A South Shore house acquired by the Cook County Land Bank
A South Shore house acquired by the Cook County Land Bank in a scavenger sale was on the market for $255,000 in 2018. Becky Vevea / WBEZ

A new report finds that Cook County’s process to return delinquent properties to the tax rolls is largely failing to do so and suggests a bottom-to-top overhaul of the system may be in order.

The analysis by the University of Chicago’s Center on Municipal Finance focuses on the county’s scavenger sale, an auction held every two years, in which private entities may bid to acquire an interest on a property with severely delinquent taxes. Since 2007, more than 50,000 properties have been listed in the scavenger sale, but the analysis finds that ultimately only 7% have returned to normal market conditions.

“The properties that enter this system seldom get out of it,” said Christopher Berry, professor at the University of Chicago and director for the Center for Municipal Finance, which published the report. “And even those that are claimed … many of those end up back in the system anyway.”

Jurisdictions across the country are saddled every year with the problem of properties whose taxes have not been paid. In Cook County, that problem mushroomed after the real estate crisis of 2008, when real estate values — particularly in communities of color — nosedived. Many underwater homeowners walked away. Before properties are listed in the scavenger sale, the county attempts to recoup the unpaid taxes through the annual tax sale. But those that attract no interest from private bidders then end up in the scavenger sale.

In Cook County, the report finds that most properties listed in the sale are vacant, unimproved lots.

“The quality of properties from a commercial perspective in a scavenger sale is much lower [than in an annual tax sale],” said Max Schmidt, former associate director of research for the Center for Municipal Finance at UChicago, who worked on the analysis.

“This is where the properties that are vacant — that have been for 10 years — this is where they’re ending up.”

The report finds that only 6% of scavenger sale properties received bids, and of those, more than half end up back in the tax delinquency system because bidders declined ultimately to exercise their option to take ownership of the real estate. Additionally, it notes that the pool of bidders is small and dominated by shadowy financial institutions whose motives are unclear. It also said scavenger sale properties fall disproportionately within communities of color in western and southern Cook County, such as Thornton Township, which accounted for nearly one quarter of all listings.

“It’s the new redlining, as far as I’m concerned, and we just don’t talk about it,” said Cook County Commissioner Bridget Gainer. After seeing the glut of delinquent properties that followed the 2008 financial crisis, Gainer established the Cook County Land Bank Authority, which has participated in the scavenger sale since 2015. Its goal is to help small-scale developers access listed properties by helping them navigate the complex legal processes that are involved.

“This isn’t intentional, but the [scavenger] sale really works when you’re in a high property value community,” said Gainer. “But what kind of got overlooked … is this system really is broken when it comes to communities in which there was a lot of vacant properties or the property values were lower.”

Gainer agrees with the study’s suggestion that it’s time for wholesale reform of the scavenger sale. But she disagrees with the conclusion that there is little or no market demand for scavenger sale listings that are in lower-income areas, particularly when it comes to residential properties. Instead, Gainer argues that there would be great demand among small-scale, neighborhood developers, if only the complexities around ultimately acquiring those homes could be simplified.

Cook County Treasurer Maria Pappas has called for reform to the system. Her office issued its own analysis of the scavenger sale in December, with many findings similar to the UChicago report. Pappas said she hopes that the growing evidence will prompt hearings in Springfield. She also hopes it will prompt new legislation to reimagine how local governments can make decisions about tax delinquent and vacant real estate in their jurisdictions.

“No suggestion is a bad suggestion when there is a positive outcome,” Pappas said.

Berry said he would like to see lawmakers collect information about how other states and cities dispense with this problem, and compile a list of best practices. He noted that New York City bundles and sells properties that are repeatedly tax delinquent to nonprofit organizations that have an interest in community revitalization. That could yield benefits to some communities where the private market isn’t clamoring for real estate.

“Rather than trying to auction them off, try instead to think about what instead is their best and highest use given the reality of the lack of market demand for them,” Berry said. “Suppose instead you took these properties and turned them into a park or a community garden. That would fail at the goal of returning them to normal market conditions, but it might not be a failure of policy.”

Odette Yousef is a reporter on WBEZ’s Race, Class and Communities desk. Follow her @oyousef.