Michael Sallah, Debbie Cenziper, and Steven Rich
September 8, 2013
On the day Bennie Coleman lost his house, the day armed U.S. marshals came to his door and ordered him off the property, he slumped in a folding chair across the street and watched the vestiges of his 76 years hauled to the curb.
Movers carted out his easy chair, his clothes, his television. Next came the things that were closest to his heart: his Marine Corps medals and photographs of his dead wife, Martha. The duplex in Northeast Washington that Coleman bought with cash two decades earlier was emptied and shuttered. By sundown, he had nowhere to go.
All because he didn’t pay a $134 property tax bill.
HOMES FOR THE TAKING:
LIENS, LOSS AND PROFITEERS – Part 1 of 3
Part 2 – As federal agents investigated a sweeping bid-rigging scheme at Maryland’s tax auctions, some of those same suspects were in the District, engaging in dozens of rounds of unusual bidding. Coming Monday.
Part 3 – District tax officials have made hundreds of mistakes in recent years by declaring property owners delinquent even after they paid their taxes, forcing them to fight for their homes. Coming Tuesday.
The retired Marine sergeant lost his house on that summer day two years ago through a tax lien sale – an obscure program run by D.C. government that enlists private investors to help the city recover unpaid taxes.
For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid.
But under the watch of local leaders, the 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, a Washington Post investigation found.
As the housing market soared, the investors scooped up liens in every corner of the city, then started charging homeowners thousands in legal fees and other costs that far exceeded their original tax bills, with rates for attorneys reaching $450 an hour.
How you could lose your home
Property owners in the District risk losing their homes over relatively small amounts in unpaid property taxes. Here’s a look at the process:
If you don’t pay your taxes, the District sells a lien for the tax debt to an investor, usually a company. The investor gets a lien.
The typical lien amount, just a fraction of the property’s value
Tax liens the District has sold from 2005 to 2012
Note: The District no longer sells tax liens on houses for delinquent tax bills under $1,000. Lien amounts include property taxes, penalties and interest. The District doesn’t track legal fees charged to homeowners. The estimates of legal fees is besed on a Post study of more than 200 cases. The foreclosure and court cases are through mid-2013.
Source: Data from D.C. Office of Tax and Revenue and D.C. Superior Court
Families have been forced to borrow or strike payment plans to save their homes.
Others weren’t as lucky. Tax lien purchasers have foreclosed on nearly 200 houses since 2005 and are now pressing to take 1,200 more, many owned free and clear by families for generations.
Investors also took storefronts, parking lots and vacant land – about 500 properties in all, or an average of one a week. In dozens of cases, the liens were less than $500.
Coleman, struggling with dementia, was among those who lost a home. His debt had snowballed to $4,999 – 37 times the original tax bill. Not only did he lose his $197,000 house, but he also was stripped of the equity because tax lien purchasers are entitled to everything, trumping even mortgage companies.
“This is destroying lives,” said Christopher Leinberger, a distinguished scholar and research professor of urban real estate at George Washington University.
Officials at the D.C. Office of Tax and Revenue said that without tax sales, property owners wouldn’t feel compelled to pay their bills.
“The tax sale is the last resort. It’s also the first resort – it’s the only way in the statute to collect debt,” said deputy chief financial officer Stephen Cordi.
But the District, a hotbed for the tax lien industry, has done little to shield its most vulnerable homeowners from unscrupulous operators.
Foreclosures have upended families in some of the city’s most distressed neighborhoods. Houses were taken from a housekeeper, a department store clerk, a seamstress and even the estates of dead people. The hardest hit: elderly homeowners, who were often sick or dying when tax lien purchasers seized their houses.
One 65-year-old flower shop owner lost his Northwest Washington home of 40 years after a company from Florida paid his back taxes – $1,025 – and then took the house through foreclosure while he was in hospice, dying of cancer. A 95-year-old church choir leader lost her family home to a Maryland investor over a tax debt of $44.79 while she was struggling with Alzheimer’s in a nursing home.
Other cities and states took steps to curb abuses, such as capping the fees, safeguarding houses owned by the elderly or scrapping tax sales altogether and instead collecting the money themselves.
“Where is the justice? They’re taking people’s lives,” said Beverly Smalls, whose elderly aunt lost her home in Northeast Washington. “It’s just not right.”