Minority communities are losing millions of dollars due to a law loophole. This loophole drained $280 million from parks, police, schools, and other government agencies, according to Cook County Treasure Maria Pappas’ collaborated study.
Here’s How the Loophole Works
Investors are allowed to purchase delinquent property taxes so the county can be paid. Then it is up to the property owner to pay back the investor, including interest. If the owner does not pay the investor back they lose the property. Sounds fairly simple right?
The loophole allows investors to back out of the deal by claiming “sale in error.” Allowing them to get out of buying homes, many of which are unwanted and vacant. The county then refunds the investor’s money plus up to 36% interest.
Pappas commented it was “a great deal for them. This is one of the best investments you can make which is why hedge funds are so closely looking at Cook County and its tax sale.”
Raking in the Money
Often times the money that is refunded to the investors comes from minority communities that are in need. “The interest money gets siphoned away from the governments. That’s money that’s used for police, fire protection, and schools,” pointed out Pappas.
One of the examples found in their research is an investor who paid the delinquent property taxes on an uninhabitable Harvey home. The investor was able to utilize a typo on the Cook County Assessor’s website which stated the house had no attic. This error made it possible for the investor to get back all their money plus more than $17,000 in interest.
Eventually, that money “comes from the property owners in Harvey,” stated Todd Lighty, Deputy Director of Research. “They have to pay that money back and it sends Harvey’s taxes into disarray.”
How Long Has This Been Happening?
In the last seven years, the town of Harvey has lost $14 million due to the “sale in error” loophole. The city of Chicago lost $85 million because of it. Calumet City was the hardest-hit municipality seeing a loss of $16 million.
Investors have been able to drain Chicago and Cook County’s south suburbs almost $280 million. Money that disproportionate minority communities could really use.
After reading the treasure’s report, Ralph Martire, Executive Director of the Center for Tax and Budget Accountability stated, “The treasurer’s office work on this has exposed a real fatal flaw in a policy in Illinois that doesn’t exist in other states.”
He pointed out that this flaw “will increase the property tax bills for folks to make up for this difference, because now your local municipality, your school district has got to make up that differential somehow.”
The study found that the treasurer’s office along with other county agencies made listing mistakes. Which ultimately allowed investors to take advantage of the “sale in error” law.
Written by Sheena Robertson
Sources:
ABC 7: Cook Co. treasurer says Chicago, suburbs losing tens of millions of dollars through tax law loophole
CBS: Cook County treasurer calls for change in property tax loophole that costs residents millions
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Inset Image Courtesy of Brent Moore‘s Flickr Page – Creative Commons License
