Washington DC officials have set up a controversial program that allows out-of-state investors to initiate foreclosures against homeowners who have fallen behind on their taxes, in some cases for just hundreds of dollars.
The District of Columbia for many years placed liens – a means of
debt security - on properties when homeowners failed to pay their
taxes. Those liens were then sold at public auctions to investors
who were able to make a profit by charging the homeowners
interest on top of the tax debt until the total bill was repaid.
The program, however, has turned into a “predatory system of
debt collection for well-financed, out-of-town companies that
turned $500 delinquencies into $5,000 debts,” an in-depth
Washington Post investigation reported.
In many cases, homeowners were left homeless after a foreclosure
was placed on their residences.
The paper relayed the story of Bennie Coleman, 76, a decorated
veteran of the Marine Corps, who was forced out of his $197,000
house by US Marshals as movers cleared out his home of all his
worldly possessions.
The reason for Coleman’s eviction: He was unable to foot the bill
for $134 in property tax.
The report described a scheme where well-funded investors moved
into town and “scooped up” liens against homeowners. At
this point, the system spiraled out of control as the investors
started charging the homeowners exorbitant amounts in legal fees
and other costs that “far exceeded their original tax
bill.”
Although some families were able to come up with the money and
save their homes from foreclosure, others were not so fortunate.
Tax lien investors have demanded foreclosures on nearly 200
houses since 2005 (assessed at $39 million) and are now moving to
take 1,200 more - and despite the fact that some of the homes
have been in families for generations.
Investors also assumed control of businesses, parking lots and
vacant land - around 500 properties in all - or an average of one
a week, the Washington Post report revealed. In “dozens of
cases,” the tax liens amounted to less than $500.
“This is destroying lives,” Christopher Leinberger, a
distinguished scholar and research professor of urban real estate
at George Washington University, told the paper.
Officials at the DC Office of Tax and Revenue defended the
program, arguing that “without tax sales, property owners
wouldn’t feel compelled to pay their bills.”
Of the nearly 200 homeowners who lost their properties in recent
years, one in three had liens of less than $1,000.
The report found that more than half of the foreclosures were in
the district’s two most impoverished neighborhoods, where
“dozens of owners” were forced to vacate their homes just
months before purchasers sold them. In one incident, a brick
house with a $287 lien was sold by an investment company less
than eight weeks later for $129,000.
More disturbing, is that dozens of homes were taken by companies
whose executives were caught “breaking laws in other states to
win liens.”
Instead of taking steps to solve the problem, however, the
District of Columbia’s tax office mistakenly selling nearly 1,900
liens in the past six years, thus forcing unwitting families into
the nightmare of drawn-out legal battles.
The paper pointed to the story of one 64-year-old woman who spent
two years fighting to save her home after the tax office
erroneously charged her $8.61 in interest.
The report put a spotlight on the problem at a time when
thousands of individuals and families stand to lose their homes
to foreclosure.
Every Wednesday, the DC Superior Court is a scene of chaos as
nervous homeowners are forced to defend themselves against
lawyers working on behalf of investors. To date, the tax lien
industry has filed for more than 7,000 foreclosures in the past
eight years alone.
“This is highway robbery,” Brenda Adjetey, who showed up
in court last week to protect her home after her $1,100 tax bill
nearly quadrupled over hefty legal fees charged by the investor.
The Post revealed that 72 percent of pending foreclosures are in
neighborhoods where less than 20 percent of the population is
white.