D.C.’s tax-sale system lacks notice to homeowners, attorneys say

Correction: An earlier version of this article incorrectly implied that the D.C. Bar Foundation runs the Tax Sale Resource Center. It is run by the D.C. Bar Pro Bono Program. This version has been corrected.

May 28, 2012

Theresa Bollech found out by chance that a neighbor had purchased a tax-sale certificate on her family’s home in the Chevy Chase neighborhood in the District and was quietly planning to foreclose in a matter of weeks.

The Bollechs weren’t deadbeats. But they were at odds with the D.C. Office of Tax and Revenue over their homestead exemption.

They say they never received notification last year that the city had placed a lien on their property and sold it to the neighbor in July at a tax-sale auction.

In that, their experience was typical of a system in which the District sells tax-sale certificates — liens — on properties owing as little as $500 in back taxes or utility bills to speculators and financial institutions that are not required to notify property owners until they begin foreclosure proceedings, according to attorneys working with a consortium called the Alliance to Help Homeowners Maintain Equity.

“The current tax sale system deprives affected homeowners, many of whom are elderly or economically disadvantaged, of fair treatment, including constitutional protections,” alliance attorneys said in a recent letter to Mayor Vincent C. Gray (D) and D.C. Council member Jack Evans (D-Ward 2). “As a result of these issues, thousands of tax sale foreclosure cases are in litigation before the D.C. Superior Court at all times.”

District officials defend the system without hesi­ta­tion. The Office of Tax and Revenue sends property owners two final bills in the spring of each year for delinquent taxes or utilities. The bills include language about the tax sale. A third notice is sent to the owner of record stating explicitly that a property is going to auction, officials said.

“We’re not in the business of trying to keep people in their homes, we’re in the business of fairly putting these properties back on the tax roll,” said Vladimir Jadrijevic, the OTR’s director of assessments.

But all parties agree on one critical aspect of the system — the notice property owners receive immediately after the tax-sale auction: none. The city passes that responsibility to purchasers, who are required to notify property owners only when they file to foreclose, a motion that can’t be legally pursued until six months after a sale.

“There’s just not nearly enough being done to alert property owners,” said Laura Newland, who, as legal counsel for the elderly at AARP, has been involved in more than 130 cases related to tax sales. “The system isn’t working.”

Theresa Bollech said she and her husband didn’t know that the city had sold a tax certificate on their home in the 5700 block of 27th Street NW last July to a neighbor because they never received notice before or after the sale.

What’s more, she said, no one from the District said a word to them about the sale during a hearing in September with the director of the OTR’s homestead unit over the root cause of their delinquency — the disputed homestead exemption, which significantly reduces assessments for residents who claim a D.C. property as their primary home. (The unit ultimately ruled in the Bollechs’ favor.)

They wouldn’t learn that a neighbor had purchased a tax certificate on their home for months. But it became the subject of gossip in their neighborhood, and a neighbor tipped them off just weeks before the neighbor who purchased the certificate could have initiated foreclosure proceedings.

“There’s no way to describe what it feels like to think you’re going to lose your home,” said Bollech, sitting at the dining room table that now doubles as a repository for hundreds of tax documents. “How could they do this to us? How could they not say something?”

The city’s dual-step collection process, in which the OTR is responsible for auctioning off the lien but the investor who purchases the tax-sale certificate is responsible for the ensuing action, makes for a complicated system.

At the tax sale, a winning bidder assumes the delinquent taxes on the property, any penalties that have accrued and an auction fee. If and when the property owner pays off the taxes, the purchaser is refunded the original sale price plus 1.5 percent per month interest on the tab. If the owner fails to pay up within six months of the sale and the purchaser files a foreclosure suit, the owner must also foot the purchaser’s attorney fees.

Last year, the OTR collected almost $12.8 million after auctioning off more than 2,340 liens. With increased collection efforts has come more litigation.

As the number of civil tax cases began rising sharply two years ago, the law firm Crowell & Moring, a member of the Alliance to Help Homeowners Maintain Equity, worked with the D.C. Bar Pro Bono Program to staff a pro bono tax-sale foreclosure resource center. The common theme was that the District was not doing enough to keep property owners in the loop about tax sales.

Crowell & Moring recently submitted on behalf of the alliance a list of complaints about the tax-sale process to Gray and the D.C. Council. Notice has proved to be the most “acute” of those issues, the firm said.

If notice is sent to the wrong address, or to the address of an owner who is not the occupant, the District is not held liable for the tax sale of the property.

“These are people who want to pay off their taxes, who want to stay in their homes,” said Karen Hermann, a lawyer at Crowell & Moring. “But they can’t do that if they don’t know. So many people are telling us that’s the case.”

Actual foreclosure on tax-sale properties is typically avoided. Almost 97 percent of the time, the deed does not change hands on a tax sale, according to Jadrijevic. Most purchasers view tax-sale certificates as investments rather than potential properties.

But the price to avoid foreclosure can be high. Legal fees, for instance, often add up to more than the initial taxes owed because there is no cap on attorney costs in the District.

In Baltimore, which also employs a tax-sale system, there is a $500 cap on attorney fees, and property owners are entitled to demand that the city produce proof of final legal notice. D.C. residents are not afforded either of those rights.

It’s the costs above and beyond the back taxes that are a point of contention in many of the civil tax cases in D.C. Superior Court. Purchasers looking to collect on investments are pitted against property owners struggling to pay off back taxes and penalties.

OTR officials say the office’s notice system is sufficient.

In addition to the two final bills and a final notice of sale before the auction, the OTR publishes a list of tax-sale properties in the Washington Times, the Washington Informer and the Current Newspapers.

The question is whether those inserts constitute notice or advertisements. OTR officials said they serve both functions. But lawyers at Crowell & Moring disagree.

“Most of what [the OTR does] before the sale is intended to attract purchasers, not to notify homeowners,” said Todd Rosenberg, an attorney at the firm.

Last summer, the OTR hosted three tax-sale workshops leading up to the summer auction and published a 17-page tax-sale manual. All were structured primarily for potential investors and OTR employees.

Systems for tax-sale notice vary by locality, but the two-step foreclosure process is the most confusing for property owners, according to Frank Alexander, an Emory University School of Law professor who consults localities on best practices in tax-sale notification. A series of Supreme Court rulings have allowed for some “flexibility” in notice standards, he says.

Bollech often returns to the issue of notice when she talks about the past year. She also tends to tear up and shake her head.

To void the tax sale, the Bollechs paid off roughly $22,000 in taxes and fees in December, days after learning about the sale. The OTR has since refunded the couple about $8,000 in penalties. Bollech is still seeking a further breakdown of what she and her husband were required to pay.

She has sought assistance from the D.C. Council, but she says no one has responded. “I am truly disappointed,” Bollech said in a letter to The Washington Post. “Apparently D.C. homeowners losing their homes via a tax sale auction is not at the top of the D.C. city council’s list.”

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