The Supreme Court just fired a shot at how Illinois handles delinquent property taxes

The conservative wing objected to the dismissal of property rights. The liberals focused on egregious fines. But despite their different reasonings, the members of the U.S. Supreme Court unanimously found in favor of a woman who got nothing when the government seized her condo because of $2,300 worth of unpaid property taxes and pocketed all proceeds from the sale, far more than the woman owed.

The court’s decision, announced May 24, involved the case of Hennepin County v. Geraldine Tyler. The justices correctly dismissed an egregious argument from the Minnesota county that it fell to the elderly woman to better protect her one-bedroom condo from official thieves.

Nonsense, declared Chief Justice John Roberts, who wrote that while the county had the right to sell Tyler’s condo to recover what it was owed, it should have returned the outstanding balance from the sale to the owner. Since it did not, the justices said, the woman suffered a violation of her constitutional rights.

Minnesota is among just 13 states that allow the practice of grabbing the full sales price of private property for even a small outstanding government debt.

What other state is on that shameful list? Illinois.

It’s time for reform, given that the Supreme Court has essentially served notice on the illegality of the practice.

Illinois long has tolerated a more egregious situation involving a third party. According to Illinois law, any time a property goes into chronic default, a so-called tax sale occurs. That means, a “tax buyer,” usually a hedge fund, private equity group or a similar entity, swoops down and “purchases” the debt, paying the debt owed to the government and in return obtaining a lien on the property.

If the owner gets into a position where they can pay their bills, they have the chance, for a certain period, to pay off the private buyer and get back their property. If not, the “tax buyer” gets to own the whole shebang.

In some cases, debtors haven’t known about the debt. A deeded parking space might have a different tax identification number, unknown to the owner, or the mail may have stopped being delivered. Or an owner may have fallen ill.

It sure looks to us like the Supreme Court justices just vacated the legality of doing business that way.

Sure, no doubt Illinois lawyers will likely claim that private buyers are procedurally different, but it is hard to argue this Illinois practice does not violate the same constitutional rights of the debtor that the high court just upheld in Minnesota.

And wait. In Illinois, it’s been worse.

Those hedge funds long ago figured out a way to make money even if the debtor is likely to pay them off. This practice has involved finding some kind of minor mistake in the listing (say a bathroom listed as full when It really is a half) and then claiming a “sale in error,” which gives the vultures the right to get their money back.

Fair enough? In theory. But the buyer also typically claims interest on their purchase price, which has been accruing to them at the generous rate of 12% per year.

Investors have exploited this loophole, scouring listings for errors even before they buy them and then siphoning off taxpayers’ money. According to Cook County Treasurer Maria Pappas, this scheme has cost Cook County taxpayers at least $27.7 million.

Pappas is a reform-minded treasurer and she has built a savvy brain trust in her office that has studied and had demonstrable success in changing some of these scams. That’s the most appropriate word, given that the tax buyers had a hand in the original crafting of the initial procedures.

Pappas’ Property Tax Equity Legislation, passed by the General Assembly on May 24, is a big step in the right direction, cutting the interest rate owed on delinquent property taxes by both homeowners and businesses to a less onerous 9%, saving taxpayers millions of dollars.

Good for Pappas and her team for making these impressive changes, but we think this does not go far enough, especially in the light of the Supreme Court decision.

Illinois should remove private tax buyers from the whole process. Governments should retain the right to sell delinquent properties to recover what is owed to them, and they similarly should still be able to charge reasonable fees to cover all taxpayers’ costs and provide a fair disincentive to scofflaws.

But they should then return the balance from the sales to the property owners, in accordance with the Supreme Court directive, and then take control of the properties for the public good.

That’s government’s job. No need for hedge funds to be involved.

Chicago Tribune