A new study from the Cook County Treasurer’s Office reveals that hedge funds, private equity firms and others are exploiting a loophole in Illinois’ property tax law to make millions of dollars in profits, mostly at the expense of Black and Latino communities.

These investors, known as tax buyers, have helped shape the arcane section of the property tax law they now use to their advantage. They have drained nearly $280 million from Cook County taxing districts over the last seven years. Of that, 87 percent came from Black and Latino communities. “Investors from all over the country are drawn to our tax sale like it was the California Gold Rush,” said Cook County Treasurer Maria Pappas. “They’re getting rich from struggling communities. The money they make from the law they helped rewrite should be going to schools, parks, police departments and other government agencies.”

Tax buyers pay property owners’ delinquent taxes, aiming to make money when the taxpayer repays that debt, at steep interest rates. The tax buyer gets a lien on the properties on which he or she paid the taxes. That lien allows the tax buyer to take properties if taxpayers don’t pay their debt within a specified time period. But these investors usually do not want to take possession of a property. They have an out: Illinois’ broad and forgiving sale-in-error statute that allows the tax buyers to avoid taking the property and instead get back their investment, often with interest.

Many states have policies that allow tax buyers to get repaid when the government has sold a property it shouldn’t have, including when the property is government-owned or when the taxpayer made good on their debt before the sale. In Illinois, however, tax buyers can get their money back for “errors” by any county official even when the “errors” would not have prevented a sale or do not cause financial harm to the tax buyer. Tax buyers helped rewrite the property tax law in 1951, allowing them to get their money back for errors they had committed. In 1983, state lawmakers expanded the scope of the law to include errors by county officials, creating a loophole tax buyers have exploited ever since.