Local laws do little to protect homeowners
Local governments placed tax liens on more than 1.6 million properties nationwide last year, but tax collectors from Illinois to Florida to New Jersey acknowledge there are few safeguards in local laws to prevent the private investors who bought them from taking advantage of distressed homeowners, according to a Washington Post study.
Above: In Cleveland, Crystal Evans worries about the house across from hers that was taken by Aeon Financial through foreclosure. (Michael S. Williamson / The Washington Post)
Instead, tax officials say they are trying to keep tabs on an evolving industry dominated by a new breed of well-funded investors who buy liens in multiple cities off the Internet, often shrouding their identities behind limited liability companies.
The federal government, for its part, has rarely stepped in: It doesn’t track where, when or how liens are sold, or require local officials to vet the backgrounds of the investors who stand to profit.
As U.S. senators call for a national probe of the industry, housing advocates say it’s time to reform an under-the-radar enterprise that affects hundreds of thousands of families nationwide.
“There are standards that need to be put in place,” said John Rao, a lawyer with the Boston-based National Consumer Law Center and one of the country’s leading experts on tax liens. “There has been an opportunity for states to clean up their houses, if you will, and it’s not happened.”
The Post analyzed industry data and found that tax collectors in roughly half of the nation’s counties routinely sell liens or similar instruments to investors, who then charge property owners interest — and sometimes hefty legal fees — until the debts are repaid.
Where tax liens are sold
Many local jurisdictions have been selling tax liens for decades to recoup badly needed revenue from delinquent property owners. No government agency tracks the sales, but a Washington Post analysis of industry data found that last year, more than 1.6 million liens nationwide were put up for sale, usually to private investors. About half the counties in the country routinely sell tax liens, and this map shows data for 854 that did so in 2012. Other counties used other methods, including collecting the debts themselves.
Number of tax liens and redeemable deeds for sale in 2012
Note: This data came from a company that collects tax sale information nationwide. Some jurisdictions that sell liens may not be included because their sales lists were not made public in advance or because they negotiated bulk sales to investors. Some states, such as Virginia, show no lien sales because delinquent taxes are collected by local governments. Totals may include liens for utility charges and other debts to local government as well as property taxes. Redeemable deeds, which are similar to tax liens, make up about 5 percent of the national data and are also included in totals.
Miami-Dade County put up 57,000 liens for sale last year alone — more than any other county in the country, followed by Lee County, Fla., and Jefferson County, Ky., which each offered more than 40,000 liens. Baltimore City, offering 23,000 liens, ranks 14th-highest nationwide out of more than 800 jurisdictions tracked by The Post.
Prince George’s County ranked 73rd and the District 75th. Each put up about 5,500 liens.
Local governments have been selling liens since at least the 19th century, most often to local investors. Over the past decade, banks, hedge funds and other institutional investors have edged out local buyers, drawn to the possibility of double-digit profit margins.
With few protections in place, abusive practices have emerged.
In Florida in 1998, then-Attorney General Bob Butterworth found large companies were rigging auctions to win liens, costing homeowners hundreds of thousands of dollars.
In Georgia in 2002, the Atlanta Journal-Constitution reported that tax lien companies were charging homeowners tens of thousands of dollars in penalties to reclaim their properties. The Birmingham News described a similar trend in Alabama three years later.
In 2006, The Capital newspaper in Annapolis reported that a small group of well-financed bidders had dominated the local auction, buying 74 percent of all the liens sold.
In 2007, the Baltimore Sun conducted an investigation that found some of those same bidders were dominating tax auctions in Baltimore, where they were buying up water and sewer liens and charging high fees. Federal investigators would ultimately find that the bidders were rigging auctions across Maryland, leading to three convictions for criminal conspiracy.
The Post revealed in September that companies connected to those bidders had engaged in highly unusual bidding patterns in the District, too, then moved to take homes through foreclosure under the watch of city leaders.
“Ten years ago, this wasn’t a problem.”
—Howard Liggett, a former Florida tax collector who served as executive director of the tax-lien industry's trade group
In Cleveland, Lily Miller grew so frustrated with tax lien investors that she started blogging in 2008, criticizing government officials for allowing investors to “destroy lives and neighborhoods.”
In 2012, Rao at the National Consumer Law Center weighed in, calling the tax lien industry’s effect on homeowners “the other foreclosure crisis.” In a national report, Rao found that few states have policies to protect property owners’ equity during tax lien foreclosures.
Some local governments have tried to make changes. Oklahoma bars tax lien sales on homes owned by elderly or disabled low-income families, Kentucky limits the fees charged by investors and Erie County, New York, has dropped tax lien sales all together.
States including Virginia and North Carolina try to collect the back taxes in-house, often by hiring debt-collection agencies.
Howard Liggett, a former Florida tax collector who served as the executive director of the industry’s trade group, said additional protections are needed, particularly as online auctions open tax sales to the world.
“Ten years ago, this wasn’t a problem,” Liggett said.
Liggett has been especially critical of tax lien auctions in Florida’s counties, which sell more liens collectively than any other state, The Post found. There, investors from across the country increase their odds of winning liens during auctions by creating thousands of spinoff companies that send in blast bids.
“Anyone from anywhere can do it,” Liggett said.
Members of the Senate, led by Sen. Ron Wyden (D-Ore.), have called on the Justice Department and the recently created Consumer Financial Protection Bureau to probe abusive practices, which would constitute one of the first nationwide investigations of the industry.
The lawmakers were prompted by the Post investigation in September that found tax lien investors, many from out of town, had foreclosed on nearly 500 properties in the District in recent years, often over tax debts of just hundreds of dollars. Many of the homes were owned by the elderly, the poor or the disabled.
Debbie Cenziper, Michael Sallah, Jennifer Jenkins and Ryan Oliver contributed to this report.