One of the most appealing aspects of investing in property tax liens is that they are quite secure – most are paid with interest, and the ones that are not are backed by property that can be foreclosed on with the full power and blessing of the law – the media constantly debates the ethics of this type of investment. As more and more professional tax lien investment companies enter the market due to the attractiveness of this type of investment in today’s market, the issue becomes increasingly volatile. Homeowners insist that the interest rates and foreclosures are “unfair,” while county tax commissioners cite their cities’ need for funding and the homeowners’ ultimate responsibility to pay their property taxes or face foreclosure.
Perhaps the issue is particularly starkly portrayed in Atlanta, Georgia. Many Georgia counties do not sell tax liens because they believe that “putting the process in private hands flips the creditor’s incentive at the property owner’s expense” and “is an abdication of a county’s tax collection responsibility”[1]. However, proponents of the process say that it lowers counties collection costs and generates efficient, quick revenue essential to the public works of any city or county. As a result of these stark differences of opinion – particularly when it comes to the ethics of tax sales, many tax lien foreclosures face hot debate and widely divergent media coverage in the state. For example: one woman who had her property reassessed several years ago and ultimately owed $220 more on her tax bill than she paid now faces over $8,000 in charges, “a profit of 2700 percent” for the investors foreclosing on her rental property. She claims that she never was notified of the debt owed and that her mortgage company did not know about it either. The tax commissioner’s office who ultimately sold the lien claims to have gone “beyond its legal duty” in trying to notify her, and blames the mortgage holder for the failure in payment. Now, then entire case is in court, but the foreclosure is still on while the entire process gets trashed in the media.
Georgia’s association of tax officials has a negative view on the entire process, with the president stating that “while the tactic can benefit a county that has difficulty collecting taxes, it generally does not serve taxpayers and is an unpleasant experience.” Would you invest in tax liens in Georgia, or do you prefer “friendlier” states?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.ajc.com/news/tax-lien-sales-shock-787746.html
In an effort to protect its local tax-indebted properties, the city of Huntington, West Virginia recently formed a land bank program under its Huntington Urban Renewal Authority (HURA). The land bank program is intended to keep local properties with unpaid taxes out of the hands of out-of-state landlords by purchasing unpaid tax liens if the owner fails to redeem the lien within 18 months of the original tax sale. The land bank will pay all past-due taxes as well as fines, the current year’s taxes and interest accrued, using a credit line from a local bank. In 2010, the authority purchased $430,786.55 worth of tax liens.
While the purchase of city tax liens by the city when it is Huntington itself that is owed money may be questionable, a bigger ethical issue has now come to light. City council members appear to be benefitting from the requirement that tax lien buyers be local should they wish to ultimately take possession of the property, and many are bidding the minimum on properties at tax sales and may even be using the new land bank program to drive competition away.
At this time, the issue is nothing more than a concern. No charges have been filed, and while some purchases have “set off a blinking light among constituents” according to the Huntington News, most people just want to hear an explanation. The land bank’s official goal is to take the tax liens it takes control of and ultimately, if they are not redeemed, “sell them to responsible owners for rehabilitation.”
Do you think that this is a good practice for the city?
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In 1998, a Baltimore property was sold at a tax lien auction. However, the company that purchased the property never took legal possession of the home and the city has sold the property another three times in the past decade[1]. Since none of the buyers have ever taken legal possession of the home in court, the owner of the property, Reginald Lee (now 61 years old), is fighting for his home. Lee believes that since he has been paying “rent” to the various LLCs that have purchased the tax lien in the past that the home still belongs to his family. “I paid enough rent to people who didn’t own it to pay these taxes, so as far as I’m concerned [the case] should be closed,” he has said. However, Baltimore plans to sell the property again at a coming tax sale, and despite the fact that Lee’s deceased mother’s name is still on the deed, the city plans to make the sale.
Lee believes that the process is simply an attempt to “gentrify” the neighborhood – which has fallen into disrepair and houses a number of drug dealers – and remove the current residents. However, no one has paid taxes on the property, including Lee and his brother, who were left the property when their mother died, in years. Lee believes the rent he paid while living in the house should cover the bill, but the city, who offered him a right to redemption, wants to $11,000 tab paid. He believes that the city “waived the right to collect those taxes” when the property was allowed to remain in legal limbo after the purchasers of the tax lien failed, time and again, to foreclose.
While this “fight” seems to me to be a bit one-sided – after all, if the taxes are not paid then it would be unusual, to say the least, for the city to accept 18 months of rental receipts from 1999 to 2001 instead – the fact that the property has been allowed to simply stagnate for 12 years is ridiculous. Should the city just let Lee keep the house or re-sell the lien and hope for the best?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://investigativevoice.com/index.php?option=com_content&view=article&id=6405:the-longest-forclosure-baltimore-resident-fights-for-twelve-years-to-keep-his-home
In Winooski, Vermont, veterans who are members of the Regular Veterans Association will continue to pay to support their local school system after a ballot measure that would have enabled them to exempt this portion of their property taxes was defeated on Tuesday [1]. While at first this may seem perfectly reasonable, it is, at the least, unusual, since members of Veterans of Foreign Wars and the American Legion are exempt from these same statutes. However, when taxpayers learned they would be picking up responsibility for an additional $6,575 in school property taxes, they voted the measure down. In response, the Regular Veterans are “weighing their options” and hoping to avoid paying an approximately $5,100 property tax bill instead.
Do you think that the Regular Veterans should have to pay property taxes and school taxes?
Thank you for reading! Your comments and questions are welcomed below.
