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 February 26, 2015 By: John W. Stanko, Jr. and Michael J. Wilson Flamm, Teibloom & Stanko, Ltd. (312) Michael J. Wilson & Associates, P.C (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. 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 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 2013 taxes (which were due in 2014) are delinquent will be offered at the 2013 annual sale. 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 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. THE REDEMPTION PERIOD The statutory period of redemption can be either six months, two years, or two years and six months from the date of sale. The factors that determine the period of redemption are the type of property and the number of years of delinquent real estate taxes included in the sale. Generally, the period of redemption for residential properties is two years and six months from the date of sale. 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. Strict Compliance - Recent Appellate Court cases have expanded the strict compliance standard to include Section 22-5 Take Notices. All notices pursuant to Section 22-5 must strictly comply or the tax purchaser may not be entitled to a Tax Deed. In Illinois, different counties have different requirements for submitting Section 22-5 Take Notices. Some counties will prepare the Take Notices for you. We strongly suggest that you prepare your own Section 22-5 Take Notices since the Notices prepared by the counties do not strictly comply. SERVICERS All Section 22-5 Notices should be prepared by attorneys or under the supervision of attorneys and should be reviewed by attorneys. Servicers are not familiar with recent statutory amendments or Appellate Court decisions that necessitate changes in the preparation of the Section 22-5 Notice. In addition, several items in the Section 22-5 Notice can be inserted incorrectly; expiration of the period of redemption, amount necessary to redeem, property location, special assessments, and multiple year sales. 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 public 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 the diligent inquiry 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 and to serve them with the notice. If you are not sure whether or not a person has an interest in the property, it is prudent to serve that person with notice; 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 an 7

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 upon the owners, occupants and other interested parties. 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. 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 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 a Lis Pendens Notice in the Office of the County Recorder of Deeds. 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. The filing of the Petition For the Tax Deed and service of all notices must occur between six and three months before the end of the redemption period. 9

10 VI. FILING TAX DEED PETITION (4/4) 5. You should check with the County Sheriff 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 tax sale was redeemed. If it was redeemed, you will receive the redemption money, and have the tax deed proceeding dismissed. If the tax sale 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 the 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 or unrecorded tax deed 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 accrued 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 redeems 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. You are not allowed to post any taxes within thirty days before the redemption period expires. 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 receipts for the payment of those taxes. 14

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. 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 provide. The Indemnity Fund has been an invaluable part of the tax sale system. Remember - 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. This provision gives the trial court very broad discretion to award compensation, without regard to the owner s fault or negligence. The Supreme Court has held that when a person seeks indemnity 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, 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. Thus, while the trial court must apply a without fault or negligence standard in determining whether a property owner who comes within 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. 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. 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). 6. Judgments accrue interest at 6% per annum from date of judgment until the judgment was satisfied. Indemnity judgments are currently taking 2-3 years 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. 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 fault or negligence. 22

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. 23

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 has written legal opinion letters relating to the Illinois Property Tax Code for financial institutions and investors. 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. 25

26 MICHAEL J. WILSON Michael graduated from Cornell College in 1987 and The DePaul University College of Law in For over 20 years, Michael has concentrated his law practice in real estate taxation, tax sales, tax deeds, and indemnity fund litigation. In addition to his real estate taxation practice, Michael s law practice also includes real estate litigation, landlord/tenant disputes and litigation, commercial and residential real estate transactions. For large corporate tax purchasers, Michael has also assisted with portfolio analysis and management. MICHAEL J. WILSON & ASSOCIATES, P.C. 309 WEST WASHINGTON ST. SUITE 1200 CHICAGO, ILLINOIS TELEPHONE: mjwsbw@aol.com As an active member of the Chicago Bar Association s Real Estate Taxation Committee, Michael served as the Chairperson, Vice-Chairperson, and Legislative Liaison of the Real Estate Taxation Committee and Chairperson of the Tax Sale, Tax Deed Subcommittee. Michael has been a speaker before various groups regarding real estate taxation, tax sales, and tax deeds. Michael has participated in drafting amendments to various sections of the Illinois Property Tax Code and litigated many trial and appellate court case. In addition, Michael has been an expert witness in litigation regarding tax sales and tax deeds. Michael s clients include individuals, large corporate tax purchasers, mortgage companies, banks, and title companies. 26