Real Estate & Property Law

Tax lien system in DC is 'predatory system of debt collection,' newspaper probe concludes

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Elderly homeowners in Washington, D.C., are hardest hit by the tax-sale system in which private investors bid to obtain liens on properties with unpaid taxes and then foreclose when the owner doesn’t pay the escalating debt.

Among those who lost their homes was Bennie Coleman, a 76-year-old retired Marine sergeant with dementia who had an unpaid property tax bill of $134, the Washington Post reports. He lost a $197,000 house and all his equity because of the unpaid bill, which ballooned to $4,999 under the tax sale system.

The Post investigation concludes that the tax-sale program “has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts—then foreclosed on homes when families couldn’t pay.” The bills climb because of interest on the debt, court costs and legal fees that reach $450 an hour. One lawyer even billed $25 for preparing the bill itself.

One company, Aeon Financial of Chicago, sought $6,300 in fees for a $1,680 tax lien. A judge said the amount was unreasonable and allowed only half the fees.

Nearly 200 D.C. homeowners lost homes as a result of tax foreclosures in the past few years, and one in three had liens of less than $1,000, the story says. Others who lost homes included a dying 65-year-old flower shop owner with an initial unpaid $1,025 tax bill and a 95-year-old nursing home resident with Alzheimer’s who originally had a tax debt of $44.79. The brother of the flower shop owner later contested the foreclosure and obtained an $80,000 settlement. The company that foreclosed sold the home for $175,000.

The story notes other cities have fought abuses with fee caps, protections for the elderly, or the end of tax sales. Washington, D.C., has stopped selling liens when the unpaid bill is less than $1,000, though the change isn’t permanent.

The Post investigation has spurred Washington, D.C.’s mayor and other leaders to propose reforms. The city has also canceled 142 tax liens on primary residences sold at the annual auction two months ago, the Washington Post reported in a separate story. The homeowners still must pay their tax bills, however.

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