The Washington Post has an outstanding story covering DC’s tax lien program which the city uses to recover unpaid property taxes.  Pictured above, is Bennie Coleman, who owned his home free and clear for decades.  He owed just $134 in back property taxes and holders of the tax lien foreclosed on his home, selling it for $197,000–leaving Bennie with absolutely nothing.

As is common in most states, if a homeowner does not pay property taxes the state has a way to eventually foreclose on the property to receover the amounts owed.  Normally, however, that is the option of last resort.  In DC, however, the city began selling tax liens to third party investors, and then gave them the rights to foreclose.  In short, investors made huge windfall gains if foreclosures occured because under DC law, the sale excess sale proceeds to do not go to the owner, but instead the lien holder.  Once foreclosure actions were instituted, the lienholder could then also charge significant sums in attorney fees and other costs, often reaching several thousands of dollars which many impoverished homeowners could not afford to pay.  For instance, a invenstor could buy, say, a $100 tax lien form the city, and then institute foreclosure actions and require that the owner pay, not only the $100 lien, but the $4,000 legal fees charged to institute the foreclosure action.

The washington post revealed that one elderly homeowner lost his home for a property tax bill for as little as $44.   While the city has tried to implement some protections, homeowner advocates claim they are not strong enough.

In California, cities and counties are prohibited from selling the tax liens, and so it is the government that will institute the foreclosure action.  This generally means that one will not be hit with the extra thousands of dollars in investor attorneys’ fees and that the overwhelming incentive to foreclose quickly on the property is no longer there.  In the end, it is never a good idea to not pay property taxes as the mere filing of a tax lien by a city or county will often cause mortgage companies to consider foreclosing to protect their investments.