Photo: jmsmith via flickr
All it took was an erroneous property tax bill to nearly cost Atlanta, Ga. resident Rita James the home she lived in for half a century.Before she knew what hit her, the county tax commissioner’s office found her in default, issued a tax lien against her home and sold it at auction to a debt collection firm that wanted her out. It took her four years in court to win it back.
Unfortunately, cases like James’ are all too common, as state and municipal tax offices scramble to meet their bottom line by aggressively pursuing unpaid property taxes––even if it means foreclosing homes to recoup a few hundred bucks.
As a result, annual tax lien sales have topped $15 billion per year, according to a report released by the National Consumer Law centre on Tuesday.
“Homeowners throughout the nation, particularly the elderly and people with cognitive challenges, have lost or stand to lose family homes along with long-term equity which may represent their sole savings and security for retirement,” said NCLC Attorney John Rao. “As a result, foreclosures related to tax lien sales may destabilize entire communities.”
Take Florida for example, which has become the poster child for foreclosure since the housing crisis took hold in 2008. The state sold a whopping $1.8 billion of a total $2 billion in back tax liens in 2009 alone, according to the NCLC.
It’s easy to see why.
For one thing, the process is speedy compared to loan modifications that drag on for years. It’s too speedy, if you ask the NCLC, which recommends states implement a regimented, court-supervised schedule for tax lien sales and do more to keep homeowners in the loop so they won’t be blindsided like James.
For savvy investors, tax lien sales are nothing less than a gold mine. Big purchasers––for example, debt collectors or large retail banks––can snap up the properties at deeply discounted rates, then sell them at a ridiculous profit.
From the report:
“Investors take advantage of the fact that the tax sale process is arcane and rarely understood by homeowners. And states do little to inform homeowners about steps they can take to avoid foreclosure. Very few states have enacted procedures to protect owners’ equity interests or to avoid windfalls to purchasers, and almost no states have updated tax lien laws to reflect current economic conditions or to ensure that proper safeguards exist to avoid unnecessary loss of homeownership.”
To make matters worse, homeowners who want to put up a fight can’t do so without paying an assortment of interest and fees to have their property rights redeemed. NCLC argues those penalty rates could use a refresher––at the state and municipal level.
“State laws should be reformed to limit the maximum interest or penalty rate on redemption amounts to reflect current economic conditions. The interest rate should seek to discourage speculation and promote redemption…Notifications should be used as a tool to avoid loss of homeownership Comprehensive notices should use plain language; include information about tax exemptions, abatements, and repayment plans; and note the consequences of each stage of the tax sale process.”
For a full list of the NCLC’s recommendations, see the report here.