When will Illinois stop allowing predatory property tax sales?

Property tax is the lifeblood of local governments. Collecting and enforcing this tax is thus a matter of public concern. It should not be an opportunity for private profiteering at the expense of the state’s most vulnerable citizens and poorest cities. And yet, that’s exactly what Illinois’ current tax delinquency law does.

Earlier this month, a federal judge found the most egregious feature of Illinois’ tax sale law — which allows for the total loss of property for a single missed tax payment — violated the U.S. Constitution’s takings clause and ban on excessive fines.

While this ruling means the current system must be reformed, just how far those reforms will go remains to be seen.

In Springfield, lobbyists for the tax lien industry — the array of private investors who purchase tax liens at county tax auctions — are working furiously to prevent the state from adopting reforms that would put them out of business. Illinois lawmakers should treat this ruling as an opportunity to do just that.

Here's how the current system works: After property taxes are past due, Illinois counties place liens on tax delinquent properties and subsequently sell these liens, for the amount of taxes owed, to investors.

For each lien sold, counties receive the equivalent amount of taxes they are owed. The tax lien buyer can then charge interest, set exorbitantly high to attract investors, and add fees onto the underlying debt, which the delinquent taxpayer must pay to remove the lien.

And if they cannot, the tax buyer can initiate a tax foreclosure and claim ownership of the property. Either way, the tax buyer wins.

If it sounds like these laws were written by the very investors who profit from them, that’s because they were. In 1951, lawyers for the state’s burgeoning tax lien industry drafted and helped pass the statutory reforms that established the state’s current system.

And in the decades since then, these same lawyers and lobbyists have worked to sharpen these laws to maximize profits.

The vast majority of tax buyers’ profits come not from taking people’s homes but rather from using the threat of it to extract onerous payments.

While vacant and abandoned properties constitute the bulk of tax delinquencies and pose the greatest problems for local governments, tax buyers avoid buying liens on these properties.

Instead, they target owner-occupied homes and other properties whose owners, they wager, will pay any cost to save them from foreclosure. The longer it takes a delinquent taxpayer to settle their debts, the greater the tax buyer’s return on investment.

While enriching a small class of investors, Illinois’ tax sale law has inflicted devastating harm on low-income, elderly and minority homeowners, who are most vulnerable to tax delinquency.

More than that, it has made the fiscal challenges local governments face worse. As detailed in a 2023 report by the Cook County treasurer’s office, tax lien investors have been ruthlessly exploiting a loophole in the state’s law that entitles them to a full refund plus interest if there are any errors in a property’s tax records.

Since something as minor as a misspelled word can be found buried somewhere in most records, tax buyers purchase tax liens with the intention of having them voided and collecting interest, which comes out of the treasuries of the local government where the property is located.

One of Chicago’s most prolific tax buyers, the report found, made over $3.5 million over seven years from this loophole alone.

Because the state’s poorest cities and towns experience the highest rates of tax delinquency, the bulk of the profits tax buyers have accumulated through this scheme have come at their expense.

In one year alone, tax buyers drained $3.4 million and $1.8 million out of the treasuries of the poor, heavily minority south suburbs of Dixmoor and Ford Heights, respectively, through this provision.

The industry’s claims notwithstanding, the interests of tax buyers are diametrically opposed to the public’s interest. While it’s true tax buyers help to fund local governments through their purchases, the costs of placing delinquent tax collection in their hands far outweigh the benefits.

To fix what’s wrong with Illinois’ tax delinquency system, lawmakers must first stop enlisting these predatory investors to do the public’s business.

Instead, the state should require local governments do the job themselves and give them the resources they need to do so. It should also enact measures to protect vulnerable homeowners from falling into tax delinquency in the first place and repayment programs that help rather than punish those who do.

Andrew W. Kahrl is a professor of history and African American studies at the University of Virginia and author of "The Black Tax: 150 Years of Theft, Exploitation, and Dispossession in America."