Three years after a group of homeowners and community organizations filed suit claiming the county’s tax sale robbed them of their home equity, a federal judge has ruled the current system unconstitutional.
Judge Matthew F. Kennelly found in a Monday ruling that the system violated both the 5th and 8th amendments of the constitution related to unfair “takings” and excessive fines.
Still to be decided is whether Cook County government is on the hook to pay thousands of plaintiffs for the equity they lost.
The case, Bell v. Pappas, centered on how Cook County deals with delinquent taxes.
Property owners can see their delinquent property tax debt put up for sale if they don’t pay for 13 months. If the tax buyers who purchase that debt aren’t paid back within 30 months — sometimes up to three years — they can sell that person’s property and pocket whatever profits they make above the debt amount.
A homeowner might rack up $10,000 in tax-related debt on a property worth $100,000, for example. If they can’t pay the full debt — including interest — during the redemption period, the tax buyer can get the home’s title.
The original owner, the lawsuit argued, “receives nothing and loses as much as $90,000 in equity, while the tax buyer receives the windfall of a property worth $100,000 for which they paid $10,000.”
The suit is not over though. Kennelly did not rule on how the class of other homeowners should be made whole, nor who should be responsible for paying.
“It’s a clear ruling that the current system, insofar as it takes people’s home equity when they lose their house because of not paying taxes, that it violates the constitution,” said the plaintiffs’ attorney, John Bouman. “The part that’s still a bit fuzzy is whether the county and Treasurer [Maria] Pappas can be held liable for that on the grounds that what they didn’t know what they were doing violates the constitution.”
Pappas’ and Cook County Board President Toni Preckwinkle’s office declined to comment, citing the ongoing nature of the litigation.
The suit was brought in 2022. The lead plaintiff, Michael Bell, inherited a home worth $115,000 on the city’s far South Side after his mother died in 2017.
He was unemployed, however, and failed to pay his 2018 property taxes, according to the lawsuit. Those taxes were eventually sold to the Lien Group. The delinquent charges added up over time to more than $11,000 and he was forced to cede ownership, the suit said.
Bell did not want the house back or fight his eviction but did want to be compensated for the rest of the value so he could afford to live somewhere else.
The other original plaintiffs included another homeowner and community activist organizations The Southwest Organizing Project and Palenque LSNA. Kennelly ruled those community groups had standing in the case.
Since that filing in 2022, the class has grown to some 2,500 homeowners, Bouman estimates, adding that the members should be entitled to roughly $60,000 each. He acknowledged, however, what they ultimately receive will depend on how the case proceeds and whether they reach a potential settlement with the county.
The Illinois Answers Project reported in 2022 that the main “indemnity” fund that typically pays people whose taxes were wrongfully sold or homes wrongfully lost was insolvent and years late in paying back families owed money.
What is certain, Bouman said, is that the Illinois General Assembly will need to reform the current state law regarding the tax sale or have to answer to the court.
The U.S. Supreme Court concluded in a recent and similar case, Tyler v. Hennepin County, that Minnesota’s tax sale was unconstitutional. Illinois is the lone holdout state that has not yet reformed their system.
Pappas’ office has been pushing lawmakers in the General Assembly to change the state’s law to comply with the ruling, including changing the current system to host an auction that would ensure the original homeowner gets paid for the difference between the sale and debt balance.
But lawmakers, under pressure to pass a budget and broad transit reforms and facing lobbying efforts from both housing affordability advocates and the tax buyer industry, have so far failed to reach a consensus.
In the interim, Pappas’ office has helped usher through other reforms, including cutting down on interest costs for late bills, through Springfield.
