Lawsuit alleges Cook County property tax sales discriminate and violate homeowners’ rights

Lawsuit says failure to compensate homeowners for the loss of their home equity when their property is taken away violates their rights.

property tax auction
Elliott Ramos / WBEZ News
property tax auction
Elliott Ramos / WBEZ News

Lawsuit alleges Cook County property tax sales discriminate and violate homeowners’ rights

Lawsuit says failure to compensate homeowners for the loss of their home equity when their property is taken away violates their rights.

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Michael Bell’s home in the South Deering community on Chicago’s South Side had been in his family for more than 40 years, and he took sole ownership of it in 2017 after his mother died. But a year later, Bell became unemployed and started to fall behind on his property taxes.

In 2019, his unpaid property taxes from the previous year were auctioned off to a private investor for a little over $1,600 through an annual Cook County property tax sale, a process that enlists third-party investors to help the county recover unpaid property taxes.

Once the debt is sold through a tax sale, a tax lien is placed on the property and the clock starts ticking: If the debt isn’t paid in a lump sum within 30 months, the investor can file an eviction order and claim legal ownership of the home.

Now, three years after his unpaid taxes were sold, Bell is still struggling to get caught up. The amount he owes the investor has grown to about $11,000, which includes about $6,000 for unpaid taxes from the tax years between 2019 and 2021, about $1,500 for penalties and $1,700 for costs and fees on top of the $1,600 owed from the 2018 tax year.

If Bell isn’t able to pay the $11,000 soon, he’ll lose his family home. Lien Group LLC, the third-party investor who bought his property tax debt, will own the home deed and the home’s equity, worth about $110,000, according to the lawsuit.

But Michael Bell is pushing back. He is one of four plaintiffs in a class-action lawsuit filed Thursday morning in federal court against Cook County and Cook County Treasurer Maria Pappas, whose office administers the property tax sale program.

The other plaintiffs are homeowner Michelle Kidd, who was caught up in the property tax sale system and evicted from her home in west suburban Maywood earlier this year, and two community organizations that serve predominantly Black and Latino neighborhoods — the Southwest Organizing Project (SWOP) and Palenque LSNA.

The federal lawsuit alleges that Cook County’s failure to compensate homeowners for the loss of their home equity when their property is taken away is a violation of several constitutional rights, including the Fifth Amendment right that private property not be taken for public use without just compensation.

The lawsuit also alleges that the system violates the federal Fair Housing Act and the Illinois Civil Rights Act because it discriminates against Black and Latino homeowners.

A spokesperson for the Cook County Treasurer’s office declined to comment, citing the office does not comment on pending lawsuits and that the matter will be handled by the office of the Cook County State’s Attorney.

The lawsuit alleges that the property tax sales disproportionately impact Black and Latino communities, a fact that Pappas has acknowledged. Her office has been a vocal advocate for reforms and supported research to show the disparate impact on those communities.

Roughly three-fourths of properties on the property tax sale list in 2021 were either in Black or Latino neighborhoods and suburbs, according to a press release from the treasurer’s office.

Between September 2010 and February 2020, 1,400 evictions resulted from people who lost their homes through the tax sale system, according to a study from the housing advocacy group Housing Action Illinois. A WBEZ analysis of that data shows nearly 65% of those properties were in majority-Black ZIP codes.

When a homeowner is evicted due to delinquent property taxes, he or she loses not just the deed to the house but also all the equity built up over the years.

The lawsuit doesn’t question whether the property tax sale should exist or that a home can be lost for nonrepayment of property taxes. Instead, what the lawsuit challenges is the county’s failure to compensate evicted homeowners for their home equity when their homes are seized.

“Our position is that the value of the home, over and above the taxes and related charges, belongs to the homeowner, and there’s no reason related to the tax collection why [Cook County] should be depriving people of that asset,” said John Bouman, director of Legal Action Chicago and an attorney representing the plaintiffs.

“Depriving them of that asset violates the constitution for anybody who it happens to, but is particularly devastating for people of color who have faced a long history of problems with being able to own a home through redlining, restrictive covenants, discriminatory tax assessments,” said Bouman. “It’s all part of this fabric that has prevented people from owning homes and passing them down to their descendants, and it’s a big part of the racial wealth gap.”

Homeowners typically use the proceeds from the sale of their existing home to buy a new home. But the lawsuit argues that since many evicted homeowners in Cook County’s property tax sale system are not compensated for the value of their homes, it’s harder for them to find new housing.

In 1976, according to the lawsuit, a state legislative commission deemed the total forfeiture of a property in the tax sale process to be “needlessly harsh” and created a fund from which homeowners could petition the court to receive a payout. This dedicated fund, called an indemnity fund, provides one way for homeowners like Michael Bell to recover the value of their homes lost, but it’s “ineffectual and extremely slow in a way that completely undermines its purpose,” the lawsuit alleges.

According to the lawsuit, Cook County issued just 357 indemnity fund payouts from 2009 to 2021, a fraction of the total number of properties lost in tax sales, and those who will receive payouts currently face an eight-year delay in payment.

Before the most recent property tax sale, which was held last month, more than 45,000 properties had unpaid taxes from the previous year, according to a press release from the treasurer’s office. The amount owed was less than $1,000 each for about 14,000 of those properties.

“Homeowners, particularly low-income homeowners of color who are already having a hard time paying their property taxes in the first place because they can’t afford them, wind up suffering and, in the worst case scenario, losing their home,” said Bob Palmer, policy director at Housing Action Illinois.

Many who are entangled in the property tax sale system end up on the hook to pay back much more than they initially owed due to growing interest rates and fees, making it harder for them to resolve their debts over time. Property owners paid nearly three times what tax buyers paid for their unpaid property taxes, according to a WBEZ analysis from 2019.

The county’s ability to collect property taxes and hold property tax sales to recoup unpaid debts is codified in state law, which cannot be changed by a federal court. Ultimately, Bouman said he would like to see deeper legislative reforms to the tax code, but in the meantime, he hopes the lawsuit can ameliorate one part of the process.

“We hope to win an injunction that says, at the end of the day, people won’t lose their home equity when they lose their home because of the tax sale,” he said. “We can’t stop them losing their home, but when they lose their home, they shouldn’t also lose the equity.”

Amy Qin is WBEZ’s data reporter. Follow her @amyqin12.