How dangerous property delinquent taxes can be?
Here we go again: a $91,000 loss on asset acquisition due to poor validation of Cook county, Illinois taxes. I will discuss a real example from our review of due diligence performed by a 3rd party due diligence provider. In my first Bulletproof book, I discussed the importance of verifying the taxes for current and prior years. In Cook county, prior year taxes are sold to investors as a tax certificate for each prior delinquent year. Cook county is unique in the way that the treasurer does not show the full delinquent tax amount for prior years online. To get a true payoff, a Redemption Certificate is typically ordered for each tax year. The treasurer charges $10 to $15 per delinquent tax year to receive a payoff. In addition, the treasurer reports if consecutive years post tax sale were also paid by a tax sale investor and must be paid off with penalty. Properties with delinquent taxes are typically scheduled for a scavenger sale to investors which is where the certificates are purchased. Typically, the lender or servicer is NOT notified of a sale, so they should be proactive in monitoring for tax sale events in order to have a chance to redeem.
My recommendation is that as soon as you see an indication on the tax card that a Tax Certificate was sold for prior years, you should check for redemption and possibly order a Redemption Certificate from the treasurer. Here are a few examples of red flags in Cook County.
My recommendation is that as soon as you see an indication on the tax card that a Tax Certificate was sold for prior years, you should check for redemption and possibly order a Redemption Certificate from the treasurer. Here are a few examples of red flags in Cook County.
Notice there is no indication that the 2016 and prior taxes are paid. “Taxes Forfeited” in 2017 means that either the investor or treasurer has a certificate issued. This should trigger a further investigation for the prior years.
After ordering a Tax Certificate, it was discovered that the taxes were not paid from 2009 as mentioned below by the treasurer.
After ordering a Tax Certificate, it was discovered that the taxes were not paid from 2009 as mentioned below by the treasurer.
The Redemption Certificate will provide an up-to-date view of the delinquent tax total, with all penalties and interest on top of the total amount.
Here is an example of the Tax Certificate that we end up ordering for our Lien Validation and Seller Rebuttal product line.
Here is an example of the Tax Certificate that we end up ordering for our Lien Validation and Seller Rebuttal product line.
In many cases, the delinquent amount is not properly represented by 3rd party providers or flagged in the due diligence systems. I would recommend isolating Cook County, Illinois tax reporting for a closer look by asset buyers. Remember that not all servicers will monitor for delinquent taxes; the burden will lie with the investor to discover the delinquent taxes and to ask for an appropriate discount from the seller.