Rock Island County, Illinois, has implemented a new policy for its property tax sales, requiring buyers to ensure homeowners receive fair compensation for their lost equity. This move makes it one of the first counties in the state to proactively address a 2023 U.S. Supreme Court ruling that found similar practices unconstitutional.
The county, with a population of about 145,000, now requires participants in its annual tax sale to sign a form acknowledging their responsibility to pay homeowners for any property value exceeding the owed tax debt. This places the financial obligation on the tax buyer, not the county government.
Key Takeaways
- Rock Island County introduced a form requiring tax sale buyers to pay "just compensation" to homeowners whose properties they acquire.
- This action is a direct response to the 2023 Supreme Court case, Tyler v. Hennepin County, which ruled that keeping excess equity from tax sales is an unconstitutional taking of private property.
- The new policy shifts the responsibility for compensation from the county to the private tax buyer.
- Illinois is currently the only state that has not passed statewide legislation to comply with the Supreme Court's decision.
A Landmark Decision Sparks Local Action
The change in Rock Island County stems from a critical Supreme Court decision in May 2023. In Tyler v. Hennepin County, the court unanimously ruled that governments or private investors cannot keep the surplus equity from a home sold to cover a property tax debt. The justices determined this practice violates the Fifth Amendment's Takings Clause, which prohibits the government from taking private property for public use without "just compensation."
For decades, the system in Illinois allowed a county to sell a tax lien on a property for the amount of unpaid taxes. A private investor could buy this lien. If the homeowner failed to pay back the debt plus interest within a specific timeframe, typically about three years, the investor could take ownership of the entire property, regardless of its market value.
This meant a homeowner could lose a property worth hundreds of thousands of dollars over a tax debt of just a few thousand, with the investor keeping the difference. The Supreme Court's ruling declared this form of "equity theft" unconstitutional.
Illinois' Unique Position
Following the Tyler v. Hennepin County decision, about a dozen states with similar tax sale laws began reforming their systems. Illinois is the only state that has yet to enact statewide legislation to bring its property tax code into compliance, leaving its 102 counties to navigate the new legal landscape individually.
Rock Island County's Proactive Approach
Faced with legal uncertainty and recent federal court rulings holding counties accountable, Rock Island County officials decided to act. Nick Camlin, the county's treasurer, described the situation as a "real fork in the road." He explained that the county felt compelled to create a new framework to protect both homeowners and the county itself from liability.
"We’re very conscious of how much has changed," Camlin stated, referencing the period since the Supreme Court ruling.
The solution was a one-page document titled "Notice of Conditions of Participation and Indemnity Agreement." Anyone wishing to participate in the county's December 30 tax sale had to sign it.
The agreement explicitly states two key points:
- The tax buyer is solely responsible for providing just compensation to the former homeowner for any equity above the tax debt.
- The tax buyer releases Rock Island County from any liability or legal responsibility to pay that compensation.
"What we're saying is it's not the responsibility of the county to come up with the money," Camlin clarified. "That's the tax buyer's responsibility."
A First for Illinois
According to Nikki Lohman, president of the Illinois County Treasurers' Association, Rock Island County appears to be the first in the state to implement such a requirement. While the association is working with state legislators on a comprehensive bill expected in 2026, Rock Island chose not to wait.
The Impact on Tax Buyers and the Market
This new requirement fundamentally changes the incentive for tax buyers. Previously, the primary motivation was the potential to acquire a property for a fraction of its value. Now, that possibility is significantly diminished, as any surplus equity must be returned to the original owner.
So what incentive remains? According to experts, the profit now lies in the interest charged to homeowners who redeem their properties. When a homeowner pays their delinquent taxes to the investor who bought the lien, they must also pay interest. The interest rate is set as part of the bidding process at the tax sale.
In many downstate counties where property values are lower, collecting interest has always been a key part of the business model for tax buyers. However, there are limits. Bidders cannot set excessively high interest rates, as this could potentially violate the Eighth Amendment's prohibition against excessive fines and fees, another legal issue raised in challenges to tax sale systems.
Broader Implications for Illinois
Rock Island County's move highlights a growing divide among Illinois counties. While some, like Rock Island, are creating interim solutions, others have taken a different path. Cook County, the state's most populous county, has postponed its tax sales entirely, awaiting clear guidance from state lawmakers.
Recent federal court decisions in Illinois have increased the pressure on counties. In one case, a judge in the Northern District of Illinois called the counties' argument that they were not responsible for the equity theft "absurd." U.S. District Judge Matthew Kennelly wrote that a "county has an independent obligation to comply with the Constitution's mandate."
It was this ruling that Camlin said provided the "framework for discretionary measures" that his county could take. As state legislators continue to work on a permanent fix, the actions taken in Rock Island may serve as a model for other counties seeking to protect themselves and their residents in a post-Tyler world.
