Hedge fund Alden Global Capital has purchased tax liens on over 600 tax-delinquent properties in Cook County, Illinois, the second-largest county in the United States. By paying the outstanding taxes on these properties, Alden Global Capital gains the right to charge an escalating rate of interest and attach fees to the debts. If the delinquent taxpayer fails to repay within two years, the hedge fund can claim ownership of the property.
Tax lien investing, a multibillion-dollar industry in the United States, is increasingly dominated by hedge funds and private equity firms. Critics argue that this practice exploits struggling homeowners and disproportionately affects poor, elderly, Black, and Latino individuals. The sale of tax liens at public auctions, which dates back to the 19th century, has historically been criticized for enabling exploitation.
Illinois is one of 27 states that permit or require local governments to sell tax lien certificates at public auctions when property taxes are past due. While local governments receive the taxes owed, bidders gain high-yield returns on their investments through interest and fees charged to homeowners. Efforts to abolish tax lien sales and reform tax delinquency laws have faced resistance, partly due to lobbying by the tax lien industry.
The higher rates of tax delinquency in Black and Latino neighborhoods are linked to housing market disparities and historical racial disadvantages. Overassessments in these neighborhoods result in higher property taxes, while devaluation limits tax bases and increases tax rates. Low-income and minority homeowners, who often lack conventional mortgages with property tax escrow accounts, face challenges in paying property taxes.
Tax lien investors target poor neighborhoods and vulnerable homeowners due to the potential for higher returns and speculative investments. This can further deteriorate neighborhood conditions and hinder community-led revitalization efforts. In gentrifying areas, tax lien purchasers take advantage of struggling homeowners’ inability to pay rising property tax bills, potentially leading to the loss of valuable properties.
To address these issues, advocates call for a more humane and effective system for property tax enforcement. Ending tax lien sales alone is not enough; the underlying causes of tax delinquency among disadvantaged homeowners and distressed neighborhoods must be addressed. Reinvesting in cities and towns and taxing concentrated wealth are proposed as solutions.
In conclusion, the purchase of tax liens by Alden Global Capital in Cook County, Illinois, highlights the concerns surrounding the exploitation of struggling homeowners and the disproportionate impact on disadvantaged communities. Structural reforms and a more equitable approach to property tax enforcement are necessary to address these issues.