SPRINGFIELD – Illinois residents could soon see a new tax sale process that helps prevent financial windfalls for property owners facing foreclosure, thanks to a measure State Senator Celina Villanueva advanced that would prioritize returning surplus equity to divested property owners.
“House Bill 4537 is about upholding the constitutional rights of Illinoisans and ensuring our state’s tax sales process values our residents over any potential profit, especially at a time when so many people are experiencing financial hardship and struggling to make ends meet,” said Villanueva (D-Chicago). “When a property worth tens of thousands of dollars is foreclosed on, property owners are stripped of their dream of homeownership and left with no reprieve, and it simply is unfair.”
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.
“I recognize that people go through hardships that can make it difficult to get back on track with property tax payments, and now we need a tax sales process that recognizes this, too, and ensures divested property owners are fairly compensated so they can try to rebuild their livelihoods,” Villanueva added.
House Bill 4537 passed the Senate Thursday and heads to the House for concurrence.
