REAL ESTATE TAX SALES AND TAX DEEDS IN ILLINOIS

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1 REAL ESTATE TAX SALES AND TAX DEEDS IN ILLINOIS Presented to NTLA on October 24, 2014 By: John W. Stanko, Jr. Flamm, Teibloom & Stanko, Ltd. 20 North Clark Street, Suite 2200, Chicago, IL (312)

2 I. COLLECTOR S ANNUAL APPLICATION FOR JUDGMENT AND SALE Each year, after the annual taxes have become delinquent, the County Collector (i.e., the County Treasurer) publishes an advertisement giving notice that he or she intends to apply for an order of judgment and sale as to parcels whereupon the taxes are delinquent The advertisement must be published at least ten days before the date judgment is to be obtained Publication of the notice gives the court jurisdiction, and any sale of delinquent taxes that was not advertised is invalid. Not less than 15 days before the application, the County Collector must mail notice to the assessee of each delinquent parcel by registered or certified mail. In all counties other than Cook, notice also must be mailed to any lienholder of record who requests such notice Effective July 1, 2012, delinquent taxes may be paid at any time on or before the business day immediately preceding the day the taxes are sold. Previously, stated that delinquent taxes could be paid at any time before sale. At the date specified in the advertisement, the State s Attorney (as attorney for the County Collector) appears in the circuit court and presents the application for judgment and order of sale. The court will consider any objections to the application and then enter a judgment and order of sale directing that the delinquent parcels be offered for sale. The sale must begin within five business days after the judgment and order of sale is entered and The tax judgment, sale, redemption and forfeiture record (commonly known as the judgment record ) lists all delinquent parcels and the amounts due The record is prepared by the County Collector; after the sale, custody of the judgment record is transferred to the County Clerk. The judgment record will reflect whether the parcel was offered for sale, sold or forfeited. All extensions of the redemption period and all costs and subtaxes (see part IV(I) infra) must be posted in the judgment record. The judgment record generally will disclose whether the property has been redeemed from the tax sale, whether the sale has been set aside as a sale in error, whether a tax deed proceeding has been filed and whether a tax deed has been issued. 2

3 II. Annual Sales Each year, parcels as to which all or part of the previous year's taxes are delinquent are offered for sale. For example, parcels as to which all or part of the 2012 taxes (which were due in 2013) are delinquent will be offered at the 2012 annual sale, which will take place in the summer of The tax purchaser must pay the entire amount of taxes and penalties outstanding (together with several hundred dollars in sale costs). The tax purchaser also must pay all open taxes for prior years in order to complete the sale and to obtain a certificate of purchase. If the tax purchaser fails to complete the sale, a 5% certificate is issued which constitutes a lien on the property until the amount paid is redeemed with interest at five percent per annum, but the tax purchaser cannot proceed to a tax deed The penalty rate is the rate bid by the successful bidder at the tax sale. Bidding begins at 18% per six months or fraction thereof and proceeds downwards; the bidding may go as low as zero 3

4 III. Assignment of Certificates of Purchase A Certificate of Purchase may be assigned Public Act , effective July 25, 2002, created a procedure by which an assignee of a tax sale certificate may record the assignment with the County Clerk. Previously, there was no procedure by which such assignments could be recorded, so notice was sent to the original tax purchaser even if he or she had sold the Certificate of Purchase. The assignment procedure is voluntary, but an assignee who fails to record his or her assignment takes the risk that notice may be sent to the original tax purchaser rather than to the assignee. There is a one-time $10 fee for recording an assignment

5 VI. EXTENDING THE REDEMPTION PERIOD The holder of the Certificate of Purchase may extend the redemption period to a maximum of three years from the date of the tax sale. 5

6 V. SECTION 22-5 NOTICE The First Notice The holder of the Certificate of Purchase is required to prepare is a notice addressed to the person whose name appears on the most recent tax bill, advising that person of the tax sale, the date when the redemption period will expire and the amount needed to redeem the property from the tax sale. Within four and a half months after the date of the tax sale, that notice must be delivered to the Cook County Clerk, who will mail it to the taxpayer by certified mail. 6

