A consumer advocacy group has issued a report highlighting a disturbing practice in which elderly and other vulnerable homeowners are losing their homes over as little as $400 in unpaid taxes.
The National Consumer Law Center (NCLC) report, “The Other Foreclosure Crisis: Property Tax Lien Sales,” examines the practice of tax lien sales, in which local governments seize homes of owners who fall behind on property taxes or even utility bills. The homes are then sold at auction to major banks, investment corporations or private investors who reap massive profits from the transactions.
Cash-strapped local governments have seized properties for as little as $400 in unpaid taxes or fees, NCLC says. CNNMoney reports that one case cited involves an 81-year-old Rhode Island woman who owed $481 in unpaid sewer bills and lost her family home of more than 40 years because she was unable to pay. Her home was sold to a corporation for $836.39. That corporation then resold the home for $85,000, a profit of more than 10,000 percent.
Such practices are “devastating for individuals, families and communities,” John Rao, an NCLC attorney and author of the study, told ABC News.
“Homeowners may lose not only a homestead but also hundreds of thousands of dollars in equity,” the report adds. “This equity may represent their sole savings and security for retirement. As a result, foreclosures related to tax lien sales may destabilize entire communities.”
The rules concerning tax lien sales can be especially confusing for elderly homeowners or low-income and minority homeowners targeted by unscrupulous subprime mortgage lenders who offer little or no assistance with property tax matters.
The process begins with a local government filing a tax lien, threatening property seizure if the taxes or bills owed remain unpaid. If they are not, the government then auctions the lien to investors. These have included major banks such as Bank of America and JPMorgan Chase, both of whom claim to have stopped purchasing, bundling and reselling tax liens (although they still hold liens they previously bought and they also manage liens for other institutions and investors).
Homeowners have the option to repurchase their homes for a limited time if they pay the investors the cost of the lien, plus additional interest, fees and other costs. CNNMoney reports that investors are allowed to charge exorbitant interest rates on outstanding debt, sometimes as high as 50 percent. If the owner cannot pay these costs, the investors can sell the home at a massive markup over the price of the tax lien.
The NCLC report urges governments to make it easier for homeowners to repurchase their homes following tax lien sales, in part by capping interest and fees that investors may charge. Increased court oversight is also recommended, as is the institution of installment agreements to make it easier for owners to pay off their back taxes or bills.