A Controversial Investment Tool is Devastating Homeowners

Property tax debt sales are advertised online as a way to make a lot of money quickly. But a housing policy expert explains how destructive they are—and what can change.

"Why would the government facilitate a process to evict families that own their homes but owe tax payments as low as $1,000 or less?" asks Sarah Brune, the director of communications and policy at Neighborhood Housing Services of Chicago (NHS), a nonprofit organization that addresses racial and wealth gaps in homeownership. Illinois is just one of many states that allows unpaid property tax debt sales by local governments. Buying property tax debt has been framed as "an excellent investment opportunity" by online investor guides—in some states, servicers can charge families that have fallen behind on their property tax payments as much as 18 percent interest rates. But this framing neglects the cruel realities of tax sales: If families fail to pay their loan debt at exorbitant interest rates, they can be evicted from the homes, which, in many cases, they had owned outright for decades. In Cook County, those being evicted are disproportionately people of color. "Those families are likely to need rental assistance or other resources to find somewhere to live," Brune says. "Why don’t we just use those resources to help them stay in their home?"

NHS has embarked on a new initiative to reform tax sales in the county through SB 74 and HB 1238, bills that would potentially provide tax sale debt relief. SB 74 was signed into state law in July and mandated installment payment programs for property tax debt in Cook County. Dwell spoke with Brune to learn more about the organization’s efforts and the problem with owner-occupied tax sales. 

What are tax sales designed to do?

Tax sales help a government recoup unpaid debts on properties. Property taxes represent a significant source of income for taxing districts. So when those taxes go unpaid, that has a hit to revenue. And that is ultimately why these tax sales exist, because if property taxes aren’t being paid, the taxing districts can sell the debt to get the money back immediately from tax buyers. They then essentially buy that tax liability and play the role of collection and collect that money from the property owners who are delinquent.

There can be useful purposes for a tax sale: They can transfer ownership of properties or lots that are vacant or abandoned to a developer or land bank. However, the impacts that we see the tax sale have in Cook County is that owner-occupied properties are treated the same as vacant buildings. Most of the owner-occupants who become delinquent on their property taxes have actually paid off their mortgage—they have full equity in their home. But because they no longer have escrow, they’re paying their taxes independently. If they fall behind, they’re treated exactly the same as an abandoned building or a vacant lot.

Unpaid property tax sales in Cook County (as elsewhere) by Michael S. Williamson/The Washington Post/Gettycan magnify the effects of relatively minor financial mishaps.

Courtesy Neighborhood Housing Services of Chicago

Is there a threshold for what falling behind can look like?

If they do not pay their tax bill in full, it would be considered delinquent. It’s paid biannually, so if they don’t pay in full any of those two installments, they are considered delinquent.

What can happen to people who have their debt purchased?

The tax buyers purchase the homeowner’s delinquent tax debt. At that point, the homeowner has already [been charged] compounding interest on that debt. The Cook County treasurer did pass a bill this past legislative session that cut that compounding interest cap in half. It essentially becomes part of your liability that goes to the tax sale. And then the [debt-buyer] can assess additional interest on top of that, depending on how they bid for and buy delinquent taxes.

If they can’t pay, residents can ultimately be evicted from their home that they own in full, and they get none of that equity back. They can also be intimidated to leave their home because they don't feel there's any recourse for them to pay back the debt that they owe, even if it's as low as $1,000.

Who is affected by tax sales?

[Local advocacy group] Housing Action Illinois did some research showing that the top 11 zip codes with the highest number of tax sale evictions—people who lose or leave their homes due to a tax bill—were in majority-Black zip codes. We know that the generational wealth gap and the racial wealth gap affect Black families more, in terms of cash available. So if you experience a financial hardship and miss a payment, you don’t have the cash to cover that.

We also have to look at the government’s role in this. We know that redlining and other racist policies throughout the history of housing marginalized Black and brown families. They have not had the same access to homeownership and wealth building. Do we want to continue that practice with the tax sale? I don’t think we do.

When would someone purchase unpaid property taxes?

There’s both an annual sale of properties that are delinquent on their taxes, and then there’s a sale that happens less frequently, and that's called a scavenger sale. The treasurer’s office has been working on some reforms to the scavenger sale as well. An issue that is hotly discussed, among both government leaders and advocates, is how do we make these processes make more sense? And for NHS, the main thing that we’re concerned with is, why are current homeowners being treated the same as vacant properties?

Do homeowners placed on tax sale know their debt is for sale?

Letters are the main communication for how you receive this information. I think a lot of people receive the letters and don’t totally understand what the stakes could be. They may not even know if they’re legitimate.

NHS has gotten grants in the past that have allowed us to go door to door to people on the tax sale roll and say, "Here are your options. Here’s how you can save your home. This is real, and if you don’t take action on this now, you may lose your home that you own in full." We ran the numbers, and one in four owner-occupied homes on the tax sale owe less than $1,000. And yet, not everyone takes action to rectify that. They may not know how—it’s not always easy to make those payments. That’s where we’d like to see a program that makes it easier for people to enroll and automatically make those payments month to month.

So then tell me about what NHS is advocating for—it seems to be addressing a series of compiling problems, between communication and transparency, coupled with financial hardship.

We advocate for a monthly payment plan option for homeowners who live in their home and own their home to repay their delinquent taxes. Right now, if you can’t pay your tax bill, many people put it in the drawer. They don’t know what to do, they don't know that you can make partial payments—there's no communication from the government about that. A lot of people budget month by month and not two times a year. So we think that this is going to really work better for many people in Cook County, and there should be an established, well-communicated monthly payment plan option for those who fall behind. And we believe if homeowners stay current on their payment plan, they should not be sent to the tax sale.

There are online classes about how to become a property investor through tax sales. How do you feel about this investment framing? 

Often the families who are affected by this are reduced to numbers. A person’s family home is not an investment opportunity. A home that somebody owns in full, that they had one financial hardship, one slip up, that’s not your investment opportunity. Part of our effort in our advocacy around this issue is to tell the stories of those families who are being affected by this. It is putting people at risk of losing the home that they’ve lived in their entire life.

We just released the information on this task force on Monday. And I already had someone call me and ask how to sign up for this payment plan. And I had to tell them, it doesn’t exist yet. But we hope that it will. And we think it’ll help a lot of people stay in the homes that they've owned outright for years. And we also want to make sure that municipalities and taxing districts are getting the revenue that they need to run effectively and do what they need to do.

Top photo by Michael S. Williamson/The Washington Post/Getty 

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