The District government has agreed to pay about $1 million to settle a federal class-action lawsuit brought by homeowners to stop tax-lien investors from taking homes in the city through foreclosure, attorneys for both sides said.
In a proposed settlement made public in court Tuesday, the District agreed to pay up to 65 percent of a property’s assessed value to homeowners or surviving relatives whose residences were taken by an often-abusive tax-collection system in which even small tax debts triggered property sales, said class attorney Bill Isaacson of the Boies, Schiller & Flexner law firm.
The agreement calls for average payments of tens of thousands of dollars each to 21 known class members, 13 of whom have been found, Isaacson said, including lead plaintiff Bennie Coleman, an 81-year-old veteran who lost his home over a $134 bill. Owners of blighted properties who did not reside in the homes that were sold would receive 35 percent of assessed value.
“It is a pretty momentous occasion . . . especially for those affected,” said U.S. District Judge Emmet G. Sullivan, who would need to approve the expected motion to settle the case.
Officials in the office of D.C. Attorney General Karl A. Racine (D) confirmed the deal and said it is expected that Mayor Muriel E. Bowser (D) will sign off on it. Her approval is needed because the settlement exceeds $1 million.
The lawsuit was brought after a 2013 Washington Post investigation identified problems in a city program that imposed liens on properties when homeowners failed to pay their tax bills. The liens then were sold at public auctions to private investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid.
The Post found that some investors also demanded thousands in fees from homeowners that far exceeded the owner’s original tax debts and then took homes when owners couldn’t pay. About 500 properties were lost since 2005, The Post found, most in the city’s poorest neighborhoods and about one-third from owners who owed less than $1,000.
“It was tough on my mother and our family when she lost her home . . . but we are pleased to get this settlement to help others in the same situation,” Wendell Robinson, son of Jean Robinson, whose estate is a plaintiff, said in a statement.
Robert Bunn, the court-appointed conservator and guardian for Coleman, said the settlement “will help him and others live out their lives in peace. We’re also grateful that the D.C. Council took action to make sure that this injustice does not happen again.”
Coleman stands to receive $70,000 to $125,000 from the settlement, based on his home’s $197,000 value and proposed sliding scale set by the agreement.
Isaacson, working pro bono, said it was an unconstitutional abuse of power for the government to allow investors to strip owners of all of the equity in their homes over small tax debts, particularly owners incapable of caring for themselves, such as Coleman, who has severe dementia.
When individual cases were identified, problems would be resolved, Isaacson said, but advocates had difficulty tracking down the bigger pool of people affected.
“We never had anybody to sue for, and the [Post] articles found people who had fallen through the cracks,” Isaacson said. “This is what the press does well, what groups like Legal Counsel for the Elderly do well, and every once in a while, private lawyers help.”
Then-D.C. Mayor Vincent C. Gray (D) stopped some home sales, and in 2014, the D.C. Council amended the law to give property owners with unpaid tax bills various protections for at least some of their equity. Now, any money left over from a property sale after the collection of costs such as back taxes, interest and fees must go to the individuals displaced.
As those changes were being made by elected officials, attorneys for the city fought the long-running suit brought by owners who had lost properties, arguing the owners gave up their constitutional rights when they failed to pay their tax debts on time.
Legal analysts had said the case raised interesting legal questions about city and state programs that shift responsibility for recovering unpaid property taxes to private investors.
The settlement leaves open those questions. but Isaacson said he felt the clock ticking to get payments on behalf of many plaintiffs who were elderly or in failing health. “I don’t want to litigate this issue for years and give the money to a bunch of estates,” Isaacson said.
Coleman, a retired Marine sergeant, forgot to pay a $134 tax bill on a duplex in Northeast Washington in 2006, prompting the city to sell a lien to an investor. The purchaser eventually demanded $4,999 in legal fees and court costs, and in 2011, after Coleman couldn’t pay, armed U.S. marshals ordered him off the property.
Coleman then spent months dwelling on the front porch of his former home, telling neighbors that he had been locked out and flagging down passing police cars and firetrucks.