A group of Illinois counties have moved to slam the door on a class action lawsuit that could force them to pay potentially untold millions of dollars in damages for seizing and selling entire homes over a few thousand dollars in unpaid property taxes.
In new court filings, the counties say a U.S. Supreme Court decision that appeared to declare such "tax sales" in Illinois to be unconstitutional taking of property doesn't apply under Illinois law.
They note the counties themselves don't get anything more than the unpaid property taxes. Rather, in Illinois, it is private "tax buyers" who reap the windfall profits from tens or even hundreds of thousands of dollars in equity otherwise locked up in the homes that they may either turn around and sell or add to portfolios of rental homes for lease.
DuPage County State's Attorney Robert Berlin
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Further, the counties argue the Supreme Court decision shouldn't apply to them, or to Illinois law, because Illinois law requires the counties tasked with collecting property taxes to maintain a so-called "indemnity fund" from which homeowners whose homes are seized and sold over delinquent property taxes can sue to recover the equity they may have lost in the tax sale.
On Feb. 22, attorneys representing the treasurers and clerks in eight counties, including DuPage, Lake, Kane, Will and Winnebago counties, filed briefs in Chicago federal court, urging U.S. District Judge Sara Ellis to dismiss the class action lawsuit demanding refunds for homes allegedly unconstitutionally taken by the counties and their "tax buyers."
The lawsuit landed in federal court in late November 2023, about six months after the U.S. Supreme Court ruled so-called "total forfeiture" delinquent property tax buying regimes may actually be unconstitutional "takings" in violation of the Constitution's Fifth Amendment.
In that decision, known as Tyler v Hennepin, the high court sided with a homeowner in Hennepin County, Minnesota, whose $40,000 condominium was seized and sold by the county over $2,300 in unpaid taxes, plus $12,700 in penalties and interest. That county then kept the surplus from the sale, in a practice dubbed by critics as "home equity theft."
In an unanimous ruling authored by Chief Justice John Roberts, the court said the county's tax sale went too far, and the county should only be allowed to collect what is owed, with the homeowner retaining the surplus.
Some justices also said such "equity theft" also amounts to violations on the Eighth Amendment's ban on "excessive fines."
In Illinois, taxpayers have long similarly lost their homes over thousands of dollars in unpaid property taxes under the state's Property Tax Code tax sale system.
Under the tax sale process, the unpaid taxes - known as tax debt - is sold by the county, typically to a real estate investor seeking to profit by either selling the property or keeping it and renting it to others.
Illinois law gives homeowners a limited period of time to redeem the property by paying off the tax lien. Throughout that redemption process, however, the "debt" continues to grow through the addition of interest and fees. Ultimately, the investor and county can choose to seize the property, evict the residents and sell the property for full market value, potentially reaping massive profits.
Critics in Illinois have noted this process has typically victimized those least able to absorb such a financial hit, including the elderly and Black and other racial minority homeowners living in low income communities.
The class action lawsuit against the counties claims Illinois has done nothing to change its system, allegedly in defiance of the Supreme Court. The plaintiffs assert the courts must step in to force change and compel the counties to pay back those whose properties were allegedly unconstitutionally seized to collect relatively small unpaid taxes.
The plaintiffs include Illinois residents who lost their homes at tax sale. The plaintiffs are represented by many of the same attorneys who helped secure the win before the U.S. Supreme Court in the Tyler case. These include attorneys Charles R. Watkins, of Guin Stokes & Evans, of suburban Oak Park; Garrett D. Blanchfield and Roberta A. Yard, of Reinhardt Wendorf & Blanchfield, of St. Paul, Minnesota; and Vildan Teske, of Teske Law PLLC, of Minneapolis.
In the new filings, however, the counties say the former homeowners' case falls short.
They assert some of the counties, including Kane, Will and Winnebago counties, should be dismissed from the case, because none of the plaintiffs have any direct claims for home takings against those specific counties.
And they assert the case should not be allowed to continue as a class action, because each homeowners' situation is too different to allow them to press their claims against the counties collectively. Rather, everyone who loses their home at tax sale should be forced to sue their home county individually, if at all.
They further assert the counties are shielded from the lawsuits, because they are merely executing a system created under state law.
But, perhaps most to the point, the counties claim the Tyler decision doesn't even apply in Illinois.
They note that under Minnesota's system, the county that conducts the tax sale was formerly allowed to keep the surplus for itself. In Illinois, however, they said, that surplus windfall goes to the tax buyers, who then pay the county the amount of unpaid property taxes and "restore properties to the taxing roles."
They further assert people who lose their homes to tax sale are given ample opportunities to contest the tax debt, redeem the tax debt and then, after the homes are sold to satisfy the tax debt, to pursue their lost home equity from their county's so-called "indemnity fund," meaning the Tyler decision is not applicable in Illinois.
In a brief filed by the DuPage County defendants and supported by the other counties, the counties' lawyers assert that the class action lawsuit rests on the "presumption" that homes and the equity they may carry - referred to in the brief as "surplus property" - have bee "seized."
But the counties claim they have not actually "seized" any property through the tax sale system.
"Arguably, tax buyers have done so," DuPage County's lawyers wrote. "However, they have only been able to do so under the watchful eye of Illinois courts."
Since Illinois courts control the issuance of so-called "tax deeds," which authorize the sale of homes over unpaid taxes, the counties assert that under legal precedent known as the Rooker-Feldman doctrine, federal courts are blocked from stepping into the tax sale process, no matter the Tyler decision.
Further, they noted that, in Illinois, it is tax buyers who secure the tax deeds and who ultimately "take" the property.
"Any windfall over and above what a tax buyer paid in delinquent property taxes is retained by the tax buyer, not by any of the (counties.) If Plaintiffs have brought valid claims for violations of their constitutional rights, it is the tax buyers who so violated those rights," DuPage County wrote in its brief.
DuPage County is represented in the action by DuPage County State's Attorney Robert B. Berlin, and other attorneys from his office.
Other counties are also represented by attorneys Rosa M. Tumialan and others from the firm of Tressler LLP, of Chicago; and attorney Gary Scott Pyles, of Joliet.