DuPage County and a group of other large Illinois counties will need to face a potential class action lawsuit accusing them of unconstitutionally stealing homeowners' home equity by forcibly selling off entire homes over a few thousand dollars of unpaid property taxes and allowing investors to walk off with the profit.
On Oct. 18, U.S. District Judge Sara Ellis rejected an attempt by attorneys representing the counties, agreeing with Illinois' so-called tax sale system likely violates homeowners' constitutional property rights, as defined under a recent landmark U.S. Supreme Court decision.
In her ruling, Ellis appeared to deal a significant blow in favor of the plaintiffs, explicitly rejecting the counties' argument that they can't be sued because it was investors who ultimately captured the equity when homes are forcibly sold under Illinois' tax sale system, and not the counties themselves.
U.S. District Judge Sara Ellis
| Law.uchicago.edu/
Under the Fifth Amendment to the U.S. Constitution, as interpreted by the Supreme Court's 2023 decision in Tyler v Hennepin, Ellis said it only matters that the counties took the home, sold it off to pay overdue taxes, and never repaid the former homeowners' the full surplus value, minus the unpaid taxes.
"The Fifth Amendment prohibits the government from 'taking for public use' privately-owned property. It does not limit this prohibition to situations where the government also retains the property," Ellis wrote in her opinion.
"But 'confiscating' and 'retaining' are separate acts, and Tyler did not only apply to the latter. Defendants (Illinois counties) 'confiscate' all of a delinquent property owner's property when they transfer title to a tax buyer pursuant to the Illinois Tax Code.
"That is the exact thing Tyler prohibits - without just compensation."
The decision will allow the plaintiffs to move ahead with their lawsuit on seemingly firm legal footing, as they seek potentially untold millions of dollars in damages for the counties' tax sale practices.
The lawsuit landed in federal court in November 2023, about six months after the U.S. Supreme Court handed down the Tyler decision.
In that ruling, the high court ruled so-called "total forfeiture" delinquent property tax sale regimes can be considered unconstitutional "takings" in violation of the Fifth Amendment.
In the Tyler decision, the Supreme 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 property taxes, plus $12,700 in penalties and interest. Hennepin County then kept the surplus from the sale, in a practice dubbed by critics as "home equity theft."
In a 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, homeowners have for decades 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 30 months 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 elderly and black homeowners living in low income communities.
The class action lawsuit against the counties claims Illinois has done nothing to change its system, in defiance of the Supreme Court. The plaintiffs argue federal courts must step in to force change and compel the counties to pay back those whose properties were allegedly unconstitutionally seized to collect comparatively small unpaid taxes.
The lawsuit has named as defendants some of the largest Illinois counties, including DuPage, Lake, Kane, Will and Winnebago counties.
The named plaintiffs in the action include Illinois residents who lost their homes through the tax sale process.
The counties responded to the lawsuit by seeking to toss it out of federal court.
They asserted the legal action should fail under several different theories.
The counties argued they can't be sued because they were acting as required by state law or that the tax sales were conducted under a state court order, meaning federal courts cannot be asked to overturn those decisions.
They further assert people who lose their homes at 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 puruse their lost home equity from their county's so-called "indemnity fund."
The counties argued this should mean the Tyler decision isn't applicable to Illinois.
But most prominently, they argued the Tyler decision can't be applied to them because it is private investor buyers, not the counties or any other Illinois governments, who keep the windfall at tax sale.
Judge Ellis, however, rejected all of those arguments.
She noted plaintiffs are not suing the counties for following Illinois law or any court orders. Rather, they are suing the counties for intentionally refusing to abide by the Tyler decision and the Fifth Amendment and return the windfall from the tax sale to the ex-homeowner.
Ellis further rejected the counties' arguments related to the indemnity fund, noting that process is not only difficult to navigate, but would limit property owners to a maximum recovery of $99,000 and requires property owners to prove that the tax sale wasn't the homeowner's fault.
"... Under the Indemnity Fund, a petitioner has no guarantee of recovering anything and the total amount depends on the whims of the reviewing court's equitable balancing, which can lead to uncertain outcomes," Ellis wrote.
"...But the Supreme Court has long and consistently held that compensation 'must be a full and perfect equivalent for the property taken.' A procedure that does not provide certain and full compensation, such as the Indemnity Fund, is therefore unconstitutionally deficient as a mechanism to satisfy the Fifth Amendment."
And the judge said constitutionally it doesn't matter whether the counties themselves kept the windfalls from the tax sales or if they are taken by private buyers.
In her ruling, Ellis pointed to a famous quote from Chief Justice Roberts in the Tyler decision, which in turn drew on the words of Jesus Christ as recorded in the New Testament Gospels: "The 'taxpayer must render unto Caesar what is Caesar's but no more," Roberts wrote.
She noted DuPage County attempted to use this line to bolster the counties' argument that the counties can't be sued because they only keep the unpaid taxes, while private buyers keep the equity windfall.
The judge, however, said the counties' reliance on Roberts' line is misplaced.
"... This ignores that Plaintiffs ultimately render the entire value of their properties unto Caesar, who in turn renders it unto Antony," Ellis wrote. "This still constitutes a taking for which the Fifth Amendment demands compensation for anything greater than what Plaintiffs owed to the counties in overdue property taxes."
Plaintiffs are represented in the action by some of the same attorneys who successfully argued the Tyler case before the U.S. Supreme Court. 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.
Following the ruling, Watkins replied to questions from The Cook County Record, saying in an emailed statement: "We are pleased the Judge correctly applied the law, clearing the way for us to proceed on to the next phase of the litigation."
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.