Cook Co. treasurer says Chicago, suburbs losing tens of millions of dollars through tax law loophole

CHICAGO (WLS) -- Cook County Treasurer Maria Pappas said millions of dollars are being drained out of minority communities by a loophole in a law that is currently on the books.

The treasurer and her team said the loophole took $280 million from schools, parks, police and other government agencies. And while all of Cook County is affected, the hardest hit area in the south suburbs.

"This is so egregious," Pappas said.

Here's how it works. If a property owner is delinquent on their property taxes, investors can buy those taxes so the county gets paid. It's then up to the property owner to pay back the investor, plus interest.

But if the owner doesn't pay back, the investor ends up getting the property.

According to the treasurer's study, about 1,600 times a year investors use a loophole in the law known as "sale in error," which allows them to get out of buying those homes, many of them vacant and unwanted. The investor then gets a full refund on those taxes plus up to 36% interest back.

"That's a great deal for them," said Pappas. "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."

And that money, which goes back into the pockets of investors, is oftentimes taken away from communities in need.

"The interest money gets syphoned away from the governments. That's money that's used for police, fire protection and schools," Pappas said.

In one example in her study, an investor paid the delinquent property taxes on an uninhabitable Harvey home. In this case, the Cook County Assessor's website incorrectly stated the home did not have an attic. The investor used that mistake to challenge the tax purchase and earned more than $17,000 in interest.

"That money eventually comes from the property owners in Harvey. They have to pay that money back and it sends Harvey's taxes into disarray," said Todd Lighty, Deputy Director of Research.

According to the treasurer's study, in the last seven years Harvey has lost $14 million because of the "sale in error" loophole. Chicago has lost $85 million. And the hardest hit municipality after Chicago is Calumet City, which has lost $16 million

The total amount these investors drained from Chicago and Cook County's south suburbs is nearly $280 million.

"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," said Ralph Martire, Executive Director of the Center for Tax and Budget Accountability after reading the report. "Over time, you know, that 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 also found that other county agencies, including the treasurer's office, made listing mistakes, allowing investors to take advantage of the "sale in error" law.

The treasurer's office says it's working with the Cook County President's Office, the Assessor's Office and other agencies to get legislators to change the law.

The I-Team reached out to Speaker of the House Chris Welch to see if he or other legislators' would consider laws to close this loophole. We heard back from Rep. Kam Buckner who gave the I-Team this statement: "House Democrats are reviewing Treasurer Pappas' study and will consider potential legislative solutions. Democrats prioritized closing tax loopholes in 2021 that allowed the wealthy to profit while everyday Illinoisans struggled. We will approach new issues with the same resolve."