Tax time troubles

On October 20, DuPage County put together its annual Delinquent Tax List.  This is a list of property owners who have yet to pay their 2008 property tax bills.  As you might guess, this year the list of delinquent properties is significantly larger than in prosperous years.  A couple notables have felt the bite.

Among notable Downers Grove delinquents are some banks: US Bank, Mutual Bank, Deutsche Bank, and First National Bank of Brookfield all have ended up holding property they have not paid taxes on.  Chicago Title and Trust too.  Several local and area builders, as well as speculators, have been caught up short, and have taken a pass on paying taxes.  This could be problematic.

One time high flyer Rosol Construction (Georgian Courts on Gilbert and Curtiss) was one of the first to encounter difficulties, but he may not be the last.  It only takes one or two homes sitting unsold, with a construction loan ticking away, eating away at profits.  In what some describe as a race against time to sell a home, time has gotten a sharp set of fangs.  One builder said earlier this year he’s almost dormant, just a couple solid contracts with buyers and remodeling work to tide him over to a better economy.  But there’s still spec homes out there, unsold, loans ticking away.

Not paying your taxes doesn’t mean you automatically lose your property.  Here in DuPage County, a tax sale creates a tax lien on a property that puts the lien holder first in line for any payment.  Depending on the type of property, owners have up to 2 1/2 years to pay off the lien and the interest.  For the banks, they may simply include it as a closing cost when they move the property off their holdings.  For the builders and speculators, it’s another way to use other people’s money as a bridge loan during hard times.  If a builder just finished a $1 million home in time for the downturn, that $10,000 delinquent tax payment (that might cost them 7% on the $10-20K when they finally sell) is worth it, especially with banks being so tight on bridge and construction loans right now.

It’s an arcane way to invest that’s not for beginners.  To start, here in DuPage you have to ante up a $500 participation fee, so homework is essential; you see a lot of tax lawyers at the auctions.  Sorry, the registration ended yesterday.

Going over DG delinquents a couple stood out because they are in our TIF districts:

4929 Forest LLC owes $76,259.42 in unpaid 2008 taxes on 16 units in the development at the same address.  You may remember the builder, Michael Prince, told the council to buzz off when he changed to cheaper building

Click on image for larger version.

materials midstream without approval.  Council did nothing then.  Now, his company, which is listed by the Secretary of State’s office as NGS (Not Good Standing) also has taken a pass on paying his 2008 taxes payable in 2009.  In a couple years there may screaming good deals on some luxury condos on Forest, but in the meantime the village is out almost $70,000 in increment taxes that all would have gone into village coffers.  Ouch.  It remains to be seen if these tax bills will get sold.  Being what they are, they have some value to a tax lien investor, and if/when they get auctioned off the money will go into the hopper and work its way back to Downers Grove months, perhaps a year, later than scheduled.

Records show at least 14 properties in arrears. Click on image for larger version.

An even more troubling sign of the tough times is Luxury Motors.  Through the various companies that make up Joseph Abbas’ holdings, he owns 14 or more properties along the 300 block of Ogden Avenue that total over 205,000 square feet of real estate including Luxury Motors, a Bentley dealership,  Downers Grove Saab, and properties that currently are home to Downers Grove Yamaha, LaMantia Builders, and others.

Mr. Abbas is $70,637.86 in arrears on his 2008 taxes. and his web of companies have several that, starting in December of 2007, have been involuntarily dissolved,  revoked, or not in good standing.  Only one was found to be both active and holding property locally.  3311 Charles, Inc. is listed at 330 Ogden, the empty corner of Fairview and Ogden,  which is also in tax arrears.

Luxury Motors was the high-flying car dealer that Downers Grove had a sales tax rebate agreement with that, pre-recession, generated several hundreds of thousands of dollars for the village, and rebated one year over $200,000 back to the car empire.  When times got tough car sales, especially luxury car sales, collapsed. Village Manager Dave Fieldman canceled the sales tax rebate agreement several months ago and has not made rebate payments for some time now, since Luxury Motors fell below the threshold. Credit Fieldman for looking out for us; we could have been paying them our sales tax dollars while they were not paying us our property tax dollars.

These properties have more intrinsic value at  tax auction than the luxury condos on Forest.  They’re commercial properties along a high traffic artery that’s just been repaired, and the tax bills will probably be auctioned off pretty readily.  It’s up to Joseph Abbas’ various surviving companies to repay the liens or walk away.

In either case, the largest sales tax generator in Downers Grove has been hammered by the economy and DG tax revenues have been hammered right along with them.  It remains to be seen if these tax bills will get sold.  When they get auctioned off the money will go into the hopper and work its way back to Downers Grove months late — like 4929 Forest perhaps a year later than scheduled — but better than never.

Can you blame Sandack and Barnett for the double team at the 11/3 council meeting about getting away from sales tax revenue because of the unknowns?  This was unknown two years ago, but it’s known now — and no one has the stomach for a repeat of relying too heavily on one sales tax giant again.

That’s not a bad thing.  Focus is a good business attribute, but diversity is a must.  Spreading revenue sources across many streams minimizes the damage one can do if it’s suddenly diminished.

Luxury Motors problems have a long-shot silver lining, a wild card that could actually kick start development along that section of Ogden.  With car sales crashing, they may not be able to raise the cash if they are over-leveraged.  It wouldn’t be a stretch for even a proxy to buy the tax bills and in two years or so assume the property ownership, washing away liquidated debt from failed businesses, but leaving extremely low-cost property ready to be developed and redeveloped.