A Washington Post article about DC’s property tax lien sales sparked outrage this week. According to the investigative report, since 2005, hundreds of DC property owners have lost homes due to the sale of tax liens. One of those delinquent tax bills was only $44.
When a DC homeowner fails to pay property taxes, the DC Office of Tax and Revenue (OTR) imposes a lien on the home. If the lien goes unpaid for a certain period of time, OTR sells the lien to an investor at an annual auction. The homeowner then owes the delinquent tax bill plus interest to the investor. If the homeowner is unable to pay within six months, the investor can start foreclose proceedings. In order to avoid foreclosure, the owner must pay back the original tax bill, interest, and legal fees to the investor. Across the country, 28 states use a similar program for delinquent property taxes.
Many of the investors who buy tax liens are large companies that end up adding massive fees to the original debt. Fees can include costs for attorneys, court costs, title searches, and more.
According to the Post, the District sold 13,000 tax liens from 2005-2012, and 7,000 of those cases went to court for foreclosure proceedings. In the end, 509 foreclosures resulted. In some cases, the homeowner already fully owned the property.
Currently, DC does not sell tax liens that are less than $1,000 delinquent. But if a homeowner was $1,500 delinquent on a house worth $300,000, that is a significant profit for the investor and huge loss of equity for the homeowner.
DC officials are proposing emergency reforms to cap legal fees and increase the delinquency limit to $2,000 before sale of the lien. There is also discussion about creating payment plans for low-income populations.