Introduction to Illinois Tax Sale Investing
The dynamic realm of tax sale investing in Illinois involves both the prospect of high returns and the challenges many states face from the Tyler v. Hennepin ruling.
Like Florida, Illinois is a bid-down state with the favorable twist of providing interest earnings twice a year.
Illinois also has stringent requirements on tax lien notification procedures and offers a statute allowing investors to return faulty liens—another yin and yang of risk and reward.
Fortunately, Tax Sale Resources has guided investors through the Illinois tax sale process for over a decade.
Success with Illinois tax liens and deeds demands more than financial resources and expert management; it requires a keen understanding of the legal nuances and thorough research.
To meet this challenge, Tax Sale Resources offers richly detailed data to help investors navigate the intricacies of tax sale investing and financial tools to scale successful models.
Continue below to see how to grow and maintain a tax sale business in Illinois while navigating the legal ripples from Tyler v. Hennepin.
The Illinois Tax Sale Process
Profile of how to buy tax liens in Illinois
The Illinois tax lien auction process is a “bid down” process, meaning investors outbid each other with lower interest rate offers.
The interest rate starts at 12%, and you submit a percentage you think will undercut competing investors. If you make the lowest bid, you win the lien.
Tax lien investing in Illinois also means circulating a “take notice” message to other interested parties. This notification lets past owners, mortgage holders, and other lien holders know that you own the lien.
The requirements for the wording and format of this letter are rigorously specific, so working with an attorney is essential to ensuring the notice is legally valid.
Tax liens in Illinois have a three-year redemption period, during which you can start the foreclosure process if the owner doesn’t redeem (pay the delinquent taxes).
Foreclosure in Illinois is an administrative process (instead of a legal one) that culminates in the investor receiving the tax deed and the title.
Illinois has two types of tax lien auctions.
The first is conventional and straightforward: counties accrue sets of delinquent properties and auction them off periodically.
The second type is called a scavenger sale, which is for any liens that don’t sell in the first auction. Counties compile unsold liens for several years on a scavenger list and sell them with reduced opening bids.
The Illinois scavenger tax sale replaces over-the-counter (OTC) liens that are sometimes available in other states.
Scavenger liens are cheaper because the lien amounts are often greater than the value of the properties. So, investors have the opportunity to get a lien for a fixer-upper at a rock-bottom price.
Additionally, investors usually view the tax sale scene in Illinois in two parts: the Chicago metro area and the rest of the state, which is more rural.
RAMS Auctions runs the tax sales in the state’s rural counties. While these sales are technically online, they require in-person attendance because bidding occurs on computers inside the county courthouses. As a result, the investor or their proxy must be in person to bid at RAMS-hosted tax lien sales.
However, Chicago doesn’t use RAMS. It has distinct rules and procedures that other countries don’t follow.
Depending on their investment model, investors may familiarize themselves with one or both regions’ tax sale statutes.
So, buying tax liens in Illinois can entail understanding two different investing statutes.
Profile of how to buy tax deeds in Illinois
While Illinois is primarily a tax lien state, it also sells tax deeds in smaller amounts.
Liens that don’t sell at the first auction or the scavenger sale are usually foreclosed on by the county.
Then, the county sells the tax deeds for those properties at a separate auction. Tax deed sales in Illinois provide an opportunity for property ownership.
Pros of Investing in Illinois Tax Sales
Illinois tax liens have the unique advantage of a six-month period for interest. This feature doubles your profit on an annual basis. For example, if you get a lien with a 6% interest rate in Illinois, you’ll get a 12% return for the year.
Additionally, as noted above, Illinois tax sales allow you to become the property owner eventually.
Specifically, you can implement the foreclosure process for tax liens that don’t redeem. You can also buy tax deeds at deed auctions across the state, but deeds are typically scant in Illinois.
Remember, the auctions run by RAMS usually require personal attendance from investors. This rule limits accessibility, leading to less competition.
Plus, auctions across the state occur on different days of the month, enabling investors and their proxies to attend many tax sales throughout Illinois without giving up opportunities elsewhere.
Finally, Illinois is one of the few states that offers sale in error for investors. Illinois offers investors their money back if a property doesn’t turn out to be in the condition as advertised or if something happens to the property after bidding on it.
This is a distinct advantage because most states have a “buyer beware” policy for tax sales.
For instance, if the house burns down during the redemption period, you’re out of luck in most states. Fortunately, Illinois has a return policy. So, while you won’t get any interest earnings out of such properties, you can return them for your money back.
Plus, while states like Arizona offer a sale in error clause, Illinois has a much more generous policy.
Cons of Investing in Illinois Tax Sales
The pitfalls of Illinois tax sales happen mainly on the lien side.
First, notification of interested parties has specific requirements for verbiage and grammar. Even a wrongfully placed comma can nullify these notifications and ruin your chance to foreclose on a property.
As a result, working with an attorney and double-checking all your work is vital.
Additionally, the Pacific Legal Foundation found Illinois statutes out of compliance with last year’s Tyler vs. Hennepin ruling.
The state’s handling of overages could hinder investors’ ability to foreclose on and own properties if past owners can sue counties for not returning surpluses, implicating property rights of all parties involved. The laws to rectify these issues and the timeline should be in place within the year, but the specifics remain uncertain.
Another possible issue is navigating between Chicago and the rest of the state’s tax sales.
Because they have distinct rules, scaling your business in Illinois might require more time to master the ins and outs.
