Chicago Real Estate Investors

Property tax liens are issued by municipal taxing authorities (counties) in return for the payment of delinquent property taxes. For municipalities with poor tax collection rates, the sale of liens not only generates revenue from non-performing assets, but also spares governments the politically awkward chores of eviction and foreclosure. They earn interest as specified by state statutes (In Illinois 3%–48%) and are secured by the underlying real property. The liens are issued when a property is delinquent on its property taxes. These liens are then auctioned on the open marketplace to individuals, firms, large corporations and whoever else shows up at the auctions. Tax liens are superior to all other liens, including the IRS and mortgages. Tax deeds are the actual conveyance of the real property itself subsequent to foreclosure by the municipal taxing authority.

There are two types of returns in tax lien investing:

  Redemption – A lien redeems (pays off) during its redemption period and you make back your principal, fees, and a percentage return on your principal investment. Redemption period for Illinois is 2 years.

 Foreclosure – Property forfeited for 2 or more years. A lien may be foreclosed, in the circuit court in the name of the People of the State of Illinois, whenever the taxes for 2 or more years on the same description of property have been forfeited to the State. The property may be sold under the order of the court by the person having authority to receive County taxes, with notice to interested parties and right of redemption from the sale.

Redemption interest-  See Illinois State Revenue Website           

CAUSES

  Understanding the underlying causes of delinquency is important because it tells us the taxpayer's ability to eventually make payment.

 A. Taxpayers may miss payments simply because the county does not have the resources to manage the system. 

B. Taxpayers that skip payments due to the loss of a job or other financial problems. 

C. Some commercial property owners and larger taxpayers do possess sufficient resources for payment, but use delinquency as a form of financing.  

D. Voluntary redemptions are dramatically lower if the property value is less than the total amount due for outstanding taxes and other claims on the property.  

TIME /COSTS

The level of time and costs will vary and increase depending on your personal involvement and your level of diligence in your research to make good investment decisions.

 A. Due-diligence:

You can get a list of tax liens for an upcoming auction, which typically comes out 3 to 4 weeks prior to the sale. Cook County has of thousands of parcel #’s. Time may be of a real issue depending on your capabilities. The list will typically have parcel #’s, owner name, address or legal description, land use, and assessed value.

B. Auctions:

Some auctions charge a bidder fee but other than that you just need to bring the money you are planning to invest. The bidder fee in Illinois Counties is determined by the number of people in the county the cost is set between $50.00 - $100.00 but you must register 10 days in advance of the sale.  Call in advance and get the information from the County Clerk's Office.  Some counties require you to pay at the end of the auction for everything and some will allow 24hrs for payment. Check before you go. Be prepared to pay at the end of the auction. 

Follow the ground rules 

Registering For The Sale-  You must have a social security or tax ID number and complete a W-9 form (W-8 form for foreign individuals or entities). 

Bidding-  No bid shall be accepted for a penalty exceeding 18% of the amount of the tax or special assessment on property.

Who are you competing with?

A. Spectators

B. Mom & Pops

C. Local real estate investors

D. Mid size portfolio holders

E. Institutional and corporate investors (including banks)

Things You must be aware of-

1- Other Taxes after the Auction  

2- Certificate of purchase

3- Tax Deed Process

4- Notices & Foreclosure

5- Title Issues

Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.