This man owed $134 in property taxes. The District sold the lien to an investor who foreclosed on his $197,000 house and sold it. He and many other homeowners like him were
Left with nothing.
Published on 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.
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 — Suspicious bids go unnoticed in D.C.
Coming Tuesday: 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.
Live Q&A: Join the reporters at noon ET on Sept. 10 for a chat about the series. Submit questions here.
LIENS, LOSS AND PROFITEERS — Part 1 of 3
Part 2 — Suspicious bids go unnoticed in D.C.
Coming Tuesday: 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.
Live Q&A: Join the reporters at noon ET on Sept. 10 for a chat about the series. Submit questions here.
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.
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.
$2,500
The typical lien amount, just a fraction of the property's value
13,000
Tax liens the District has sold from 2005 to 2012
$2,500
The typical lien amount, just a fraction of the property's value
13,000
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
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.”
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.”
In a 10-month investigation, The Post chronicled years of breakdowns
and abuses in a program that puts at risk one of the most fundamental
possessions in American life.
- Of the nearly 200 homeowners who lost their properties in recent years, one in three had liens of less than $1,000.
- More than half of the foreclosures were in the city’s two poorest wards, 7 and 8, where dozens of owners were forced to leave their homes just months before purchasers sold them. One foreclosed on a brick house near the Maryland border with a $287 lien and sold it less than eight weeks later for $129,000.
- More than 40 houses were taken by companies whose representatives were caught breaking laws in other states to win liens.
- Instead of stepping in, the D.C. tax office created more problems by selling nearly 1,900 liens by mistake in the past six years — even after owners paid their taxes — forcing unsuspecting families into legal battles that have lasted for years. One 64-year-old woman spent two years fighting to save her home in Northwest after the tax office erroneously charged her $8.61 in interest.
Under a D.C. program, owners have lost homes over debts as low as $44
Stephen Cordi, with
the D.C. tax office. Click on the image to view the gallery.
(Lois Raimondo / The Washington Post)
Every Wednesday, homeowners plead their cases at D.C. Superior Court,
where they are pitted against industry lawyers who have filed for more
than 7,000 foreclosure cases in the past eight years alone. Families
pace the hallways waiting for their names to be called in last-ditch
efforts to rescue their homes.
“This is highway robbery,” said Brenda Adjetey, who showed up in court last week to protect her home in Southeast Washington after her $1,100 tax bill nearly quadrupled because of legal fees charged by the investor.
Tax lien purchasers defend the industry, saying that most people who buy liens are local investors just trying to earn interest — not take homes — and that the law gives owners six months to repay their debts before a foreclosure case can be filed.
“This is an opportunity to make some money, but it is also an opportunity for the city to get paid and to help its citizens,” said Richard Cockerill, a veteran bidder from Virginia.
In a written statement, the tax office added, “Property owners are given multiple opportunities to pay both before and after the tax sale.”
Officials also said the tax office has made improvements to the program in recent years, including additional warnings to homeowners before liens are sold, and the office recently stopped selling liens on houses for less than $1,000.
But officials acknowledge that limit was set to manage the caseload and is not a permanent policy change.
At a public hearing this past October, housing advocates presented a list of reforms to the D.C. Council, including capping the fees charged by purchasers and offering payment plans to struggling homeowners. But the changes were never made.
“That’s a failure on the part of government,” said Stephen Fuller, director of the Center for Regional Analysis at George Mason University. “This has punitive consequences. People have been damaged.”
“This is highway robbery,” said Brenda Adjetey, who showed up in court last week to protect her home in Southeast Washington after her $1,100 tax bill nearly quadrupled because of legal fees charged by the investor.
Tax lien purchasers defend the industry, saying that most people who buy liens are local investors just trying to earn interest — not take homes — and that the law gives owners six months to repay their debts before a foreclosure case can be filed.
“This is an opportunity to make some money, but it is also an opportunity for the city to get paid and to help its citizens,” said Richard Cockerill, a veteran bidder from Virginia.
In a written statement, the tax office added, “Property owners are given multiple opportunities to pay both before and after the tax sale.”
Officials also said the tax office has made improvements to the program in recent years, including additional warnings to homeowners before liens are sold, and the office recently stopped selling liens on houses for less than $1,000.
But officials acknowledge that limit was set to manage the caseload and is not a permanent policy change.
At a public hearing this past October, housing advocates presented a list of reforms to the D.C. Council, including capping the fees charged by purchasers and offering payment plans to struggling homeowners. But the changes were never made.
“That’s a failure on the part of government,” said Stephen Fuller, director of the Center for Regional Analysis at George Mason University. “This has punitive consequences. People have been damaged.”
Thomas McRae ran a
flower shop on the first floor in this house on Sherman Avenue NW. But a
tax lien investor from Florida foreclosed while McRae was under hospice
care.
Liens are generally sold the year after a homeowner
fails to pay a tax bill, for the same amount as the debt. Homeowners
receive several warnings before their liens are put up at annual
auctions.
Once a lien is sold, owners have six months to repay the investor with interest. If that does not happen, the investor can move to foreclose.
For years, the auctions came and went with little fanfare, drawing local investors who would plunk down a few hundred dollars to buy up liens in neighborhoods they knew well. Most were looking to earn the interest, and if there was a foreclosure, it was handled by the tax office.
But the work overwhelmed the agency, and in 2001, city leaders made a critical change: They told investors to head directly to court to file a foreclosure case.
The move empowered investors to start charging legal fees and court costs — a game changer that allowed them to turn minor delinquencies into insurmountable debts.
Companies from Florida, Illinois, Maryland and New York came to town, prepared to spend millions.
In 2007, more than 150 purchasers spent five days competing for 2,000 liens, first on properties downtown near the Capitol, then Georgetown, followed by Dupont Circle, Chinatown and finally the neighborhoods near the Anacostia River, long stricken by poverty.
Once a lien is sold, owners have six months to repay the investor with interest. If that does not happen, the investor can move to foreclose.
For years, the auctions came and went with little fanfare, drawing local investors who would plunk down a few hundred dollars to buy up liens in neighborhoods they knew well. Most were looking to earn the interest, and if there was a foreclosure, it was handled by the tax office.
But the work overwhelmed the agency, and in 2001, city leaders made a critical change: They told investors to head directly to court to file a foreclosure case.
The move empowered investors to start charging legal fees and court costs — a game changer that allowed them to turn minor delinquencies into insurmountable debts.
Companies from Florida, Illinois, Maryland and New York came to town, prepared to spend millions.
In 2007, more than 150 purchasers spent five days competing for 2,000 liens, first on properties downtown near the Capitol, then Georgetown, followed by Dupont Circle, Chinatown and finally the neighborhoods near the Anacostia River, long stricken by poverty.
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