7 VI. FILING TAX DEED PETITION (1/4) 1. The holder of the Certificate of Purchase and his, her or its attorney must make a diligent inquiry to determine the owners, occupants and other persons interested in the property. You should obtain a report from a title insurance company, which will disclose the owners and other interested parties (other than occupants). You must review recorded documents, telephone directories and voter registration records to obtain additional information. In some cases, you will need to review court files and/or probate records and call people who may have information. You must physically inspect the property during this period and determine what type of property it is and who, if anyone, is occupying or using the property in any way. You also should inquire of the occupants and/or persons in the area around the property to find out what they know about who owns or has any other interest in the property. The purpose of all of this is to make a complete list of names and addresses of persons or entities who own, occupy or have any other interest in the property. If you are not sure whether or not a person has an interest in the property, it is our practice to include that person in the list; there is no harm in serving notice on someone who may turn out to have no interest in the property, but failing to serve a person who does have an7 interest in the property can cause your tax deed petition to be denied.

8 VI. FILING TAX DEED PETITION (2/4) 2. You must then prepare and file a Petition for Tax Deed in the Circuit Court of the County, and pay the required fee. This is the beginning of a lawsuit which, if successful, will result in your obtaining title to the property. 3. You also will need to prepare three sets of notices directed to the owners, occupants and other persons who have an interest in the property. One set of notices is given to the County Sheriff, who will attempt to serve those notices personally upon the owners, occupants and other interested parties, or by certified mail if they cannot be served personally. The second set of notices is given to the Clerk of the Circuit Court, who mails them to Owners and occupants by certified mail. The third notice is published in the Chicago Daily Law Bulletin or in another newspaper. The purpose of this notice is to advise people who may have moved or who otherwise may not receive notice. All three notices state that, if the property is not redeemed from the tax sale by the end of the redemption period, a tax deed may be issued to you and the owners, occupants and other interested parties may lose their rights in the property. 8

9 VI. FILING TAX DEED PETITION (3/4) 4. You should also prepare and record in the Office of the County Recorder of Deeds a notice which states that you have filed a tax deed petition. This warns anyone who might purchase the property that it is the subject of a tax deed petition and may be lost if it is not redeemed. These steps must be taken between six and three months before the end of the redemption period. Immediately before filing your tax deed petition, however, we typically file a notice with the County Clerk extending the redemption period to a date more than three months and less than six months from the date when we took these actions, so that we will have taken the necessary actions at the appropriate time. 9

10 VI. FILING TAX DEED PETITION (4/4) 5. The County Sheriff will advise you as to their progress in serving notices. If you determine that a party has not been served, you may direct the Sheriff to try again. Between two and three months before the end of the redemption period, you should check the court file to determine whether all necessary parties have been served. If a party cannot be served, then that person is deemed to have been served by the notice published in the newspaper. If a party can be served, but if the Sheriff is unsuccessful in serving that party, it may be necessary to extend the redemption period further (if there is sufficient time to do so), to file an amended petition for tax deed and to serve a new set of notices. In most cases, however, this will not be necessary. 10

11 VII. Expiration of the Redemption Period Shortly after the redemption period expires, you will need to check the records of the County Clerk to determine whether or not the property was redeemed. If it was redeemed, you will receive the redemption money, and have the tax deed proceeding dismissed. If the property is not redeemed, you will need to prepare and file an Application for an Order Directing the County Clerk to Issue a Tax Deed. This is a lengthy document, supported by an affidavit and exhibits, which documents your compliance with the requirements for obtaining a tax deed. You then appear in court on the date which was specified in the notices, at which time (in Cook County) the case will be assigned to a judge and scheduled for a prove-up hearing. The prove-up hearing usually occurs between one and two months after the end of the redemption period. 11

