SPRINGFIELD – Illinois residents may soon see a new tax sale process that helps prevent financial windfalls for property owners facing foreclosure, thanks to a measure led by State Senator Celina Villanueva that would prioritize returning surplus equity to divested property owners.
“At a time when so many Illinoisans are struggling to make ends meet – having hard conversation every day about what essentials to skip out on this month or what bills can be paid a little bit late – the last things our residents need to worry about is having their property stripped from them with no recourse,” said Villanueva (D-Chicago). “Some of these properties are worth tens of thousands of dollars at the time they are foreclosed on, yet, even after the debt is settled, property owners aren’t receiving a penny of the equity they spent years of their lives building. This must change.”
Under the state’s current process, if a property owner falls behind on taxes, the county can sell the debt to a tax buyer and give the original owner a set amount of time to pay off their debt, as well as any interest or penalties acquired. If the original property owner cannot pay the debt and other associated costs in the allotted period, the buyer can petition a court to receive the full deed to the property. This means a buyer obtains the property for the cost of back taxes, regardless of the property’s market value, and the original property owner does not receive any compensation for the property’s remaining equity.
In 2023, the United States Supreme Court ruled in Tyler v. Hennepin that local governments keeping surplus money through property tax foreclosure is a violation of residents’ Fifth Amendment, which guarantees the right to fair compensation for government seizure of property. Geraldine Tyler owned a condominium in Minneapolis, which she accrued a $15,000 tax debt on after stopping property tax payments. Hennepin County foreclosed on Tyler’s home and sold the property for $40,000 – satisfying Tyler’s debt and keeping the remaining proceeds. Tyler sued the County, and the U.S. Supreme Court held that Hennepin County’s actions in retaining the surplus equity violated the Takings Clause of the Fifth Amendment.
Villanueva’s measure would help prevent Illinois property owners from falling victim to this type of equity theft. House Bill 4537 would update the tax sales process, ensuring that when a property owner’s redemption period expires, their property is sold through a public auction that takes into account the market value of the property before a buyer is granted the full deed from a court. If the property sells at auction, the buyer would get their money back, court fees would be covered and any surplus equity would be refunded to the divested property owner.
“This is about upholding residents’ constitutional right and ensuring our state’s tax sale process places fairness over profit,” Villanueva added.
House Bill 4537 passed the Senate Revenue Committee Wednesday and heads to the full Senate for further consideration.
