How Tax Lien Auctions Work in Cook County, Illinois

Cook County, Illinois is home to the state’s biggest city, Chicago. That means there are usually lots of properties being offered at the county’s annual tax lien certificate sales. But a word of caution to the first-time buyer who attends a Cook County defaulted tax auction – the bidding is fierce and quite competitive.

The state of Illinois uses a bid down the interest tax lien auction system. The interest rate on tax lien certificates starts out at a very hefty 36 percent and goes lower with each bid. What is interesting to note is that many tax lien certificates auctioned in Cook County are bid down to zero percent interest, which means that the bidder is willing to accept nothing in return for paying the past due property taxes on the parcel. In fact, 85 percent of all bids at the tax defaulted auction are bid down to zero.

The lien holder then must give the defaulting property owner two to three years to reimburse the taxes before a foreclosure action can be started.

At the auction, expect things to move very quickly. Each registered bidder is given a numbered card and bids are taken verbally. When there is a lot of competition for a parcel and more than one person is willing to accept zero percent interest, it is the responsibility of the auctioneer to decide which of these bidders will win the tax lien certificate. In most cases, the winner is designated as the person who raised their card first. This can be difficult to figure out, especially in a crowded room, so the auctioneer then uses a random selection process, rotating the award amongst the bidders so that no one person receives more property than another.

The most successful investors at a Cook County auction do everything possible to gain an advantage. They are likely to arrive very early and sit as close as possible to the front of the room, where the auctioneer is standing. That way they are sure to be noticed first.

According to the rules of the county, only one representative of any buyer or buyer’s group can be present at the auction. This rule is meant to negate the ability of a large group to stack the odds in their favor. Imagine how easy it would be to win bids in the case of a competitive zero percent tax lien certificate if a large percentage of the bidders raising their hands all belonged to the same buyer’s group!

You may wonder why someone would agree to pay the county past due taxes and expect nothing in return. The truth is that these investors are banking on the fact that the property owner will not redeem the tax lien certificate in time. As long as the amount of taxes is far less than the estimate value of the property, this allows the investor to seize the real estate and then resell it at a hefty profit – or hold onto it for rental income or personal use.

Now you know the ins and outs of investing in tax lien certificates in Cook County, Illinois. It may not be the first venue you want to select if you are just learning this type of investment.