A Washington Post investigation found that some of those investors demanded thousands in fees from homeowners far exceeding the original tax debts and then took the homes when they couldn’t pay. About 500 properties have been lost since 2005, most in the city’s poorest neighborhoods.
The lawsuit challenges the District’s century-old tax-lien program, saying it is unconstitutional for the government to allow investors to strip owners of all the equity in their homes over small tax debts.
“This is an abuse of government power, and against vulnerable people,” said William Isaacson, whose high-profile D.C. firm, Boies, Schiller & Flexner, filed the suit. “It’s outrageous.”
Mayor Vincent C. Gray’s office referred questions about the lawsuit to the D.C. attorney general, whose office would not comment until it reviewed the case. In recent weeks, Gray and members of the D.C. Council have proposed a series of safeguards to protect vulnerable property owners.
The class-action lawsuit represents a rare constitutional challenge to a system, used by many cities and states, that shifts the responsibility of recovering unpaid property taxes to private investors.
The 18-page complaint could have “national ramifications,” said Frank Alexander, a law professor at Emory University and recognized expert on tax lien systems. “The argument raises a number of very interesting questions in the 21st century: Why can’t the government collect taxes itself and do so in a manner that protects the public good?”
The loss of homes in the District has sparked widespread community outrage and calls for reforms, including a push by a dozen senators for a probe of tax lien programs nationwide.
Coleman, the retired Marine sergeant whose case was chronicled by The Post, was struggling with severe dementia when he forgot to pay his $134 tax bill in 2006, prompting the city to sell a lien on his duplex in Northeast. The investor who bought the lien eventually demanded $4,999 in legal fees and court costs — 37 times the original tax bill. When Coleman couldn’t pay, he lost the house, with armed U.S. marshals showing up in 2011 and ordering him off the property.
For months after the eviction, Coleman slept on the front porch of his former home, propping open the screen door to keep out the wind and rain. He would often flag down passing police cars and firetrucks, telling them that he was locked out, said neighbor Vernice Harris.
“He really felt it was his house,” said Harris, who would give Coleman blankets and plates of food.
The lawsuit, which demands a jury trial, singles out homeowners who are incapable of caring for themselves and questions why the District allows investors to take the equity in homes rather than just the back taxes, interest and fees.
“This is a terrible wrong,” said Isaacson, whose firm represented Vice President Al Gore during the contested presidential election in 2000. “I think it should be stopped immediately.”
Jennifer Jenkins contributed to this report.