Investors Facing Byline Bank Lawsuit Seek Tax Sale Invalidation

Serial buyers of delinquent property taxes across Illinois are angling to get off the hook for an $11.3 million debt tied to a controversial auction process, by claiming its deals were unconstitutional.

Chicago-based Integrity Investment is caught in the middle of a web of legal battles over Illinois’ property tax sales system, with a lender accusing the company of defaulting on an $11.3 million loan as the borrower seeks to invalidate its tax lien purchases.

In a lawsuit filed in Cook County Circuit Court Jan. 20, Byline Bank is accusing an Integrity vehicle of letting hundreds of tax lien certificates become worthless and defaulting on $11.3 million borrowed using the tax liens as collateral.

At the same time, Integrity is pursuing a federal lawsuit asking a court to find Illinois’ contentious system of delinquent tax bill sales unconstitutional and force dozens of counties to pay Integrity back for its purchase of hundreds of tax certificates.

Integrity Investment also filed for Chapter 11 bankruptcy at the end of January, listing $55 million in liabilities between two entities.

The legal storm comes as Illinois’ tax sale system faces scrutiny from courts and homeowners. When property owners don’t pay their taxes, Illinois counties auction them off to investors who obtain a tax lien on the property. The tax buyer then has the right to gain full ownership of the property if the tax bill isn’t repaid by the property owner within 30 months. Homeowners can lose any equity they had in the home even if the tax bill was a fraction of the home’s value.

A federal judge in December ruled Cook County’s tax sale system is unconstitutional after a group of homeowners sued. That lawsuit didn’t address how homeowners can be compensated or whether tax certificate buyers like Integrity should be repaid.

The Integrity loan

Integrity and its related entities took out a $17 million revolving credit line to finance late property tax purchases in 2021, according to Byline’s complaint. Thomas Costello, Lynda Costello Segneri and Sarah Rothman Robbins were the guarantors of the loan, the lawsuit says, and they are also named as defendants. Thomas Costello declined to comment and the other two didn’t respond to a request for comment on the Byline litigation.

Integrity failed to pay the balance when the loan matured in November and allegedly missed interest payments in October and November, Byline’s complaint says. After adjustments and late fees, Byline says it is owed $11.3 million.

Under Illinois law, if the owner of a tax lien doesn’t try to obtain a deed to the property within a certain timeframe, the lien expires and the certificate — which was the collateral for Integrity’s loan — becomes worthless.

Byline argued Integrity refused to record deeds on at least 453 properties where its certificates are now at risk of expiring and losing all value, according to the complaint. Byline said it has “repeatedly asked the borrowers to provide evidence” that none of the tax certificates had expired, and that Integrity has “failed and refused” to provide that evidence.

Instead, Byline said, Integrity is pursuing the federal lawsuit to invalidate its claims to the properties and get paid back for the hundreds of tax certificates it purchased from dozens of Illinois counties. Byline called the lawsuit “speculative” and warned that while Integrity chases a court ruling, the actual assets backing the loan are becoming worthless.

Byline asked the court to appoint a receiver in order to file tax deeds immediately to prevent the claims from expiring.

That request was complicated when Integrity Investment Fund and Integrity Investment REO Holdings, the two main entities in the litigation, filed for bankruptcy, revealing the companies were massively underwater. Judge Lynn Weaver-Boyle froze Byline’s Cook County litigation for those two defendants after they filed for bankruptcy.

According to bankruptcy court filings, Integrity Investment REO has $26.3 million in debt from various creditors, and $1.6 million in assets. Integrity Investment Fund has $29.3 million in debt and $13 million in assets.

An attorney for Byline Bank declined to comment, citing the ongoing litigation.

Byline is also suing another entity naming Costello, Costello Segneri and Michael and Timothy Signeri as defendants. In that suit, filed Feb. 10 in Cook County, Byline Bank is looking to recover a $1.65 million loan the entity, called Sigtello, used to purchase tax liens.

Integrity claims its hands are tied

Integrity’s lawsuit challenging Illinois’ tax sale law was filed in May 2025, before its Byline loan matured.

In the lawsuit, Integrity argues a 2023 U.S. Supreme Court ruling exposes investors to massive liability if they take over properties with delinquent taxes. The ruling in Tyler v. Hennepin County barred governments from keeping equity beyond the amount of taxes due when they foreclose on a home because of unpaid taxes.

Along with fellow plaintiffs Sigtello and Abbot Portfolio, Integrity claims it is stuck in a legal trap: if it follows state law and takes the deeds, it becomes a “state actor” and runs the risk of violating the Supreme Court ruling.

David Sigale, the lawyer for Integrity and the other plaintiffs suing Illinois counties, said in an email that the 2023 ruling found property tax sales that don’t compensate owners for surplus equity are unconstitutional.

“Federal courts in this state have said the same thing or will soon do so about Illinois’s property tax sale system, as Illinois is now the only state with such a system,” he said.

Integrity is asking the court to declare the state’s tax sale law unconstitutional and refund the plaintiffs the amount they spent on the tax certificates.

Several counties named in the federal lawsuit have asked the court to dismiss the complaint. Cook County officials moved to dismiss the suit on Jan. 28, arguing Integrity lacks standing and hasn’t demonstrated harm yet.