Introduction to the Illinois Tax Lien Sale Process

Every state’s delinquent property tax process is dictated by state statute. States can be generally divided between tax lien states or tax deed states. Illinois is a tax lien state. However, not every tax lien state operates the same. Illinois is particularly attractive to investors looking for a solid rate of return as the penalty interest amount can be as high as 36%. While the Illinois Property Code provides the rules governing tax lien sales, the procedures for the sale are decided by the county government. To understand how to maximize your investment, you need know what the law says and how each county administers the statute.

As a preliminary matter, property taxes are superior to all other liens and encumbrances on a property. This fact is what makes the tax lien so potent. The county has a lien on all property with delinquent taxes and can sell that lien at a tax sale. These tax lien sales are held on an annual basis and afford an individual an opportunity to buy the tax lien by paying the amount of delinquent taxes owed on the property. To successfully purchase the tax lien at the annual tax lien sale auction, a buyer bids the lowest tax penalty rate they are willing to accept. The individual with the lowest rate wins the auction.  The penalty rate you bid is the interest rate charged on the debt every 6 months. The owner of the property must pay the tax debt plus the accrued penalty rate to redeem their property.

When a property owner fails to redeem their property within the statutory period, the tax lien buyer has the option of obtaining the tax deed. The tax deed gives the buyer ownership and possession of the property free and clear of most encumbrances and liens. Because of this, individuals with an interest in the property, such as a lien or mortgage on the property, must be notified and given opportunity to pay the taxes and penalties on the property to avoid losing their interest in the property when the tax deed is granted.

Because of the priority tax liens receive under the law, an interest in property can be erased during the tax deed process. Individuals who have an interest in property are advised to ensure tax payments are made on the property regardless of their personal obligation to pay those taxes. Even if your interest is an expectancy interest and not a legal interest, your interest may be eliminated by the power of the tax lien priority.

Each step in the complicated process requires understanding not only the statute and caselaw, but also the nuances in how each county’s process and procedures vary. Tax lien buyers must be aware that the courts require strict compliance with the statutory procedures to obtain a tax deed. Failure to follow the procedures means a risk of having your petition for tax deed denied. Absent a valid, statutory reason for declaring a sale in error, the result would be a total loss on your investment in the tax lien. Whatever your situation, whether you are preparing to purchase a tax lien, or petitioning for a tax deed, our office can help guide you through the process from start to finish.