As class action lawsuits mount on behalf of homeowners who claim they unconstitutionally lost their homes and equity over unpaid property taxes, Chicago's collar counties, along with others, have asked a judge to force the state government that created the potentially unconstitutional tax laws and private investors who profited from the system to help the counties wear the blame and foot the bill for the potential coming payout.
On April 11, a collection of seven counties filed two lawsuits in Chicago federal court against Illinois and a group of so-called "tax buyers."
The state's second and third largest counties, DuPage County and Lake County, partnered in one of the so-called "third party" actions. In the other, Will County and Kane County joined with the counties of Boone, Peoria and Carroll.
Lake County State’s Attorney Eric Rinehart
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The largely identical claims ask the court to issue an order declaring that the counties should not be made to cover the cost alone for allegedly unconstitutionally taking homes over delinquent property taxes. The counties claim they neither profited from the so-called tax sales, nor did they act of their own will. Rather, they claim they were only acting according to the property tax collection system set up by laws enacted by the Illinois state government.
The state of Illinois "has created a legal system via the PTC (Property Tax Code) in which (counties are) either required to violate the rights of property owners ... or be sued by taxing bodies for failing to collect property tax revenue as required by the PTC," DuPage and Lake counties wrote in their filing. "(Counties have) no authority to pay just compensation to a former property owner nor any administrative process for assessing the appropriate amount of just compensation.
"... (Counties) have a clear right to a PTC that is constitutional and does not force them to violate the rights of a property owner..." they wrote.
The lawsuits from the counties come as the latest step in a court fight that began in Illinois in 2023.
But the case traces its origins back to a U.S. Supreme Court decision six months earlier which observers believed would inevitably lead to court fights threatening longstanding property tax collection systems in Illinois and other U.S. states.
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 Constitution's Fifth Amendment.
In the decision, known as Hennepin v Tyler, 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.
In November 2023, a class action was filed against DuPage, Lake, Will, Kane and the other counties, claiming Illinois wrongly did nothing to change its system, despite the Supreme Court mandate. Plaintiffs included Illinois residents who had lost their homes through the tax sale process.
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.
The plaintiffs argued federal courts must force the change and compel the counties to pay back those whose properties were allegedly unconstitutionally seized to collect comparatively small unpaid taxes.
The counties initially responded by seeking to dismiss the lawsuit, arguing they can't be sued because they were acting as required by law or that the tax sales were conducted under court orders, 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 pursue 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.
U.S. District Judge Sara Ellis, however, has rejected those arguments. In a decision last October, Ellis said the class action against the counties can continue, because the lawsuit has gone after the counties for intentionally refusing to abide by the Tyler decision and to return the windfall from the tax sales to the delinquent homeowners.
Ellis 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.
And the judge declared the opportunity for recovery from the indemnity fund was too limited to remedy the tax sale system's shortfalls under the Tyler decision.
In the meantime, other class action lawsuits have been filed against other counties, all leveling the same claims that the counties exceeded their authority and kept in place an unconstitutional system, essentially ignoring the Supreme Court.
Facing a risk of potential massive damages and court orders with which they believe they cannot legally comply, the counties have themselves turned to the same court, seeking to redirect the consequences for the class action against the Illinois state government and private companies who scoop up the homes at tax sales.
Additional defendants named in the counties' third party claims include: Scribe Holdings LLC; HOBO Investments LLC; DG Enterprises LLC - Xprop LLC; Cortezz LLC; and Realtax Developers Ltd, all of which are private "tax buyer" corporate entities who acquired homes in some of the counties included in the class action that included the suburban counties.
In their new filings, the counties continue to argue they believe the Illinois property tax collection system is constitutional, despite Tyler.
But if the court rules the system is not constitutional, the counties assert the state should be ordered to change the system to comply with the Supreme Court's ruling, and private "tax buyers" should be roped into any eventual payment of damages.
"If, as Plaintiffs claim, the collection of delinquent property taxes results in a constitutional violation of Plaintiffs’ property rights, that violation is due to the County Defendants’ compliance with the PTC," the counties of Will and Kane, along with the three downstate counties, asserted in their filing.
"If, as Plaintiffs claim, the collection of delinquent property taxes results in a constitutional violation of Plaintiffs’ property rights, that violation is due to constitutional infirmities in the PTC, which the State of Illinois is required to remedy.
The five counties added: "...To the extent that any constitutional deprivation of rights occurred, it is due to the tax buyers’ pursuit and receipt of a tax deed after conclusion of a statutorily endorsed tax sale.
"If the County Defendants are found liable, the County Defendants are entitled to contribution from the tax buyers in the full amount of any judgment entered in plaintiffs’ favor," the counties said.
The counties are represented by their respective county state's attorneys.
The counties of Will, Kane, Peoria, Boone and Carroll are also represented by attorneys Rosa M. Tumialan, Charles A. LeMoine, Jerome Murphy and Carter Frambes, of Tressler LLP, of Chicago