SPRINGFIELD – Illinois residents will soon see a new tax sale process that helps prevent financial windfalls for property owners facing foreclosure, thanks to a law State Senator Celina Villanueva championed that prioritizes returning surplus equity to divested property owners.
“It’s pertinent we recognize this previous property tax process for what it was: exploitative to the hardworking Illinoisans who pay their back taxes with hard-earned money,” said Villanueva (D-Chicago). “It’s outright unfair to residents who have a property worth tens of thousands of dollars to have that property foreclosed on and be left with no recourse, no equity and, often times, no chance to rebuild their lives on a new property.”
Under the state’s previous process, if a property owner fell behind on taxes, the county could 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 could not pay the debt and other associated costs in the allotted period, the buyer could petition a court to receive the full deed to the property. In practice, this meant buyers were obtaining property for the cost of back taxes, regardless of the property’s market value, and the original property owner did 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 law will help prevent Illinois property owners from falling victim to this type of equity theft. House Bill 4537 updates 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 will get their money back, court fees will be covered and any surplus equity will be refunded to the divested property owner.
“At a time when so many people across the nation are struggling to make ends meet, a property tax bill doesn’t always make the list of top priorities, but that doesn’t mean that resident should be stripped of their dream of homeownership,” said Villanueva. “This is about recognizing people go through rough patches and hit stumbling blocks, but it’s up to the state to ensure they can get back on their feet, and this updated property tax sales process ensures our residents can get back on track if that time comes.”
House Bill 4537 was signed into law Friday and goes into immediate effect.
