On Sunday, Washington Post reporters Michael Sallah, Debbie Cenziper and Steven Rich premiered a devastating investigative series showing how the D.C. government sold property liens to various local and outside investors who used those late property tax bills, often tiny in scale, to extract thousands of dollars out of low-income homeowners, often forcing them out of their homes.
It's hard to do justice to the stories, which took 10 months to report, so you should read the two parts that are up on our site and in the paper now. Meanwhile, here's a list of the seven worst things described so far.
1. Bennie Coleman's $134 property tax bill.
The series begins with the plight of Bennie Coleman, an elderly Vietnam veteran who suffers from dementia. "He would forget to pay bills or buy food," Sallah, Cenziper and Rich write. "His next-door neighbor would often bring him plates of chicken and carrots."
In the summer of 2011, Coleman, then 76, was foreclosed upon and forced out of the home he'd lived in for two decades. The whole mess was started by a $134 property tax bill from 2006 — a paltry sum next to the $197,000 value of Coleman's Northeast Washington home, which he owned outright. The city placed a lien on the property and sold the lien to investors. Those investors then imposed thousands in legal fees (featuring hourly rates of up to $450), interest on the original debt and other charges.
By 2009, the lien on Coleman's home had accumulated $183 in interest in penalties, and Coleman's son paid the $317 bill. But the Maryland investment company that bought the lien had already initiated foreclosure proceedings, The company's lawyer offered to lift the lien only if Coleman or his son paid legal fees and expenses totaling $4,999. Coleman's son wrote to the court for help.
The younger Coleman paid $700 in 2009, but could not pay the rest. In June 2010, the foreclosure was approved. And the following summer federal marshals showed up to force Bennie Coleman out when he refused to leave. It seems pretty clear that Coleman could not understand what was happening to him. “He had no chance,” said attorney Robert Bunn, who became Coleman's court-appointed conservator. “He has dementia. He did not understand the ramifications of what was going to happen to him.”
The day he was forced out, Coleman slept on his porch. Now he lives in a group house a mile from his old house, which was sold for a mere $71,000 two months after the eviction.
2. Coleman's not an extreme case, as many of the tax bills in question are small.
"Of the nearly 200 homeowners who lost their properties in recent years, one in three had liens of less than $1,000," write Sallah, Cenziper and Rich. That's changed for the better, as the government has recently stopped selling liens on debts of less than $1,000. But right above that cutoff, lien sales are still happening. In a written statement on the foreclosure of the Sherman Avenue NW home of Thomas McRae over a $1,025 tax debt, the city tax office told The Post, that $1,025 was "not a small debt."
3. And the victims are overwhelmingly poor and minorities.
Unsurprisingly for a city that's still (barely) majority black, and in which whatever prosperity exists is heavily concentrated in white neighborhoods, the liens and ensuing foreclosures primarily hit poor and minority households. The Post found that 72 percent of pending foreclosures are in neighborhoods where less than 20 percent of the population is white. "More than half of the foreclosures were in the city’s two poorest wards, 7 and 8," Sallah, Cenziper and Rich write, "where dozens of owners were forced to leave their homes just months before purchasers sold them." Those two wards are both primarily made up of neighborhoods east of the Anacostia River, an area of concentrated disadvantage in the District.
4. Overall, 13,000 people were affected.
The Post found that 13,000 liens have been sold since 2005. A little less than half were resolved after back taxes were paid, plus interest, which is possible within the first six months after a lien is sold. The rest — more than 7,000 since 2005 — became foreclosure cases, in which investors can charge copious legal fees. In fact, they face no cap on how much they can add in fees. Nearly 200 homes, assessed at $39 million, have been taken by investors during the eight-year period The Post examined.
5. It starts at an auction.
About a year after homeowners fails to pay a tax bill, the liens are sold at the same price as the debt, with homeowners generally receiving a number of warnings. These used to be quiet affairs, but in recent years they've become raucous circuses, with hundreds of bidders. The companies of one investor, Steven Berman, alone bought 326 liens that totaled $1.2 million in 2011 alone.
6. The bidders for the liens colluded.
Berman owned three companies that, along with three other firms owned by other investors — Harvey Nusbaum and Jack Stollof's 2005 DC, Aeon Financial of Chicago, and a Florida-based company called Heartwood — took turns winning liens on $540 million worth of property, a pattern of collusion that the city government never noticed. The Post's analysis, conducted by Boston area antitrust experts and economists, found that the odds of the bids that occurred happening by chance was less than 1 in 1,000. The Maryland government noticed, and Berman, Nusbaum and Stollof were all convicted (the latter two after guilty pleas) in federal court in 2010. Berman got probation and $750,000 in restitution, but only a year later he was bidding for liens in the District again.
7. The whole thing started because the D.C. government didn't want to handle these cases.
The reason that the liens became so lucrative and attracted the likes of Berman, Nusbaum and Stollof was that the investors could rack up legal fees, making it hard for homeowners to pay back what they owe and increasing the odds of a profitable foreclosure and sale of the property. That was only possible because of a change in District policy. It used to be that, if there was a foreclosure, it was handled by the city's tax office. "But the work overwhelmed the agency, and in 2001, city leaders made a critical change: They told investors to head directly to court to file a foreclosure case," Sallah, Cenziper and Rich write. "The move empowered investors to start charging legal fees and court costs — a game changer that allowed them to turn minor delinquencies into insurmountable debts."
The tax office still defends the program. Stephen Cordi, the city's deputy chief financial officer, says there's no evidence collusion is happening in D.C., an assertion belied by The Post's analysis. But even if collusion did occur, Cordi defends the investors. "Cordi said if bid rigging had occurred, it would not have deprived the city of money or affected property owners," Sallah, Cenziper and Rich write. He claims that the District doesn't have the authority to ban the bidders because they got in trouble in Maryland, and that excluding them could lead to a loss of revenue.