12 VIII. The Prove-up Hearing At the hearing, you (or the person who inspected the property on your behalf) will appear in court and testify under oath regarding your inspection of the property and the efforts you made to identify the owners, occupants and other interested parties. Your attorney will testify regarding his/her efforts to identify and locate those parties and the other steps taken to comply with the requirements for obtaining a tax deed. In more than 90% of all prove-up hearings, none of the owners, occupants or other interested parties appear or object to the tax deed proceeding. They are, however, entitled to do so. At the end of the prove-up hearing, if the judge finds that you have taken the actions required to obtain a tax deed, in Cook County the judge will take the case under advisement until you present a transcript of the prove-up hearing (which is prepared by the court reporter); proof that taxes for all years subsequent to those covered by the tax sale have been paid; and a proposed order. In most other Counties in Illinois the Judge will sign the Order Directing the Issuance of a Tax Deed right then. In Cook County you must present those items to the judge, and the judge will then enter an order directing the County Clerk to issue a tax deed. You then prepare a tax deed and submit it to the County Clerk along with the original Certificate of Purchase and the order entered by the judge. The County Clerk then issues the tax deed, which you must record in the Office of the County Recorder of Deeds. Upon the recording of the tax deed, you become the owner of the property. 12

13 IX. DEADLINE FOR OBTAINING/RECORDING TAX DEEDS By law, the tax deed must be issued and recorded within one year after the date when the redemption period expired. If this is not done, your Certificate of Purchase becomes null and void, and you have no right to obtain any refund or reimbursement of any of the monies you have paid. Thus, it is very important that the process be completed within one year after the date the redemption period expires. 13

14 X. SUBSEQUENT YEARS TAXES In order to obtain a tax deed, you are required to pay all taxes which have arisen after the taxes covered by your Certificate of Purchase. You may pay those taxes either before or after the redemption period expires. If you pay them before the redemption period expires (and pay a fee of $80.00 for each year s taxes), you can post your payment of your taxes on the judgment record of the tax sale. If the owner wishes to redeem the property from the tax sale, the owner also will have to redeem the subsequent years taxes by paying the amount you paid plus a penalty of 12% per year (or fraction thereof) from the date when you paid those taxes until the date they are redeemed. This makes it more difficult for the owner to redeem the property, and also ensures that you receive a fair rate of return on the money you have expended to pay the taxes. If you do pay the taxes before the redemption period expires, please make sure the taxes are posted (to your tax sale) immediately after you pay them. You are not allowed to post any taxes within thirty days before the redemption period expires, because doing so may unfairly confuse the owner who is trying to redeem the property from the tax sale. You may wait until after the prove-up hearing to pay the subsequent years taxes. This allows you to wait and see whether there are any problems with the tax deed proceeding or whether anyone appears to object to our tax deed petition. If not, you should pay the taxes immediately after the prove-up hearing and provide us with 14 receipts for the payment of those taxes.

15 XI. SALES IN ERROR In a few cases, events occur which make it impossible to obtain a tax deed. The owner may declare bankruptcy; a federal tax lien may be recorded on the property; the property may be destroyed or rendered uninhabitable; or other facts may occur which make it either impossible or unreasonable to obtain a tax deed. In such cases, you can ask the court to declare the tax sale a sale in error and to order that the amount you have paid at the tax sale (including court costs and subsequent years taxes, but not including attorneys fees) be refunded to you. In some cases, interest is awarded on the amount refunded. 15

16 XII. RECEIVERSHIPS If the property is at risk of being vandalized or destroyed while the tax deed proceeding is pending, you (or a person you designate) may be appointed as a receiver for the property. The receiver has the power to board up and secure the property, or in some cases to collect rent from tenants, while the tax deed proceeding is pending. If you think it may be necessary to have a receiver appointed, please consult with us regarding this possibility. 16

