 and 2022 has been given back to buyers, including $27.7 million in interest, who wriggle out of deals using methods local officials say aren’t allowed in other states.

“They’ve taken advantage of our failures,” said Todd Lighty, a treasurer’s office researcher who authored the study. “They may at times, we believe, target government-owned properties, nonprofit properties that the treasurer’s office wrongly offered the taxes for sale on.”

The system benefits institutional tax buyers over taxpayers, the study says, and works against the intent of the annual tax sale held for Cook County properties whose owners are late to pay their bills. The burden is disproportionately borne by local governments serving Chicago neighborhoods and southern suburbs made up of mostly Black and Latino residents, with 87 percent of the refunds analyzed drained out of such communities, the study said. And it’s the result of local judges’ interpretation of state law that officials and experts say is far more friendly to buyers than the rules in other states.

While Cook County’s tax sale is mandated to be held annually, it’s meant to give property owners some time to catch up on paying their tax bill if they fall behind. That prevents a lien from getting filed against their assets and losing the real estate in foreclosure. Tax buyers step in and offer local governments the revenue they’re missing, and bid against each other at auction for tax certificates, winning by offering the lowest interest rate, starting at 9 percent all the way down to zero percent, to the underlying owner who has to pay back the taxes.

Most owners do eventually catch up, and the tax buyers come away having recouped their investment plus some interest. When investors encounter an owner who never repays, though, they’re given the option to foreclose on the property and seek its deed. In fact, many tax buyers bid zero percent interest if they’re eager to take over ownership of the real estate and reposition it for a profit.

But the treasurer’s office has narrowed in on buyers who get cold feet when it’s time to start taking over the property through a foreclosure proceeding, and instead opt to pursue what’s known as a sale-in-error refund through Cook County Circuit Court.

No one, it seems, is better at navigating the system and poking holes in it than Greg Bingham, according to the study. Entities Bingham controls or is affiliated with were granted $95 million in refunds from 2015 to 2022 on 2,309 sales in error, including $7.8 million local governments paid in interest to the investor. Attempts to reach Bingham were not successful.

Even pieces of government-owned highways are mistakenly put up for grabs at the tax sale, and sometimes cost local governments money, in the form of interest, when the tax buyers claim to discover they were unknowingly sold a strip of road that isn’t subject to property taxes.

Bingham and his associates obtained at least 45 sales in error involving stretches of highway that were wrongly offered for sale due to a misclassification in government property data or another mistake since 2014, the most of any investor in Cook County’s delinquent property taxes, getting refunded $4.7 million plus more than $500,000 in interest on such deals.

Pappas is pushing state lawmakers to change the decades-old law regarding what constitutes sales-in-error that her office says was influenced by property tax investors and has become too liberally interpreted by local judges in favor of the buyers.

It allows investors to capitalize on single-character typos on government website data sets of addresses and other characteristics of properties, legal notices being served late by the sheriff’s office even though tax sale buyers can provide the sheriff little time before a deadline to handle them, and other unintentional errors in descriptions of property.

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Illinois also lets investors receive refunds, plus interest in some cases, for tax purchases on property whose owner declares bankruptcy after the tax sale, even if the bankruptcy occurs years after the tax purchase. In other states, tax buyers have to wait in line at bankruptcy court with other creditors to get their money back. The study found owners of 888 properties in Cook County who had their taxes sold between 2015 and 2022 subsequently filed for bankruptcy, resulting in nearly $17 million being refunded to tax buyers, including $2.5 million in interest.

While it believes some buyers are exploiting the system, the Treasurer’s Office admits plenty of the blame is on its own staff and leadership, as well as other government offices and poor communication across separate divisions of the public sector allowing errors to go uncorrected.

“We’re not necessarily saying all sale-in-errors are illegitimate, or someone shouldn’t necessarily get refunded if the county made a material mistake, one that affected their ability to make the profit that was anticipated, or a mistake that made it impossible to make a profit, and perhaps with some reasonable interest rate,” said Hal Dardick, another researcher with the treasurer’s office.

