A long-criticized loophole that allows real estate investors to get refunds on past-due Cook County property tax bills they purchased is set to close.
The policy — which allows tax buyers to get refunds should they find a way to claim the property was sold in error — was the target of legislation by Cook County Treasurer Maria Pappas that passed the Illinois General Assembly this week. It now heads to Gov. J.B. Pritzker’s desk. He is expected to sign the bill into law.
The move comes after Pappas office published two studies last year that found that Illinois property tax law was negatively affecting homeowners who got behind on their tax bills. Currently, the law allows tax buyers to break deals based on typos or other small errors regarding how the property is described on government websites.
The tax buyers offer private financing for tax-indebted residents, and if 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.
It’s often a bad deal for the county and its taxing jurisdictions, which loses the tax revenue they thought they had maintained with the program.
The legislation aims to address two major problems with the tax sale. First, it cuts in half the interest rate charged by Cook County for late property tax payments, allowing owners an easier time catching up on their back taxes. By cutting the rate from 18 percent to 9 percent a year, the bill is expected to save property owners that have fallen behind on tax payments an estimated $25 million to $35 million a year, according to Pappas’ office.
“The vast majority of property owners who fall behind on their property taxes are in predominantly Black and Latino communities,” Pappas said. “These changes will prevent millions of dollars of generational wealth from being stripped from these households.”
Second, it closes the “sales in error” loophole that allows for tax buyers to get their money back should there be small typos or errors. These tax buyers are typically private equity firms and real estate investors. They get about $40 million each year back from taxing jurisdictions that refund them with interest if the sale is overturned.
Judges would be directed to only let tax purchases be returned to the county through sales in error based on more significant mistakes under the new law.
The tax buyers got $277.6 million, with at least $27.7 million of that coming from interest during a seven-year period from 2015 to 2022, Pappas’ office found. Much of that comes from taxing bodies that serve Black and Latino communities.
The study even named one tax buyer who has used such loopholes more than any other investor. Greg Bingham, and 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.
The loophole is something that “tax investors have exploited at the expense of local governments,” according to a release by Pappas.
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Chicago democrats State Sen. Ram Villivalam and state Rep. Kam Buckner sponsored the legislation.
It’s unclear if the legislation will have an impact on real estate investment in Chicago, given most tax buyers do not intend to acquire the property. Its goal is to allow more residents to repay back taxes more easily through the lower interest rates and remain in their homes, stabilizing neighborhoods on the West and South Sides.