Illinois Homeowners Associations and Subdivision Developers - Are You Overpaying Property Taxes On Common Area Parcels?

I represent some Illinois homeowners associations, and in the past year have seen several for which the association common areas received property tax bills and assessments as if they were privately owned parcels. In one case that was just resolved, I was able to help the association timely appeal the assessment, make our case before the county board of review, demonstrate the error to the county, and achieve a significant tax savings for the HOA and its residents (in that case, the assessed value went from in excess of $100,000 to essentially $0). Here's the reason why:

In Illinois, the property tax code (See in particular 35 ILCS 200/10-35) contains a special provision for subdivision common areas, specifying that the assessed value of such parcels is fixed at $1.00. For such properties, the valuation of the individual lots in the subdivision is supposed to already account for the value of the common areas and any common area amenities. It does not matter how fancy is the pool, clubhouse, etc., that parcel is still assessed at $1.00, so long as the parcel is and remains set aside for the use and enjoyment of the lot owners/residents.

Note that the statute does not specifically mention the words "homeowners association;" it is written broadly enough to apply to any subdivision that has common areas, including for example a new subdivision under development before "turnover" from the developer to the association. The key is that the parcel be set aside in the governing documents (typically the "declaration of covenants") for beneficial use of the subdivision lots/owners, and that it be actually used and maintained in that manner.

There are a few cases where courts have found the subdivision lost this special tax status for its open areas, because the developer/association failed to continue to preserve its use as being solely for subdivision lots. In Oliver-Hoffman Corp. v. Property Tax Appeal Board, 860 N.E.2d 858 (2nd Dist. 2006) the developer had offered and sold "memberships" to non-lot owners/residents, to use the pool and clubhouse. In Lake Point Tower Garage Association v. Property Tax Appeal Board, 804 N.E.2d 717 (1st Dst. 2004) the association sold parking permits to nearby businesses, their employees and customers. The courts have found that where the developer/association uses the common area parcel for such commercial enterprise, for example, the parcel is no longer set aside solely for the use and enjoyment of lot owners/residents, and therefore the Section 35 "fixed at $1.00" assessment does not apply.

If you live in a subdivision or association, you can verify whether you are being properly taxed, by checking the tax bills for the common area parcels. If you believe yours is in error, let your association board or developer know. It is a good idea to try calling the local assessor and point out to them the issue; however this may not result in an immediate correction. Property tax assessments have very strict windows of time in which challenges can be filed, typically about a month from when the new assessments are published. So you may not be able to correct the error until the next assessment is issued, generally in early fall. If you are an HOA board member or developer, consult with an attorney, but also you can check with your local county in terms of the process for challenging an assessment. Note that the statute has a different procedure for counties of 3 million or more residents. The statute also has a provision regarding transfer of ownership (or change in use), and says it is the new owner's duty to inform the assessor and act to keep the $1.00 valuation. So for example if your subdivision developer worked with the county and obtained the $1.00 valuation, at turnover to the HOA the statute says it is the HOA's duty as new owner to notify the assessor within 30 days of the change.

In my recent case, the assessor, board of review and its attorney, were all very cordial and professional to work with. The process had to play out--that takes time, but appropriately so. But really the professionals reviewing the case from the local government side all did their jobs well and clearly their goal was to get this done right, which I know is the case for the vast majority of these. If you think there may be a mistake in your tax assessment, don't hesitate to call and ask, or to file an appeal within the allotted time frame.