Many banks are reluctant to foreclose on a church or other not-for-profit entity because of the potential for negative publicity. Fortunately, at least for churches, these are rare occurrences. Only about 1.1% of churches close each year and most of these have orderly dispositions of their properties. Is some cases, however, banks are required to foreclose on a church or other not-for-profit that may have a tax exempt status on their real estate.

We were recently involved in a situation where a Chicago area bank questioned their potential real estate tax liability should they foreclose on a church and take title. We consulted with several Chicago area real estate tax attorneys and township assessors and they all indicated that the bank could have a real estate tax liability. Since the bank is not a tax exempt organization they could be liable for real estate taxes.

In Cook County, Illinois (Chicago) not-for-profits are required to submit an affidavit annually confirming the tax exempt use. The property could go for a time without being assessed if the Assessor has no notice of the change. The bank could be liable for back taxes and penalties, however, if they do not notify the Assessor's office.

The amount of property taxes due would depend upon the assessment. A bank could also file for a vacancy allowance and seek further tax reductions although this would need to be handled on a case by case basis and every County may handle it differently. Real estate assessments and tax liabilities can be complex issues and we would recommend consulting an attorney well versed in the subject should the bank find itself in this position. Consulting with a Chicago area tax appraiser could also be considered.