The Policy Shop: One small victory for Illinois homeowners

This edition of The Policy Shop is by Director of Policy Research Joseph Tabor.

Geraldine Tyler is a 94-year-old Minnesota grandmother who in 2010 fell behind in the property taxes on her one-bedroom condo after moving into a senior living apartment.

Hennepin County took the condo, sold it for $40,000 to cover a tax debt of $15,000. They kept the extra $25,000 rather than giving Tyler her money from the sale of her property.

Tyler is far from alone.

At least 8,950 homes and more than $860 million in life savings nationally were lost to home equity theft by local governments, according to a Pacific Legal Foundation study covering 2014 to 2021. Of that, at least 3,539 Illinois homes were taken for an average loss of 85% of the homeowners’ equity – or $303 million.

That means the tax liabilities were pretty small compared to what was pocketed by private tax buyers in Illinois. They are allowed to pay the government taxes and then either collect the debt plus interest from the owners or sell the properties after two and one-half years if the owners still fail to pay.

In May 2022, Cook County planned to sell the tax debts on 37,000 properties with delinquent taxes. Of those properties, almost 20,000 had tax debts of less than $1,000.

The Illinois Policy Institute and others added their voices in support of the Pacific Legal Foundation’s case. Then on May 25, the U.S. Supreme Court unanimously ruled in Tyler’s favor: that $25,000 was hers.

But the law is still on the books in Illinois, 19 other states and Washington, D.C.

The Pacific Legal Foundation is not finished. The states and nation’s capital were sent letters May 30 in which the foundation demanded their state laws be changed to comply with the high court’s ruling. They also offered a model policy and legal assistance to legislators backing the reforms in their states.

Nebraska got behind the changes and passed Legislative Bill 727. The taxpayer gets the excess above their tax debt and can opt to apply the extra to future taxes.

But in Illinois? State law still needs to change to comply with the U.S. Constitution.

Among the counties studied by the foundation, Illinois suffered the highest number of homes taken under this scheme and, combined, lost the most equity in their homes.

If state lawmakers don’t act, taxpayers can now sue to recover their equity. But state lawmakers should formally end the practice the Supremes have already spoken on.

“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed,” Chief Justice John Roberts wrote in the 9-0 decision. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Illinois has some of the highest property taxes in the country. Poor and disadvantaged Illinoisans are often the ones struggling with payments, and therefore in danger of losing all the equity they’ve built up in their homes if they miss property tax payments.

The ruling on Tyler’s case should bring an end to this practice across the country, but especially in Illinois where equity theft is acute.