9.28.2010

Investigation: Tax auctions look 'like government-sponsored loan-sharking'

Tuesday, Sep. 28, 2010

Investigation: Tax auctions look 'like government-sponsored loan-sharking'

BY BRIAN BRUEGGEMANN - News-Democrat

EDWARDSVILLE -- A group of Madison County Board members announced Monday they're launching an investigation into the county's property tax auctions.
The auctions were the subject of a News-Democrat investigation, which showed that former Madison County Treasurer Fred Bathon took in about $140,000 in campaign donations from investors who bought delinquent property tax debts. Those investors routinely were allowed to buy people's tax debts at an 18 percent penalty rate -- the highest allowed under state law. The investors took in up to $200,000 apiece in penalties for some years.

County Board members Jean Myers, of Troy, Mike Walters, of Godfrey, Bill Meyer, of Hamel, Hal Patton, of Edwardsville, Chris Wangard, of Troy, and Chris Slusser, of Wood River, all Republicans on the Democrat-controlled County Board, said they have started a fact-finding process. They also encouraged affected property owners to call a hotline set up to report complaints about the process. The number is 917-3705.

From left, Madison County Board members Chris Slusser and Jean Myers and Madison County treasurer candidate Kurt Prensler hold a news conference Monday in Edwardsville to announce their investigation into the county's property tax auctions.

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Story: Tax buyers, politicians benefit from tax sales

"It looks like government-sponsored loan-sharking. The end result of this corruption could be that residents lost their homes," Slusser said. "For those property owners who did not, they -- at a minimum -- paid outrageously high interest rates that were sanctioned by our county treasurer's office. It's despicable."

Myers said in Jarvis and Pin Oak townships alone, the two townships that make up the majority of her board district, 239 parcels were auctioned in the 2001-2003 tax sales for an average of 2.4 percent, followed by 278 parcels auctioned from 2004-2006 at the maximum 18 percent.

"One thing is clear: The officials placed in charge of the tax sale auction in Madison County have forfeited our trust and taken advantage of property owners all across the county," Myers said at a news conference.

"These constituents were preyed upon at a time when they were most vulnerable, most down on their luck. The public trust has been completely eroded, with nearly 10,000 affected property owners, making the scope of this misconduct staggering."

Matt Melucci, chairman of the Madison County Democratic Party, issued a statement saying the party welcomes any investigation of the tax sales. He also pointed out that some of the GOP board members at the news conference are members of a County Board committee that oversees the property tax process.

At the county's annual property tax auction, investors buy the right to pay citizens' unpaid property taxes. The investors make money by charging a penalty to the property owners. If the property owner doesn't eventually pay the taxes and the penalty, the investor can take the property.

In most counties, the tax bills are sold in a reverse auction, meaning the investor offering to take the lowest penalty rate is the winning bidder.

But witnesses say Bathon, a Democrat, conducted the tax sale like a bid opening, where investors were not allowed to undercut each other or "bid down" the penalty percentage. All the bidders would shout an opening bid; the one who shouted the lowest bid first was the winner. Often, though, a group of bidders would simultaneously shout bids of 18 percent, then Bathon's office would decide which bidder shouted first, and the bidding would be cut off at that point.

Current Madison County Treasurer Frank Miles, who took office in December, now allows bidders to submit "trailing" bids, where the bidders can undercut each other with subsequent bidding.

"As treasurer of Madison County, I not only welcome public scrutiny into how the 2010 delinquent property tax sale was conducted, but scrutiny regarding any facet of the treasurer's office," Miles said, noting the average penalty rate when he conducted the tax sale this year was 9 percent, down from 18 percent the previous year under Bathon. "Any issues related to tax sales prior to my assuming the position as Madison County treasurer should be directed to Mr. Bathon."

Miles' opponent in the November election, GOP candidate Kurt Prenzler, said Monday that Illinois Attorney General Lisa Madigan's office needs to intervene.

"The stench from this administration building can be smelled from Springfield to Chicago. Lawmakers and prosecutors have a duty to uncover what has happened and to find a way to make things right for the struggling property owners that were deceived."

The penalty rate compounds every six months, maxing out at 108 percent.
Myers said the average interest rate being paid by redeeming property owners has grown from 25 percent in calendar year 2007 to 36 percent in calendar year 2009.

Myers said she submitted a formal request Monday morning with the county clerk's office for a variety of records, including:
* Name, address, parcel number of each property redemption, plus tax, penalty and interest amounts
* E-mail records involving any of several tax buyers who have done business at the tax sales
* Phone records for the treasurer's office for the calendar years 2006-2010
* Videotapes, documents, memos, and records from the 2006-2009 tax sales.

Patton said, "The most amazing fact is that 30 tax buyers, as well as numerous county staff all attended these auctions, and not a single warning was issued to the County Board about the changes made that resulted in such high interest rates for the county residents at risk. The silence from the administration building is deafening."

Wangard said the GOP group's immediate focus "is to find answers for the 10,000 property owners that have paid -- or continue to face a future inflated payment -- for the simple privilege of continuing to live in their home. This scandal represents the next in a long line of scandals from Washington, D.C., to Springfield -- and now to Edwardsville. Property owners have been taken advantage of by our government and that deserves to see the light of day."

Myers said she welcomes bipartisan participation in the investigation, including from County Board Chairman Alan Dunstan, a Democrat.
Dunstan could not be reached for comment. Bathon has not returned calls seeking comment on the issue for several weeks.

Patton, who serves on a tax committee for the County Board, said the committee was never informed of the increase in penalty rates during Bathon's tenure.

"If that information had been brought to my committee, this investigation would have started a long time ago," Patton said.

Myers said, "I never attended a tax auction. Shame on me." But she added, "The treasurer's responsibility is to conduct that auction according to the statutes and in the best interest of the taxpayers. We were as caught off-guard by this information as anybody else was."

Melucci, who serves as circuit clerk in addition to being the Democratic Party chairman, said the party welcomes "a review of the process by a lawful authority and not by a group of self-appointed individuals, some of whom serve on the Real Estate Tax Cycle Committee. How can they claim ignorance of the process when they are charged with oversight of that very process?"

Board member Larry Trucano of Collinsville, a Democrat who serves as chairman of the tax committee, said Monday he's never been to the county's tax auction, and the subject is not discussed at committee meetings.

"We don't discuss that at the committee meetings. Never have, that I know of," Trucano said.