[1]http://www.burlingtonfreepress.com/article/20101104/NEWS02/11040312/Winooski-rejects-property-tax-relief-for-veterans-group
If you buy tax liens with the aim of foreclosing on the property and taking it over for a minimal investment, then you might want to steer clear of Steamboat Springs, Colorado. While the county (Routt) anticipates selling off about 300 properties and recouping about $1.3 million delinquent property taxes, the area’s chief deputy treasurer Lila Stucker says that in Routt county, about 99.96 percent of property owners ultimately pay up[1]. Not only does Stucker expect that the number of properties for sale will decline by the actual November 4 sale, but she adds that a number of owners of the properties, already published in the local paper, have called to let the county know that the check is in the mail.
One longtime local tax lien bidder says that “It’s extremely rare that anybody actually goes to deed,” partly because the parties have another three years to pay off the tax bill. As a result, that bidder said, you should not bid down the interest because that interest is where you are going to make your money if you buy tax liens in Steamboat Springs.
Does this demographic sound appealing to you, or are you just in it for the deeds?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.steamboatpilot.com/news/2010/oct/24/tax-lien-numbers-down-values-routt-county/
Yesterday, we reported on a new development in tax lien investing in which large lenders, including Bank of America, and private hedge funds participate on a large scale in tax lien auctions, buying up hundreds of properties at these auctions and either collecting the debts – along with legally allowable fees and interest – or foreclosing on the properties. Not surprisingly, it did not take long for a number of people to come down in harsh judgment on these tax lien buyers, perhaps because many of the banking entities like Bank of America received taxpayer-funded bailouts in the past few years and some see the purchase of tax liens as using taxpayer funds to “profit from homeowners having trouble paying their tax bills”[1]. A number of people jumped in to give their opinions, including a law professor who called the strategy “personally distasteful” and individuals who were angry that many of the properties purchased by BofA were “low-income” properties and those owned by nonprofit public interest groups.
While it may not have been strategically wise from a PR standpoint for BofA to buy liens on wildlife rescue group shelters, Salvation Army shelters or preschools, the real issue seems to be the “sneakiness” of the process. Bank of America, Fannie Mae and JP Morgan all invest funds in tax lien properties, but usually under colorfully-named aliases with P.O. box business addresses that help maintain anonymity.
Do you think it is reasonable to criticize big banks that purchase tax liens? Should their doing so be publicly available information and should it be regulated?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.timesunion.com/default/article/Leaning-on-the-at-risk-709912.php
While Bank of America and other major lenders are facing serious problems with their foreclosure processes, they are always looking for new ways to expand. Many of the big lenders are in the process of moving into the tax lien collecting business[1]. Just as when private investors purchase property tax liens and property tax certificates, these big corporations are also able to levy fees and interest on the properties and even foreclose if the debt goes unpaid for long enough. In an economy where many real estate investing options are trickier than usual – and where lenders are losing big time as loans go delinquent – tax lien investing could be a bright spot for lenders just as it is for other real estate investors.
Are you buying more tax liens rather than doing other types of investing right now?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.huffingtonpost.com/2010/10/18/the-new-tax-man-big-banks_n_766169.html
While politicians all over the country are busy demanding a moratorium on foreclosures while affidavits and procedures are evaluated, there will be no moratorium for residents of Washington, D.C. who have failed to pay their property taxes[1]. Just two weeks ago, D.C.’s auction resulted in the collection of more than $11.2 million in tax revenue and tax lien investors began the process of trying to redeem their liens or foreclose on the property, which, in Washington, can take two to three years in some cases. In the most recent auction, 66 bidders participated and won their bids. Washington, D.C. uses a tax lien certificate process and requires a foreclosure before the bidder can take possession of the property.
Do you invest in D.C.? Are you concerned that foreclosure moratoria could impact your tax lien investing?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.washingtonpost.com/wp-dyn/content/article/2010/10/13/AR2010101308237.html
A decrease in the volume of properties up for grabs at this year’s city tax foreclosure auction in Buffalo, New York indicates improving economic conditions, reports the local commissioner of assessment and taxation[1]. The number of people delinquent on property taxes and at risk to lose their properties is at a three-year low, indicating that the economic situations of many local residents have improved. The commissioner, Martin F. Kennedy, expects the list of 3,983 to shrink by as much as an additional third by the time the auction rolls around. This is far better than in 2008 and 2009 when over 5,000 properties were at risk this time of the year.
The city is providing lawyers to assist with the setup of payment plans and assistance and education sessions for homeowners and advocacy groups are in place to help the “elderly, disabled or disadvantaged.”
Have you noticed this trend at the tax lien auctions you attend?
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[1] http://www.buffalonews.com/city/communities/buffalo/article207448.ece
In Pennsylvania, the state is getting ready to try to embarrass citizens and businesses into paying their taxes. At the end of a 54-day amnesty period during which penalties and interest were waived on tax bills, the state is getting ready to roll-call those who are still delinquent[1]. This is the other half of the deal that the state Department of Revenue initiated with the amnesty period, during which $261 million were collected, although in one county, more than $1.8 million remained unpaid.
“We don’t like to go the embarrassment route, but these folks have left us no other option,” said Department of Revenue spokeswoman Elizabeth Brassell. She is hoping that businesses, in particular, will experience negative ramifications of having their delinquencies publicized and pay up rather than lose consumer traffic.
To some extent, this type of publicity has been going on in the tax lien arena for years, since properties that are delinquent are publicized and ultimately placed up for auction. Do you think that trying to embarrass people with delinquencies is appropriate? Does this method bother you?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.centredaily.com/2010/10/10/2262507/state-aims-to-shame-debtors.html