Illinois Senate Delays Cook County Tax Sale

Cook County just hit pause on one of its most controversial real estate mechanisms.

The Illinois Senate voted to let the county delay its annual sale of delinquent property taxes until December, buying lawmakers more time to overhaul a system the U.S. Supreme Court rebuked in 2023. Crain’s reported that the amendment to House Bill 598 now heads to Gov. JB Pritzker, who is expected to sign it after the Illinois House approved the measure on Tuesday.

The delay shields Cook County Treasurer Maria Pappas from conducting a March sale that would have put roughly 14,000 tax certificates on the auction block. Pappas has been calling for a legislative fix since the Supreme Court’s ruling in Tyler v. Hennepin County, which found that governments violate the Fifth Amendment when they seize properties for unpaid taxes and keep the surplus equity beyond what is owed, according to the publication.

Illinois remains the lone state among those impacted that has not updated its tax sale system in response to the ruling. In the meantime, counties have continued to conduct sales that could expose them to mounting liability.

At issue is the long-standing practice of selling delinquent tax debt to third-party investors, who can ultimately take title to a property and capture all its equity, even if the unpaid tax bill represents a fraction of the home’s value, the outlet reported. The Supreme Court held that property owners are entitled to “just compensation” for any surplus.

The legal pressure is building. The high court is now hearing Pung v. Isabella, a Michigan case that could determine whether governments — not tax buyers — are on the hook for returning lost equity. If the plaintiff prevails, Cook County and other Illinois counties could face claims totaling millions, according to the publication.

Federal judges in two Illinois districts have already rejected arguments that counties are insulated from liability because they are following state law, noting the state does not require a structure that strips owners of all equity.

State Sen. Willie Preston recently introduced the Property Justice Act, now pending in committee, as one potential fix. Preston’s bill would have investors’ reimbursements capped at 6 percent. The bill also places a $2 million annual cap on purchaser refunds, according to NPR. And State Sen. Celina Villanueva introduced legislation that would require counties to return surplus proceeds after taxes are paid.

The delay caps Cook County’s exposure to lost equity claims from growing further for now.

— Eric Weilbacher