I'm skeptical of the "lien holder gets the equity" claim because it doesn't work that way outside of DC or in foreclosure generally, so I'd be very surprised it it wasn't a misunderstanding on the part of the author.
This article talks about DC tax lien sales, and doesn't mention keeping equity: http://taxlieninvestingpro.com/category/statebystateguides/d.... It looks like a regular judicial foreclosure.
I agree. The author suggests the owner owned the home free and clear, which I do not think is true. As you noted judicial foreclosures do not occur overnight, a free and clear owner of a $197k house would have plenty of time to: 1. take out a mortgage/HELOC for the $500-$5k tax lien, or 2. more extremely sell the home, pay the lien and walk away with the equity ($192k) before the filing of the foreclosure. Further, there is no judge that would not give such a defendant the time to pursue those options even during the proceeding if in fact the defendant owned the property free and clear.
>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 from the article, and I think this is where the author could have been a little more forthright, by saying under such foreclosure and subsequent auctions the proceeds go 1st to any government liens, 2nd to mortgage holders based on superiority, and 3rd the remaining equity goes to the owner. Of course other lien holders could be shuffled into the equation (such as construction liens or HOA liens).
I'm not sure I understand. Foreclosure means the lien holder takes title to the property, and the current owner, the one who owes the debt that the lien holder was unable to collect, loses title. Then the lien holder, who now has title to the property, sells it for whatever the market will bear, and pockets the sale price minus whatever costs he has to pay. That effectively means the lien holder gets whatever equity is in the property once he has foreclosed on it and sold it.
This article talks about DC tax lien sales, and doesn't mention keeping equity
Well, of course not, since it only talks about buying the tax lien and foreclosing on it; it doesn't talk about the part where once you've foreclosed, you sell the property and pocket the money.
The article does describe the foreclosure process the same way I did above:
"The District of Columbia statutes require that you file a judicial foreclosure on your lien. This means that your attorney will run title, notice all the parties on title and file a foreclosure action in the court to get a judge to issue a final judgment. Once the judge rules in your favor, you can go to the DC Office of Tax and Revenue, pay any outstanding taxes and bills that may be due, and get issued the tax deed."
So you buy the tax lien, and if the tax isn't paid, you foreclose, you pay off the outstanding taxes and bills, and you get the property. The now former property owner, whom you've just evicted, gets nothing. Then you can sell the property for whatever the market will bear. So who has the equity?
Not normally, no. Usually the lien holder gets the value of the lien and the remainder of the sale proceeds go to the owner. If the owner is really "left with nothing" he didn't actually have any equity in the house.
In some rare cases, with underwater mortgages, the lender may be allowed to take title.
I do see plenty of web references that describe foreclosures the way you do, but they all talk specifically about foreclosures when the lien is a mortgage. Does the same process apply when the lien is a tax lien? What information I can find suggests it doesn't--or at least, there seems to be a lot of wiggle room.
These foreclosure don't just happen one day. They happen after six months of warnings, letters, phone calls, etc.
If you're prepared to outsource that job and have the private sector do it extremely poorly and with no regulation, thereby effectively raping people of their wealth over a pittance, you should be prepared to pay the consequence for that.
Yes. How much do we spend every year on the disabled, seniors, and veterans between benefits, support systems, etc? What is the marginal cost to extend that support to wiping away under $1000 in property taxes?
How much public support will they require after they evicted from their homes over several hundred dollars and have no where to go? We're just shifting the burden. That's my problem.
Here's what a recently formed lobbying organization, "At Home - The Alliance to Help Owners Maintain Equity", said in a spring 2012 letter:
A primary flaw in the current tax sale system results from the District government auctioning homes at tax sales even when property values are exponentially greater than the delinquent taxes (which may be as little as $500). If a homeowner is unable to redeem the home following the tax sale, the homeowner loses his/her home and all of the accumulated equity.
Now, the DC Bar Association's Antitrust and Consumer Law section said they agree with this letter and re-emphasized that they saw
Major Problems with the District’s Tax Sale System
Loss of Equity
Homeowners may lose all of their long built–up equity in a property with the tax sale purchaser enjoying an unjust windfall. There is no incentive in the current process to assure that homeowners receive adequate compensation for the loss of this equity, whether through amounts paid at a tax sale or upon disposition of the property following foreclosure. DC law is more punitive to homeowners in this regard than the law of many other jurisdictions.
See http://www.dcbar.org/for_lawyers/sections/antitrust_and_cons... .
The Post ended up covering this as news in May 2012, about a month after this statement came out, http://articles.washingtonpost.com/2012-05-28/local/35455912... .
From that 2012 article:
The city’s dual-step collection process, in which the OTR is responsible for auctioning off the lien but the investor who purchases the tax-sale certificate is responsible for the ensuing action, makes for a complicated system.
At the tax sale, a winning bidder assumes the delinquent taxes on the property, any penalties that have accrued and an auction fee. If and when the property owner pays off the taxes, the purchaser is refunded the original sale price plus 1.5 percent per month interest on the tab. If the owner fails to pay up within six months of the sale and the purchaser files a foreclosure suit, the owner must also foot the purchaser’s attorney fees.
As far as I can tell this latest September 2013 Post coverage ( http://www.washingtonpost.com/sf/investigative/2013/09/08/th... ) isn't exactly anything new — it's just more stories about the same process continuing to cause trouble for folks with poor legal representation and very little spare money.
From a Legal Times blog post in early 2013 about the DC Council considering tax sale reform legislation ( http://legaltimes.typepad.com/blt/2013/01/dc-council-takes-u... ):
During a tax sale, investors bid on tax certificates for delinquent commercial and residential properties. After a six-month waiting period, the investor has another six months to sue the property owner in District of Columbia Superior Court. The property owner can pay the taxes, interest – the city charges 18 percent annual interest – and the investor's attorney fees to redeem their property, or face foreclosure.
An estimated 97 percent of owners redeem their property, so tax sales are viewed less as a way to buy property than as an investment opportunity.
So if I understand this correctly, it is indeed being claimed by local community advocates that if a homeowner has an unpaid $50 tax bill that is sold to an investor; and some creative accounting turns that bill into a $5000 bill; and the homeowner cannot find a way to pay the $5000, then the investor gets to sell the house and keep the proceeds. But this only happens for one in thirty tax sales.
If you would like to understand this process further and in particular understand whether the Post's latest reporting matches reality, I recommend you contact the AARP Legal Council for the Elderly — call their hotline at +1 (202) 434-2120 and they'll put you in touch with an expert. Alternately, you could try calling the media relations folks at Crowell & Moring LLP (three phone numbers listed at http://www.crowell.com/Contact ); they provide the mailing address for the "Alliance to Help Homeowners Maintain Equity" folks and would be able to get you in touch with someone who can answer your questions about the process.