On the other hand, you could restrict your activity to one region, but doing so means forfeiting opportunities in other parts of the state.
Lastly, the in-person requirement for auctions is a double-edged sword.
While this feature limits competition, you, or a proxy, must be personally present at every auction to place a bid. Therefore, ample travel is necessary for investing in Illinois tax sales, and bidding online isn’t possible.
Illinois Tax Sale Investing Case Studies
Before Tyler v. Hennepin, the tax lien investing model in Illinois had two main prongs: redemption and property ownership.
Specifically, investors could target properties likely to redeem and collect the interest when the property owner paid the delinquent taxes and fees.
On the other hand, investors could also build a model on properties likely headed to foreclosure.
However, Tyler v. Hennepin implicates what used to work because new legislation will change tax sales in Illinois.
The exact solution isn’t clear yet; it could be a tax deed auction, an indemnity fund, or another law still to be announced.
In any case, Tax Sale Resources advises caution and consulting with an attorney when investing.
Illinois Tax Sale Insights for the Future
Illinois tax sales have become increasingly competitive throughout the years.
Where getting an annualized return of 18% was reasonable about a decade ago, investor activity has grown since then. This drove down interest rates because investors had to work harder to outbid each other.
Tax Sale Resources’ database on Illinois tax sale auctions reflects this pattern, and property ownership has become a necessary facet of profitable investment models recently.
As a result, thorough research is crucial for successful tax sale investing in Illinois.
The data from the last several months doesn’t exactly follow the trend described above, and the changes due to Tyler v. Hennepin might discourage some of the competition.
However, the overall tax sale scene in Illinois will remain competitive, and racking up high-interest profits won’t be nearly as easy as it was several years ago.
Legal Considerations When Investing in Illinois Tax Sales
Because of the rigid, nuanced rules for notifications, it’s crucial to work with a knowledgeable attorney.
While Tax Sale Resources can help investors in numerous ways, including financing and brokerage programs, legal assistance is a separate matter.
So, because of the potential legal changes from Tyler v. Hennepin and the requirements for handling tax liens, having a lawyer on your team is non-negotiable.
For example, if you miss a date for notifying interested parties, you could lose your shot at foreclosing on a lien, collecting all the profits from a redemption, or selling a property.
How Can Tax Sale Resources Help Illinois Tax Sale Investors?
Tax Sale Resources offers a wide range of support for Illinois tax sale investors.
First, we have robust data on tax sales. From information on past tax sales to the time and location of upcoming sales and the essential details on each property, the Research platform allows you to sift for properties that fit your investment model quickly.
This is necessary for locations such as Cook County, where tax sales can involve around 50,000 parcels.
Our search filters let you narrow the list to the properties that are relevant to your business and see if there are hindrances (such as past liens) that could impact your purchase.
Additionally, Tax Sale Resources can point you in the right direction to find seasoned attorneys to aid your investing efforts in Illinois.
Likewise, if you plan on becoming a property owner, we have relationships with real estate professionals you can leverage to ensure smooth transitions when you’re selling property.
Tax Sale Resources can also help finance your tax sale business in Illinois.
If you’re interested in real estate ownership in the state, we can fund and facilitate your efforts to become a real estate owner.
Whether you’re acquiring tax deeds at an auction or obtaining properties through secondary market transactions, we can help.
Likewise, our Accelerator program is available for investors who have found success in Illinois but are struggling to scale. If you’re limited by market fluctuations, capital, or gaps in investing data, the program puts the fuel in your tank to reach new heights.
Illinois Tax Sale Frequently Asked Questions
Here are the answers to some frequently asked questions to help round out your understanding of Illinois tax sales.
Is Illinois a tax deed state?
Illinois is a tax lien and tax deed state. Most of its tax sales are tax liens, but the state also takes liens that don’t sell in the first or second auctions and sells them as tax deeds.
What is the Illinois tax lien interest rate?
The Illinois tax lien interest rate recently dropped from 18% to 12%. Illinois is a bid-down state, meaning investors compete with one another by offering lower interest rates, and the lowest bid wins. However, Illinois charges interest twice a year, so the annualized return on any given lien is double the interest rate.
How do I find the Illinois delinquent property tax list?
You can find the Illinois delinquent property tax list by contacting each county or by using Tax Sale Resources’ database. However, getting lists from each county may result in slow, incomplete information. On the other hand, the research tools from Tax Sale Resources include historical data, dates and locations of each auction, critical details on each property, and filtering features to save time.
Conclusion
Investing in Illinois tax sales offers a dynamic landscape rich with opportunity and challenge.
The bid-down process of tax lien auctions combined with the doubled interest rate sets the stage for investors to compete in securing liens with lucrative returns. However, navigating the intricacies of notification requirements demands meticulous attention to detail and legal expertise.
The three-year redemption period and the potential for property ownership through foreclosure underscore the long-term investment potential inherent in Illinois tax sales.
Plus, the sale-in-error policy reduces the risk of investing in a lousy lien.
While the regional differences and Tyler v. Hennepin ramifications pose unique regulatory challenges in Illinois, Tax Sale Resources stands ready to equip investors with comprehensive data, legal referrals, and financial support to thrive in this competitive arena.
As Illinois tax sales evolve amidst legal considerations and market fluctuations, due diligence and strategic partnerships remain the cornerstone of success.
Through unwavering commitment and prudent navigation, investors can unlock the full potential of Illinois tax sales, forging pathways to sustainable growth and prosperity in real estate investment.
