For consumers who buy or sell a home in Illinois, there is no way around it: they will pay taxes to transfer the title of a home from seller to buyer. But for banks, the situation is different.
Banks and other mortgagees or secured creditors that foreclose on a home don't pay a tax connected to the transfer of the title in question. And at least one Chicago alderman says it's time to change that exemption.
"Banks are the only entity in the state of Illinois that are completely exempted from having to pay transfer tax," said Ald. Roberto Maldonado (26th). "You and I have to pay a transfer tax when we acquire a title or when we sell a title to a property. I think banks should also do the same."
Maldonado is referring to a long-standing exemption that applies to the banks and other entitles that foreclose on loans in default.
He recently proposed to the city's Finance Committee a resolution that would give voters a chance to change the exemption and make banks pay for transfer taxes on foreclosures.
"I hope by imposing this transfer tax banks will be more deliberate and more conscientious and more apt to negotiate with owners of those homes and be able to work out a loan modification for those homeowners," Maldonado said.
But the policy director for the Chicago Association of Realtors sees it differently, and says the proposal is "anti-consumer."
"It's the wrong tax at the wrong time for the wrong people," said Brian Bernardoni. "Banks, while a fair target in many people's minds, aren't going to pay the penalty in this case. Consumers will."
Bernardoni said he foresees a trickle-down effect that could hurt the Chicago real estate market as a whole if this referendum, which would go to voters next fall, should pass.
"What will happen is when banks are taking a look at Chicago loans or transactions, they're gonna take a pause," Bernardoni explained. "You may see a higher rate. You may see more stringent loan loan qualifications to get into a home mainly because they don't want to pay the penalty."
But Maldonado said it is time to level the playing field between consumers and the banks.
"If they want to foreclose, let them do it, but let them pay the transfer tax. Everyone else pays it so it can help the city to deal with the unwanted problems that a foreclosed property brings to a community," the alderman said.
The illinois Bankers Association declined to comment. Maldonado's resolution, which next goes before the full City Council. If passed, it would go before voters this coming fall.
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