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THE SENIOR CITIZENS REAL ESTATE TAX DEFERRAL ACT


The Senior Citizens Real Estate Tax Deferral Act, 320 ILCS 30/1, et seq., enables senior citizens to apply to defer paying their real estate taxes until after their death, a sale of the real estate, or a failure to qualify for the program. This act was designed to enable senior citizen homeowners to avoid the burden of meeting semiannual real estate tax bill deadlines or dealing with tax purchasers and tax deed proceedings. If the applicant and the subject property qualify under the guidelines provided by the act, the Department of Revenue pays the real estate tax bills on the property for the following year out of a fund called the Senior Citizens Real Estate Deferred Tax Revolving Fund. 30 ILCS 105/6p-4; 320 ILCS 30/2, 30/5.


These payments constitute a lien on the subject property, which may be collected upon the triggering events listed above. 320 ILCS 30/3. Funds from repaid liens are used to replace funds taken from the Senior Citizens Real Estate Deferred Tax Revolving Fund. 320 ILCS 30/7. Seniors may reapply for tax deferral under the act on a yearly basis, and must do so to retain the deferral. 320 ILCS 30/3. To datr, neither Indiana nor Wisconsin has enacted any similar statutes reducing the burden of real estate taxes on the elderly.

Underwriting Procedure


Members who are writing a title policy on a sale of property where there is or are notice(s) of a Senior Citizens Real Estate Tax Deferral recorded must collect funds sufficient to repay the deferred real estate taxes at closing. Please remember that you must collect separate release fees for each tax year being paid. Even if all tax years are on one payoff letter and only one check is issued for the entire amount, separate releases must be issued and recorded for each tax year. The following discussion provides more detail on the deferral.

Qualifications for the Deferral

Taxpayer Qualifications: A taxpayer must be at least 65 years old at the time of application, or must show that he/she will be 65 years old by June 1 of the year for which tax deferral is requested. 320 ILCS 30/3. In addition, the applicant's annual income must be $50,000 or less for tax year 2006 and thereafter. 320 ILCS 30/2.

Property Qualifications: The act defines "qualifying property" as a homestead occupied by the applicant as his/her residence and which the applicant or the applicant and his/her spouse own in fee simple or are purchasing pursuant to a recorded deed for sale. The property cannot be income-producing property, and there can be no delinquent real estate taxes on the property at the time of application. The property may qualify for tax deferral even if the applicant temporarily resides in a licensed health care facility for a period of one year or less.

Procedural Requirements and Restrictions


A qualifying taxpayer may apply to the county collector for tax deferral on the Illinois Department of Revenue form. If the applicant qualifies, the taxpayer must sign a tax deferral and recovery contract. The form and contract are governed by 320 ILCS 30/3. The contract requires that the sum of all deferred taxes may not exceed 80 percent of the taxpayer's equity interest in the property. The total deferred taxes and six percent interest per year become a lien on the real estate. The contract also contains provisions relating to treatment of heirs upon the death of the taxpayer and guardians upon the disability of the taxpayer, requiring the signature of joint owners or mortgagees, and requiring proof of property insurance.


As soon as the applicant completes the contract, the county collector must grant the tax deferral and record a statement that the property is subject to a tax deferral agreement in the office of the county recorder. 320 ILCS 30/4. This recorded statement creates a lien upon the real estate covered by the agreement. The recorded lien does not expire until 20 years after recordation. John Franklin, Department of Revenue Collection Programs, § 11.8 at 11-7 (IICLE 1997). Once this statement is recorded, the county assessor must mail all deferred tax bills to the Department of Revenue, which will pay the tax bills out of a fund called the Senior Citizens Real Estate Deferred Tax Revolving Fund. 30 ILCS 105/6p-4; 320 ILCS 30/5. Thus, the Department of Revenue actually pays the real estate taxes and satisfies the real estate tax lien. In exchange, the land becomes subject to a newly-created lien for deferred taxes, perfected by the recorded statement of tax deferral, in an amount equal to all sums paid by the Department of Revenue. 320 ILCS 30/4.

Satisfying the Lien


The lien for deferred taxes becomes due either one year after the taxpayer's death, 90 days after a triggering event occurs, or before a sale or transfer of the property is legally closed and recorded, whichever comes first. 320 ILCS 30/3. Under the act, a triggering event occurs under the following conditions: (1) the property no longer qualifies for deferral; or (2) the taxpayer fails to make a timely claim for deferral of the following year's taxes. 320 ILCS 30/3. If the lien is not satisfied when due, the collector may institute foreclosure proceedings pursuant to the Property Tax Code. 320 ILCS 30/3. The taxpayer or her spouse may pay the lien prior to the due date. 320 ILCS 30/6. In addition, the taxpayer's child, heir, next of kin, or any other person claiming a legal or equitable interest in the property may pay the lien prior to the due date so long as the taxpayer does not object within ten days of receiving written notice of such payment from the collector. If the taxpayer does not object, the lien is satisfied, but the person who made the payment gains no interest in the property or claim against the estate of the taxpayer, in the absence of a valid agreement to the contrary or as otherwise provided by law.


The collector must forward all funds received on account of the deferred tax lien to the Department of Revenue, which will then replace funds taken from the Senior Citizens Real Estate Deferred Tax Revolving Fund. 320 ILCS 30/7.


The same procedures apply to senior citizens seeking to defer payment of installments of special assessments. 320 ILCS 30/3; Douglas M. Karlen and Rodney C. Slutzky, Tax Collection and Methods of Enforcement, § 5.127 at 5-166 (IICLE 1997).

Determining Priority and Other Unresolved Issues


A real estate tax lien is superior to all other liens and encumbrances. Pappmeier v Green Tree Acceptance, Inc, 193 Ill App 3d 824, 550 NE2d 574, 140 Ill Dec 689 (3d D 1990). If the real estate is sold for failure to pay taxes, the purchaser, upon following proper statutory procedure, obtains title to the property free and clear of all liens, once the two-year redemption period ends. Under the Senior Citizens Tax Deferral Act, however, the real estate tax lien is satisfied once tax payments are made by the Department of Revenue. Karlen and Slutzky, § 5.127 at 5-166. Thus, a deferred tax lien and a real estate tax lien are not equivalent, and presumably do not share the same priority. It appears, therefore, that the deferred tax lien has no special priority over other liens and encumbrances, although the act does not make this clear.


Other problems the act presents include its failure to require disclosure of events that trigger the lien's due date, such as the death of the taxpayer or the sale of the property. Id. at 5-167. Thus, in many cases the collector will not know that the deferred tax lien is due. Another problem is the county collectors' potential reluctance to institute foreclosure proceedings, given the costs and legal expertise required and the fact that the taxes are paid by the Department of Revenue. Id. Even if the collector were to initiate such proceedings under the Property Tax Code as directed by the act, the Property Tax Code provides for foreclosure proceedings only when there are forfeitures of general taxes in at least two separate years. Id.


Since the Department of Revenue pays all the general taxes, forfeitures of general taxes never happen under the act. Thus, the act must be read as waiving the two-forfeiture requirement, although it fails to make this clear. Id. Other unanswered questions include whether the collector can impose an interest charge on the Department if it fails to pay a tax bill prior to its delinquency date, and whether the collector can seek a judgment and order of sale against the parcel and offer it at the annual tax sale if the Department fails to pay an installment altogether. Id. Not surprisingly, the act is the subject of constant legislative change. Therefore, practitioners should consult with the county collector when dealing with tax deferral matters.

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