Illinois Deed Sale Case Shows Lack of State-Level Tax Clarity

An appeal in a Cook County, Ill. tax foreclosure case may have persuasive influence nationally, as constitutional challenges to government tax sale procedures are being litigated in federal courts throughout the country.

A ruling in Kidd v. Pappas by the US Court of Appeals for the Seventh Circuit would address how immunity doctrines operate when a tax foreclosure is found to effect an unconstitutional taking and result in an excessive fine.

Like Kidd, numerous federal and state courts are hearing cases in which government entities are seeking to shield themselves from liability under immunity doctrines.

Background of Case

The US District Court for the Northern District of Illinois on Dec. 8 found in favor of Michelle Kidd and three other plaintiffs who accused Cook County Treasurer Maria Pappas of violating their Fifth, Eighth, and 14th Amendment rights through property tax sales.

District Court Judge Matthew Kennelly described the constitutional injury as fairly traceable to the tax sale itself, rather than to later events such as recording of a tax deed or post-deprivation compensation. The county officials, he said, had legally available alternatives at the time of the tax sale that would have prevented an unconstitutional taking or imposition of an excessive fine.

Kennedy opined that Pappas was statutorily authorized to adopt policies “reasonably necessary to execute a tax sale in accordance with law” and rejected claims that Pappas was acting as an arm of the state.

The defendants have asked the US Court of Appeals for the Seventh Circuit to weigh in. Kennedy’s denial of the defendant’s 11th Amendment sovereign immunity is immediately appealable under the collateral-order doctrine, which allows limited appellate review before a final judgment. The appeal doesn’t directly contest the district court’s constitutional concerns.

Separately, Cook County asked the court to certify an additional question for interlocutory appeal: whether it has the authority to create, fund, and execute a compensation mechanism for lost equity. The county argues it can’t establish a mechanism for determining compensation without unlawfully intruding upon the legislative and judicial branches.

Lack of Guidance

To date, neither the Illinois Attorney General’s Office nor the governor’s office have issued formal guidance to local governments following the US Supreme Court’s 2023 decision in Tyler v. Hennepin County, the case triggering the waves of Fifth and Eighth Amendment litigation in so-called “home equity theft” cases.

Compared with the executive branch’s response to other civil rights issues, the absence of guidance or participation in litigation has been notable.

Following the Kidd ruling, the Cook County judiciary has largely stayed and continued court hearings on requesting an order for issuance of a tax deed unless the petitioner represents that property doesn’t involve surplus.

The requirement to plead and prove a lack of surplus equity has largely resulted in a de facto moratorium on orders for tax deeds, with attorneys reluctant to make definitive surplus representations in the absence of statutory standards, clear valuation authority, or defined limits on potential exposure.

The Kidd decision is already having systematic chilling effects, including:

Reduced auction competition and rising rates. At least one county moved quickly to alter its tax sale rules in an apparent effort to align with Kidd. Rock Island County required tax sale participants to promise to compensate property owners for lost equity or to indemnify the county.

Following the new requirement, several registered bidders withdrew, and only five private tax buyers participated. The resulting reduction in competitive bidding was associated with higher penalty bid rates and higher costs of redemption for delinquent property owners. Compared with the prior year, penalty bid rates climbed dramatically, moving closer to twice their previous level.

Title insurance and practitioner exodus. Most major title companies throughout the state have stopped insuring tax deeds altogether, rendering such titles unmarketable. Citing the unsettled legal landscape, many attorneys in this highly technical niche have withdrawn from the area citing exposure and professional risk.

Constricted credit and capital exodus. Lenders have responded similarly by eliminating, reducing, or restructuring Illinois tax sale lending where repayment depends on a statutory scheme found to be unlawful.

Although reputational risk has recently been deemphasized in formal regulatory reporting, lenders remain sensitive to public and litigation scrutiny tethered to housing displacement and government fines deemed excessive or predatory.

In the absence of executive guidance and legislative reform, market participants continue to shift capital to toward jurisdictions perceived as offering clearer rules, lower risk, and more predictable outcomes.

What Comes Next

Cook County is required by March 10 to apply for a judgment to allow for a tax sale under the same statutory framework held unconstitutional in Kidd—a framework the county contends it lacks the authority to do, absent legislative action.

The March 10 deadline carries real operation consequences. Preparing for the judgment entails substantial expense and administrative effort, including statutory mailed and published notices. The county’s options are limited and, with the 2026 legislative session just starting, prospects for legislative reprieve appear uncertain.

Other jurisdictions facing a similar situation have sought judiciary or executive action for guidance. The city and county of Denver filed for declaratory relief, letting the court decide whether it could legally hold its tax sale following Tyler. The New Jersey judiciary imposed a statewide moratorium until constitutional questions were resolved legislatively.

Illinois is the only state yet to conform to Tyler. Any effective response must address three distinct challenges: past tax sales where a tax deed issued; pending tax sales conducted under procedures now held unconstitutional, including questions of unwinding transactions and addressing potentially unlawfully issued tax certificates floating in the stream of commerce; and future tax delinquent collection.

Without reform that addresses all three postured problems—past, pending, and future tax sales—uncertainty and voluminous litigation will persist regardless the outcome of the Kidd appeal.

The case is Kidd v. Pappas, 2025 BL 439403, N.D. Ill., 22 C 7061, 12/8/25.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Lynda Segneri is an Illinois attorney focused on property tax law and tax sale administration, including issues affecting tax investors, local governments, and delinquent property proceedings.

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