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Cook County’s delayed tax bills creating home sale headaches
Without knowing how much the bill will be, title companies can’t accurately estimate how much each party will owe.

Friday, September 30, 2022
Crain's Chicago Business
by Dennis Rodkin

The months-long delay in Cook County’s property tax bills is causing a snarl in home sale closings, because nobody knows how much money to put up for the tax bill.

“It’s a giant headache,” said Kelli Fogarty, an attorney at Fogarty & Fugate, a real estate law firm based in the West Loop. “We all have to sit here guessing how much money people owe.”

 

“The bottom-line impact on my clients is the cash they need to close is artificially inflated while we wait for an answer,” Fogarty said. A client who bought a Wicker Park condo in the $800,000 range had to put about $16,000 in escrow when the bill will likely turn out to be more like $8,000, Fogarty said.

At the closing of a home purchase, the title company puts money in an escrow account to cover the estimated portion of the latest tax bill the now-departed sellers owe when it arrives. It’s based on how much of the tax period the property was owed by the sellers and how much by the buyers. While the amount is the sellers’ responsibility, the usual way it’s covered is that at closing, the buyer gets a credit from the seller to cover the taxes when they come due.

 

The county’s second-installment tax bills, usually issued in June with payment due in August, have yet to be issued. In July, Cook County President Toni Preckwinkle said the bills will be issued by the end of the year, with payment due by Dec. 31. A spokesman for Preckwinkle confirmed this morning that the bills are expected out in December, which would be about six months late.

Without knowing how much the bill will be, title companies can’t accurately estimate how much each party will owe. The general practice is to overestimate, said Julie Cwik, senior underwriting counsel at Chicago-based Proper Title, with the promise of refunding any overage later when the bill is paid.

“It’s terrible” for homeowners to have to put extra funds into a holding account while the county works out its problems, said Sean Morrison, Cook County commissioner for the 17th District. With home prices and interest rates rising, the increased escrow requirement “comes at a time when a lot of people are having more difficulty (buying a home), and they have no recourse other than to pay it and hope” they get a good piece of the money back when tax bills finally get issued.

For city transactions, there’s an extra layer of uncertainty, Cwik said. In the Cook County assessor’s three-year rotating cycle of reassessment, Chicago home values were reassessed in 2021. The reassessed value “shows up in the second installment,” Cwik said. Without that, “there are pieces missing from the puzzle,” she said, which makes estimating the tax amounts due nearly impossible.

Cwik said she has been recommending that twice the amount of last year’s second installment bill go into escrow for city sales, and 150% of last year’s figure for suburban Cook County sales. The idea is to be sure enough money is in there whenever the bill finally arrives.

The title company handles only the bill from the transaction year, so it has a one-time relationship with the buyer, Fogarty and Cwik said. Thus, unlike the mortgage lender that has an ongoing relationship with the homeowner and can adjust escrow accounts with changes in the monthly bill, there’s only one chance to collect the money for this bill.

That means buyers “have no choice but to put this money in at closing,” Cwik said. Any excess will come back in a refund when the dust settles, but at a time when prices and interest rates are delivering a double whammy to buyers, having “thousands of dollars waiting on the county to send out its bills” adds to the buyer’s cash crunch, Fogarty said.

In some cases, the uncertainty has sparked minor disputes between buyer and seller, Fogarty said. If the sellers don’t believe the bill will go up as much as the buyer’s representatives are estimating, some have been asking to put the tax money in an escrow account in their name instead, so any overage will come back to them.

 

With some 5,000 homes selling in Cook County in July and August, it’s safe to say the parties to about 10,000 transactions so far have had to contend with this snag since bills were supposed to be issued.

There are other larger implications of this delay, including municipal and school district taxing bodies being compelled to wait several months for their share of tax revenue. But real estate transactions can be mind-boggling in the array of numbers that appear at the closing table.

It’s not fair to the buyers and sellers involved “to keep them waiting for these government bodies to do what they’re charged with doing,” Morrison said. The primary county bodies whose work goes into generating tax bills are the county assessor and the board of review, which pointed fingers at one another for months, as Crain’s political columnist Greg Hinz has reported.

In an email this morning, Jim Thompson, Cook County’s director of property assessment and tax policy, said Cook County Board President Toni Preckwinkle's staff “continue to work with the separately elected officials to get the bills out as fast as possible.”



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