Tax Lien Sales: Vulnerable Homeowners Fall Prey to Investors

Tax Lien Sales: Vulnerable Homeowners Fall Prey to InvestorsThe retired Marine sergeant owed $134 in property taxes, but the D.C. local government sold the tax lien to an investor who foreclosed on his $197,000 house.
Bennie Coleman lost his Washington, D.C. home two years ago through a tax lien sale, a program that has evolved from the more familiar income opportunities for mom-and-pop investors to a predatory-like strategy that displaces vulnerable homeowners who may have initially owed just a  few hundred dollars in property taxes.
The Washington Post has chronicled this new trend borne out of the financial crisis that left many local governments scrambling to collect unpaid property taxes.
“The (tax lien) program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found,” the Post writes.
Here’s how it works:
Unpaid property taxes become liens, which eventually would allow the city to foreclose to force payment of the tax — with the primary intent of clearing the back taxes on the property.
But rather than giving the property owner another chance to pay, the city sells the rights to the liens to private investors who can charge the property owners interest and fees — seemingly with the intent at making it impossible for the homeowner to climb out of the financial hole.
After six months, if the original lien and added fees aren’t paid, the investor can seize the property.
In 2007, the Post reports, six companies dominated a lien auction by the city, buying up the foreclosure rights to 2,000 delinquent properties for $5 million. The value of the properties: more than $666 million.
Other cities and states have done something to curb tax lien sale abuses, including capping the fees charged by lien holders, safeguarding houses owned by the elderly or by eliminating tax sales altogether — and instead collecting the money themselves.
But the District has done little to protect its most vulnerable homeowners.
The Washington Post: “Foreclosures have upended families in some of the city’s most distressed neighborhoods. Houses were taken from a housekeeper, a department store clerk, a seamstress and even the estates of dead people. The hardest hit: elderly homeowners, who were often sick or dying when tax lien purchasers seized their houses.”

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