The owners of tens of thousands of homes and properties in Cook County who’ve fallen behind on their taxes have only a couple more days to settle their debts – or they could wind up paying a lot more.
Cook County Commissioner Bridget Gainer, 10th District, is working to build awareness about a property tax sale coming up on Monday where delinquent taxes can be sold off to private buyers, who can then charge property owners exorbitant interest rates until their debt is paid off.
“For the vast majority, it’s an arbitrage scheme,” Gainer said. “It’s authorized by the state, the county has no authority to set the rate, they don’t have the ability to affect the process at all.”
Owners who have yet to settle their 2015 property taxes have until Saturday to pay off the county.
So what does this mean for homeowners with delinquent taxes? The purpose of the sale itself is to collect the full amount of any unpaid taxes due on a property. But Gainer said the taxes on those properties can be assumed and paid off by corporate buyers – either law firms, investor groups or sometimes even banks – who are then able to charge the homeowners between 12 and 18 percent interest on those taxes until they are repaid to them.
For their purchase, tax buyers not only get right of first refusal on the land for two years, but also a fully collateralized loan that has historically been paid back at a rate of 94 percent.
“It’s a pretty good deal, and pretty unprecedented in the finance world,” Gainer said. “Usually if you charge that level of interest it’s because the risk of default is much higher.”
If a sale does fall into that 6 percent default hole, buyers get the property, but they typically file a “sale in error” certificate with the county instead. That allows buyers to claim there was a mistake in the legal description of the property at the time of sale and in those cases, they can demand their money back from the county, along with interest set at that high rate.
And Gainer said those claims are successful about 90 percent of the time.
Buyers tend to target properties in neighborhoods where homeowners are only slightly behind on their taxes and have a high chance to redeem within the two-year period.
“It’s another squeeze in the middle,” Gainer said. “They’re not buying taxes in the poorest of the poor communities and to a large degree most wealthy people don’t fall behind on their taxes.
“So what you’re doing is you’re getting these working- and middle-class communities where there’s a confidence people are going to pull together the money, but it’s just one more thing constraining the build-up of equity in these neighborhoods.”
Sale dates are dictated by state statutes, but this year’s sale is the earliest in Cook County history, moving from July up to April. Property owners have until Saturday to pay off their taxes, either at the Cook County treasurer’s office or any Chase bank.
Legislators in Springfield have taken action to try and postpone the sale, but it's unclear if that will take effect by Monday.
The list of 50,000-plus delinquent properties includes everything from single-family and two-flat homes to commercial buildings and vacant lots.
The median amount owed on these is just over $1,400, and about 40 percent owe $1,000 or less. But the amount due on individual parcels ranges anywhere from mere pocket change on a couple of Chicago properties up to $2.3 million owed on a medical building in Calumet City.
— Bridget Gainer (@BridgetGainer) March 30, 2017
Gainer estimates tax buyers pull out between $25 and $40 million each year in interest payments alone. But buyers are also able to scoop up vacant properties in up-and-coming neighborhoods and charge a premium on that land to developers coming in with actual designs for those areas.
“So it not only pulls equity and money out of middle- and working-class communities,” she said, “it also increases cost and complexity of development in the neighborhoods that need it the most.”
To combat this, Gainer helped create the Cook County Land Bank Authority in 2013. The nonprofit works to identify properties located near some sort of economic driver – a rail line or a budding neighborhood – and pay off taxes on those lots in order to turn them into sustainable community assets.
She has also worked with aldermen and community organizations in recent days to build awareness of the upcoming deadline before it’s too late.
“We’ve been meeting with community groups, we met on the West Side with Ald. (Michael) Scott last Friday. We’ve been talking to as many communities as we can,” Gainer said, adding that the community development issues involved here trump even the financial issues at play.
“When you think about, you’re just having communities getting going and you can have somebody put a brick on the willingness or the ability of somebody to come and develop. That’s the bigger story.”
Follow Matt Masterson on Twitter: @ByMattMasterson
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