Property Tax Lien Foreclosures: Homeowners Lose; Banks and Local Governments Win

Thursday, July 12, 2012
(book by Larry B. Loftis)
An often overlooked, but nonetheless important aspect of the foreclosure crisis has involved property tax lien foreclosures.
When a property owner falls behind on mortgage payments, local governments can impose a tax lien that, if not paid off, can result in foreclosure proceedings. In order to secure revenue, the governments sometimes sell the liens to private investors, who, in some instances are able to recover interest at rates of 18% to 50%.
Complicating the problem are tax sale procedures that are understood by only investors and purchasers. As the National Consumer Law Center put it in its report:
“Inadequate notice and a lack of judicial oversight over the process leave many homeowners in the dark about steps they can take to avoid a home loss. Homeowners most at risk are those who have fallen into default because they are incapable of handling their financial affairs, such as individuals suffering from Alzheimers, dementia, or other cognitive disorders.”
A homeowner may owe less than a thousand dollars on a house worth $200,000, and yet it may be sold at a tax lien sale for the amount of the tax that is owed. The lien buyer, be it a bank or a speculating investor, makes a huge profit, while the homeowners lose not just their home, but the equity that might represent their life savings.
Property tax delinquencies are estimated to be $15 billion a year. The center recommends that states and local governments reform their property tax lien laws to preserve homeownership.
“Property tax collection procedures should encourage repayment rather than property loss,” according to the report.
-Noel Brinkerhoff, David Wallechinsky
To Learn More:
Executive Summary (by John Rao, National Consumer Law Center) (pdf)
The Other Foreclosure Crisis: Property Tax Lien Sales (by John Rao, National Consumer Law Center) (pdf)
Banks and Hedge Funds Move into the Property Tax Collection Business (by Noel Brinkerhoff and David Wallechinsky, AllGov)


Kevin 10 years ago
i've just discovered that my mom's property is about to become a tax lien property because of an 6-months old unpaid tax of $5.64. of course, i know the process to get it back, but i'll be sure to xerox everything, send via certified mail, delivery confirmation, etc., to make sure no one "accidentally" loses the check again. 6 months?! local governments can be ruthless.
RONALD GREEK 10 years ago
relatively simple fix, eliminate property taxes. imagine if your country government wanted to take some fixed percentage every year of any bank or investment account within the county. how many accounts would be there... property taxes serve to discourage localized development, the same nice house will be taxed more if in a community of nice houses, than if it is off in isolation. with the inflation generated by "uncle" and his friends at the fed, property taxes rise even though the ability of owners to pay is falling.
Jon 10 years ago
real estate tax laws are unique to each state. the state's and its counties decide how property taxes are paid. these taxes have nothing to do with the federal government. north dakota tried abolishing the property tax a month ago; unfortunately, it failed to pass. in florida, they use tax liens before a property goes to auction for delinquent taxes. in florida, the tax lien is called a tax certificate and the bidding starts at 18% and bids down to as low as 0%. the tax lien is superior to a mortgage. therefore, if a bank forecloses on someone's house, and the bank does not continue to pay the taxes, then the tax lien holder could bring the property to auction, and the highest bidder at auction would take legal title to the property, and the bank would lose in court for their right to own the property. lien buyers do not make "huge profits." they will make 0 to 18% on the tax certificate, and it is in the amount of the the delinquent tax amount for a particular year. so if someone owes $1000 on taxes, and is delinquent, the lien buyer makes interest on this amount only. a $200k home would go up for auction, and the highest bidder at the auction is most likely someone entirely different than the lien buyer. anyone can bid at these auctions. by being just the lien buyer does not give you right to the property. the auction will determine who is given the legal right to the property. after the delinquent tax to the county, it takes at least 2 years for this process to work through to an auction. anyone can buy tax certificates or bid at tax auctions. buying the tax certificates and bidding in the tax auctions are not complicated. for the most part, the auctions are local (meaning the person at the auction must be physically present); therefore, big banks can't play in most auctions because it is not easy to bid due to the problem of having to be at each courthouse in every county in every state. banks usually will only participate in the tax certificate sales.
Paul 10 years ago
just goes to show, most people do not understand the difference between "private" property and "real" property. most people have "real" property. we don't really own anything in amerika anymore.

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