17 XIII. INDEMNITY FUND PROCEEDINGS (1/7) If a tax deed has been issued and it is not possible to have the tax deed order set aside, it may still be possible to obtain relief for the property owner. Application of County Treasurer (Apex Tax Investments v. Mary Lowe), 217 Ill.2d 1, 838 N.E.2d 907 (2005). The Indemnity Fund was created to ameliorate the harsh effect of the tax sale system by compensating owners who lose their property to tax deeds and who are deserving of relief. Indeed, the very purpose of the indemnity fund is to work equity. Hawkeye Inv. Ltd. Partnership v. Lanz (In re County Treasurer), 378 Ill. App. 3d 842, 854; 881 N.E.2d 576, 586 (1st Dist. 2007). The Indemnity Fund has been an invaluable part of the tax sale system. Legislation has corrected some problems with the Indemnity Fund, and should bring in additional funds so that its purpose can be better served. Effective July 1, 2012, is amended to add subsection (d) which provides A petition of indemnity under this Section must be filed within 10 years after the date the tax deed was issued. 17

18 XIII. INDEMNITY FUND PROCEEDINGS (2/7) A. Owner-Occupied Residential Property If the property consists of four or fewer dwelling units and if the owner resided on the property on the last day of the redemption period, the owner must show only that he or she is equitably entitled to just compensation. The Court shall liberally construe this equitable entitlement standard to provide compensation wherever, in the discretion of the Court, the equities warrant the action (a)(1). This provision gives the trial court very broad discretion to award compensation, without regard to the owner s fault or negligence. Kirk v. Rosewell, 225 Ill.App.3d 326, 587 N.E.2d 1214 (1st Dist. 1992). But see In re Application of Cook County Collector (Walker v. Rosewell), 174 Ill. App. 3d 981, 529 N.E.2d 570 (1st Dist. 1988) (denial of indemnity claim by trial court affirmed). The Supreme Court in Malmloff v. Kerr, 227 Ill. 2d 118, 879 N.E.2d 870 (2007), held that when a person seeks indemnity under (a)(1), the trial court s focus rests on equity alone. A broad range of circumstances can be considered including the mental, physical, and financial status of the person seeking indemnity, the person s comprehension of property taxes and the duty to pay them, and the person s diligence and credibility. Though not determinative, fault or negligence certainly may also be considered. Each case must be decided on its own facts. 18

19 XIII. INDEMNITY FUND PROCEEDINGS (3/7) B. Other Property The owner of any other property must show that he or she sustained loss or damage by reason of the issuance of a tax deed without fault or negligence of his or her own This is a higher standard, and requires a greater degree of blamelessness. However, the phrase without fault or negligence, as it is used in , is not given its broadest legal interpretation. To do so would make the section meaningless, as any owner who has lost his or her property by the issuance of a tax deed is to some extent at fault. Levin v. Skidmore (In re County Order of Judgment), 343 Ill. App. 3d 363, 797 N.E.2d 1122 (2d Dist. 2003). Thus, while the trial court must apply a without fault or negligence standard in determining whether a property owner who comes within (a)(2) has the right to indemnity, the court must also liberally construe this Section to provide compensation whenever, in its discretion, the equities warrant such action. Lakefront Plumbing and Heating v. Pappas, 356 Ill.App.3d 343, , 826 N.E.2d 464, 469 (1st Dist. 2005). 19

20 XIII. INDEMNITY FUND PROCEEDINGS (4/7) C. Procedure 1. Damages under (a)(1) (equitable entitlement) are limited to the fair market value of the property as of the date the tax deed was issued, less any mortgages or liens thereon, and the award cannot exceed $99, Under certain circumstances, however, the indemnity award may include the amount of a mortgage on the property. Viso v. Rosewell, 119 Ill. App. 3d 212 (1st Dist. 1983). This was codified in the 1999 amendment (a)(4). 3. The Act mandates liberal construction to provide compensation whenever, in the discretion of the Court, the equities require relief (b)(1). 4. A petition for indemnity may be brought concurrently with a petition for relief under of the Code of Civil Procedure

21 XIII. INDEMNITY FUND PROCEEDINGS (5/7) 5. The County Treasurer (who is ex officio trustee of the Indemnity Fund), is subrogated to all parties in whose favor judgment may be rendered against him or her, and by third party complaint may bring in as a defendant any party (other than the tax purchaser) who is or may be responsible for causing the loss (b)(2), Garcia v. Rosewell, 43 Ill.App.3d 512, 517, 357 N.E.2d 559, 563(1st Dist. 1976). 6. Judgments used to accrue interest at 9% per annum from date of judgment until the judgment was satisfied. Demos v. Pappas, 956 N.E.2d 533, 2011 Ill. App. LEXIS 873, 2011 IL App (1st) ) held that interest should accrue at 6%. It is currently taking about one year for indemnity fund judgments to be paid. 21

