Bennie Coleman lost his home two years ago over a $134 tax bill. All items in his home were put out on the street after it was sold at a tax lien sale and the investor foreclosed. (Michael S. Williamson/The Washington Post)

Legislation headed to the D.C. Council this week would deliver some of the strongest protections in the nation for distressed homeowners who have fallen behind on their taxes, including measures to stop private investors from taking homes through foreclosure over small tax debts.

The proposal would overhaul the city’s controversial tax lien program, which for years allowed investors to buy liens on delinquent properties and foreclose when owners couldn’t repay their debts, taking all the equity.

Created more than a century ago, the program was long dominated by small investors. But in recent years, aggressive, out-of-town firms bought up most of the liens and charged owners thousands in legal fees on top of their tax debts, making it harder for families to save their homes.

The proposal is set for a vote Wednesday in the D.C. Council’s Committee on Finance and Revenue and could go before the full council on April 8.

The legislation comes after months of behind-the-scenes talks between housing advocates and council staffers, spurred by a Washington Post investigation last fall that revealed widespread abuses by investors and the loss of hundreds of properties in some of the city’s poorest neighborhoods, often over tax debts of just a few hundred dollars.

Bennie Coleman, a retired Marine sergeant with severe dementia, was forced to give up his house and all the equity when a tax lien investor foreclosed over a $134 tax bill. The 78-year-old Vietnam veteran, who slept on his front porch after federal marshals evicted him on a summer day in 2011, has since bounced between two group homes and a boarding house.

“It’s the idea that somebody had their house taken for $134 and then sold. It’s an outrage,” said D.C. Council member Jack Evans (D-Ward 2), chairman of the finance committee, who is pushing the legislation.

The Post found that about 500 properties had been lost to foreclosure since 2005, including homes owned by the elderly, sick and disabled.

The legislation would cap attorney fees at $1,500 in most cases and lower the interest rate charged by investors from 18 percent to 12 percent. It would also forbid the city to sell liens on homes whose owners owe less than $2,500 in back taxes.

“It’s a long time coming,” said Michael Zimmerman, whose 96-year-old aunt, Daisy Dolsey, lost the family home of five decades over a $44 tax debt while she was in a nursing home suffering from Alzheimer’s. “You’ve got to have some compassion.”

For homeowners who owe less than $7,500 in back taxes, the proposal would give an additional year to pay before the liens were sold at tax sales. It would also create an ombudsman’s office and an Office of Tax Sale Review, which would have the power to advocate for struggling homeowners and could move to cancel the sale of liens under special circumstances. The new offices would operate in the mayor’s office and could cost the city about $500,000 a year.

The proposal would ban companies with troubled backgrounds from buying liens in the District, including those whose owners have been convicted of fraud or other deceitful practices.

The Post investigation found the owner of one company came into the District in 2011 and became the top lien purchaser while he was on probation for rigging tax lien auctions in Maryland.

One of the most important provisions of the proposal would give homeowners who lose their homes to foreclosure a chance to keep most of their equity. In the past, the equity went to the investors. Under the proposal, D.C. Superior Court would order a sale of the property and give the excess proceeds to the owner.

“The equity fix is groundbreaking. It will make D.C. a leader in homeowner protections,” said Joanne Savage, a lawyer with AARP’s Legal Counsel for the Elderly, which has been working on the legislation for months with council staff members.

John Rao, a national expert on tax liens and a lawyer with the National Consumer Law Center, praised the District’s proposal, saying he knows of few other jurisdictions that go to such lengths to protect homeowners’ equity.

“It’s something that people can actually point to — advocates in other states — to show what D.C. actually did,” he said. “It’s a huge improvement in tax sale law.”