It’s a statewide issue, with taxing districts in Winnebago County, home of Rockford, refunding more than $1 million to tax buyers in 2019 due to sales in error, or about $3.50 per resident of the county of about 280,000 people. But it’s most concentrated in Cook County, home to suburban Dixmoor, with a predominantly Black and Latino population that had $3.4 million, or $1,142 per person, drained from local government coffers by sales in error between 2015 and 2022, an average of $163 per resident per year.

However, judges have granted the most sales in error for mistakes on the Cook County Assessor’s website, which contains listings for nearly 1.8 million properties including some that contain slight inaccuracies. Many of the overturned tax sale deals have been for trivial errors that would have caused no financial loss to the buyer, the study says.

For instance, a Bingham-backed entity sought its money back on a dilapidated home in the southern suburb of Harvey with a back bill on taxes that was worth more than the property’s market value. The assessor’s website said there was no attic, but because the home actually did have an attic, a $93,000 refund was granted, including at least $17,000 in interest, the study said.

A shift could be taking place, though. In August 2018, Cook County Court Judge Maureen Hannon took the bench, and on her second day initially issued a refund to a Bingham entity because the assessor’s website said a shopping center the tax buyer purchased for $1.4 million in back taxes sat on Dolton Avenue instead of Dolton Road. She later reversed herself, saying that the difference between the address being on an avenue versus a road meant nothing financially.

She has since made a crucial ruling that–despite the local reference in the title–a Cook County Circuit Clerk is a state official and not a county one, and thus mistakes such as the clerk sending out late legal notices to property owners that their taxes have been sold can’t yield interest for tax buyers who request refunds from the county for sales in error.

And in a trial last month, Hannon similarly ruled Stonefield Investments, a New Jersey-based investment fund specializing in real estate and tax liens, could get its money back for its 2017 purchase of a piece of the Kennedy Expressway on property it didn’t know was a highway at the time for $1.4 million in late taxes. It never should have been offered for sale, and only was because it was wrongly classified as a taxable parcel. In 2020, three years after its purchase, it asked for a sale in error refund with interest. But, while the judge gave back the company’s initial investment, she declined to grant the company $1 million in interest it asked to receive for the mistake, after the Cook County State’s Attorney’s Office took the rare step of objecting to awarding the interest.

Stonefield leadership made it clear during deposition and trial that it viewed Illinois’ sale-in-error statutes as a “safety-net” for tax sale investors, and that there’s more security bidding at Cook County auctions without doing as much due diligence as is standard for tax sale deals in other states, the study said.

“It’s almost implausible to me and inconceivable that they would spend $1.4 million without, at the barest minimum, accessing the assessor’s website that has a picture of a highway on it,” Hannon said, according to the study. Attempts to reach Stonefield’s lawyer in the case, Terry Carter, were not successful.

Changing the law by lowering the maximum rate of interest that tax buyers can receive per year, for instance, or disallowing refunds due to owners bankruptcy cases and clerical mistakes on the assessor’s website could clamp down on the small pool of tax buyers exploiting mistakes and the legal landscape to cash in on interest from sales in error.

Skeptics of such changes, though, say they could thin down the pool of buyers, scaring them off by shrinking the safety net and thus remove an important source of funding for governments that would then have to fight delinquent taxpayers on their own.

“I believe it’s a select few tax buyers that appear to be abusing the sale in error statute,” said Chicago tax sale attorney Emmett McCarthy. “If you tweak the statute to clamp down on these few you risk creating a harsher environment for the vast majority of tax buyers seeking to acquire real estate through tax sales. That may drive down the number of bidders, which would ultimately hurt taxpayers, property owners and the county.”

Other experts disagree, pointing to the fact that some of the buyers Pappas’ office is taking issue with also do business in other states, where the rules aren’t as lax and buyers are warned of the potential to lose their investment because of ensuing bankruptcy filings, and aren’t granted interest on deals unwound over typos on government databases.

“Sophisticated investors should be required to do due diligence,” said Ralph Martire, executive director of bipartisan Chicago nonprofit Center for Tax and Budget Accountability, who read an early version of the treasurer’s study. “Even if you’re a mom and pop investor, it’s basic due diligence to know the owner isn’t in bankruptcy. It’s not an onerous requirement. If they can’t track down payment from the owner, then utilize the lien they get to go after the property. If you don’t have the capacity to do that you shouldn’t do this kind of investment.”

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