Elected officials across Cook County agree that the antiquated, red tape-laden system that punishes vulnerable homeowners who fall behind on their taxes needs to be fixed.
That’s where the agreement ends.
Backed by different groups, three state legislators have introduced differing bills all designed to throw life rafts to homeowners who are behind on their property tax bills. They aim to revamp a system that gouges delinquent property owners in the best of cases and forces them from their homes at worst.
More than 45,000 properties were entered last year into Cook County’s latest annual tax sale, which lets investors pay homeowners’ late taxes and then charge them interest on the penalty. If the homeowners don’t pay, the tax buyers can start a process to seize their property.
Nearly half the property owners owed less than $1,000 in taxes at the time their properties went into the bid process, according to county Treasurer Maria Pappas’ office. The tax sale process led to 25 evictions in 2020, the most recent year for which complete data was collected, an Illinois Answers Project investigation found last year.
Now, Pappas is backing a bill in the Illinois state legislature designed to make it easier for homeowners to pay off their tax debt so they don’t join the list.
“In these inflationary times, we just want to help everyone across the board get through it,” the treasurer said in an interview Friday.
Interest rate bill
The bill, sponsored by Sen. Ram Villivalam (D-Chicago), would halve the penalty for late taxes from 1.5% to 0.75% for every month the bills go unpaid. It would also end the county’s practice of adding an instant 12% interest penalty for any homeowner whose property is entered into the annual tax sale and does not get a bid.
Cutting the county’s interest rate, which Pappas called one of the highest in the country, was one recommendation from a 2022 study the treasurer’s office produced that linked property tax delinquency to the legacy of redlining and other racist government-sponsored housing practices in the early 20th Century. Researchers in the tax collection office estimate that cutting the penalties in half could save vulnerable taxpayers up to $35 million per year.
“A lot of the savings is going to go to…Black and brown communities,” Pappas said. “If the interest on debt doesn’t rise so quickly, the amount needed to pay tax bills in full would be lowered dramatically. So, we just think it’s simple math.”
Villivalam’s bill is paired with a companion proposal from Pappas that would close loopholes in the county’s “sale in error” system that let tax buyers claim refunds on tax bills they bought. A separate study from the treasurer’s office found last year that investors have widely abused the refunds at taxpayers’ expense.
Neither bill would touch the treasurer’s depleted indemnity fund, which is designed to reimburse evicted homeowners for the equity on the properties they lost. As of last year, more than 200 evicted homeowners were still waiting for more than $22 million they were collectively owed from the indemnity fund.
That’s where a separate proposal from State Rep. Margaret Croke (D-Chicago) claims a fix.
Indemnity fund bill
Croke introduced a trio of bills backed by the Chicago Bar Association, which is generally allied with tax buyers. In an interview on Monday, Croke said the bills “seem like no-brainers” that would “add clarification and transparency” to the convoluted tax sale process.
One proposal would require homeowners to repay an additional 2.5% interest penalty for every payment that tax buyers make after they’ve made a purchase. The added payments would feed directly into the indemnity fund.
“We’re looking at the indemnity fund becoming completely insolvent,” Croke said. “People who lose their homes through this process need money now, and they can’t wait over six years to be paid. That’s what’s happening now with the indemnity fund.”
The added fee, which would have to be paid upfront by the tax buyers, is meant to “incentivize” tax buyers to enter into repurchase agreements that would return control to the homeowners, she said.
The North Side legislator called the added interest charge on property owners “a necessary evil” since the fund needs to be replenished and tax buyers did not agree to covering the penalty themselves.
But Pappas says the proposal cuts against her goal of lowering interest penalties that she says have gotten out of hand. Pappas pointed to a law passed in 2021 that “snuck in” an extra 5% penalty on late taxpayers that is already feeding into the indemnity fund.
“We need to find a way to replenish the indemnity fund, but this just isn’t the answer,” the treasurer said of Croke’s bill. “Instead of lessening the burden on struggling taxpayers, it’s going to increase their burden.”
Terry Carter, an advocate with the Chicago Bar Association, countered that the 2021 law has not done enough to cut down the indemnity fund payment backlog, which still stands at more than six years.
“Folks have to wait seven or eight years to get paid if they’re entitled to get their equity back,” Carter said. “If we can get this [fund] flush, then anybody who loses property can file a lawsuit to get their equity out.”
Carter also denied that Croke’s proposal was counterproductive to Pappas’ plan, which he said he and his colleagues at the bar association support.
The added interest penalty he supports is “in essence, an insurance policy, and it’s only being applied to people that don’t pay their taxes on time for two years in a row,” he said.
Tax payment plan bill
Leaders of the nonprofit Neighborhood Housing Services of Chicago have joined the fray with their own idea to prevent struggling homeowners from sliding into tax delinquency. Their bill, sponsored by Sen. Robert Peters (D-Chicago) and Rep. Debbie Meyers-Martin (D-Olympia Fields), would require the Cook County treasurer to set up an installment plan to pay their tax obligations over time. Homeowners in “good standing” with the plan would not be allowed to be entered into the annual tax sale.
“Our neighborhood staff has been stressing for years how devastating the impacts of the tax sale can be for resident families,” said Sarah Brune, policy director for Neighborhood Housing Services. “There are many scenarios where someone may have paid off their entire mortgage, but they may be behind on their taxes by…$500, and they’re simply not able to come up with that money.”
The bill Brune supports calls for county officials to set up monthly payment plans, which she said could “help tremendously.”
“A lot of people do their budgeting monthly [and] are used to making monthly payments but may not be able to come up with a large lump sum all at once,” Brune said.
But Pappas, whose office would be responsible for managing the payment plan, dismissed the idea as infeasible and “unconstitutional.”
“You can’t just say, ‘hey treasurer, set up a plan.’ You can’t do that,” Pappas said. “If you’re going to come to me with a payment plan, let’s give it a year to study it…and let’s come to a mutual conclusion.”
Brune acknowledged that “a lot more stakeholders” will need to weigh in on the payment plan proposal before it can take effect. She said authors of the bill plan to file an amendment that would create a “task force” charged with making policy recommendations.
Brune added that she and her colleagues “absolutely support” Pappas’ bill to lower interest penalties, saying the lower rates “will help more people pay on time and stay in their homes.”
As of Tuesday, none of the bills aimed at tweaking the tax sale rules had been considered in committee.