22 XIII. INDEMNITY FUND PROCEEDINGS (6/7) D. Other Provisions Applicable to the Indemnity Fund 1. The fee paid into the Indemnity Fund at the time of each tax purchase is increased to $80. Prior to December 31, 2006, the fee also included 5% of the taxes paid at the sale. A similar fee is required for subsequent years taxes paid by the tax purchaser and posted to the judgment record. With the loss of the additional 5%, it is taking much longer for Indemnity Fund judgments to be paid. 2. Any contract involving the proceeds of an indemnity judgment must be in writing, and is subject to discovery. 3. Certain conduct, including inducing a taxpayer to seek relief from the indemnity fund rather than seeking to recover the property or entering into an agreement to acquire an indemnity fund judgment before the end of the redemption period, is made a criminal offense. 3. Certain conduct, including inducing a taxpayer to seek relief from the indemnity fund rather than seeking to recover the property or entering into an agreement to acquire an indemnity fund judgment before the end of the redemption period, is made a criminal offense. 4. Any award under the equitable entitlement portion of the statute (applicable only to owner-occupied residential property containing one to four units) is limited to $99,000. To recover more than $99,000, the owner must show that he or she lost the property without 22 fault or negligence.

23 XIII. INDEMNITY FUND PROCEEDINGS (7/7) 5. All petitioners must be barred or otherwise precluded from bringing an action to recover the property. Previously, this requirement did not apply to owner-occupied property containing one to four units. 6. In determining fault or negligence, the statute now requires that the court consider whether the owner exercised ordinary reasonable diligence under all of the relevant circumstances (a)(2). 7. In determining the amount of the award, the fair cash value shall be reduced by the principal amount of all taxes paid by the tax purchaser prior to issuance of the tax deed (a)(3). 8. If the taxpayer was personally liable for the amount due on any mortgage note, the court shall order an additional indemnity award sufficient to discharge the taxpayer s personal liability. This codifies the holding of the Viso decision, referred to in paragraph C.2. above. 9. The court may order joinder of the mortgagee or lienholder as an additional party to the indemnity action (a)(4). The Indemnity Fund remains an important vehicle for obtaining relief for a client who has lost his or her property to a tax deed where the circumstances justify such relief. The statutory changes seek to ensure that the Indemnity Fund is the property owner s last chance, and that it will apply only where other remedies 23 are unavailable.

24 Conclusion This is a very brief and basic outline for the procedure to perfect your tax lien certificate in the State of Illinois. For a more thorough outline and understanding of the process in Illinois please feel free to contact me or visit our website at where we have a more detailed outline available for review. 24

25 JOHN W. STANKO, Jr. John W. Stanko, Jr. 20 North Clark Street Suite 2200 Chicago, IL Ph: John graduated from St. John s University (Collegeville, MN) in 1985 and The John Marshall Law School (Chicago) in He is a past Chair and legislative liaison of the Real Estate Taxation Committee of the Chicago Bar Association. John has written and has spoken at many seminars regarding real estate tax sales and tax deed proceedings for the Chicago Bar Association, Illinois Institute for Continuing Legal education and legal as well as financial institution platforms. John has been a court-appointed expert witness in litigation involving the Illinois Property Tax Code. Before joining Flamm & Teibloom Ltd., and becoming a partner, now Flamm Teibloom & Stanko, Ltd., John spent 12 years as Corporate Counsel for two of the largest tax purchasers in Illinois, the last three years as Lead General Counsel. John s practice is concentrated in real estate taxation, tax sale, tax deed and indemnity litigation in addition to commercial and residential real estate transactions and real estate litigation. John s clientele in tax sale and tax deed litigation ranges from private investors to large corporate tax purchasers and servicing agents as well as private property owners, mortgage companies, banks, title companies and municipalities.