'Tax Liens' Mean Towns Win, Homeowners Lose
ARI SHAPIRO, HOST:
In American cities, something curious happens when homeowners can't or won't pay property taxes. Local governments auction off the right to pay those taxes to private companies. It's called a tax lien sale. And while governments rely on this sort of sale to bring in tax money they need to keep the lights on, some housing advocates say it ends up creating a financial burden for homeowners already treading water. From WBEZ in Chicago, Miles Bryan reports.
MILES BRYAN, BYLINE: The little Chicago suburb of Dolton, Ill., was hit hard by the housing crisis and has never fully recovered. Lots of homes sit abandoned. That makes Dolton resident Courtney Jones stand out. Jones' front lawn is neatly trimmed. He waves at every neighbor that goes by. And his pride and joy, a 2004 Pontiac GTO, is parked in the driveway.
(SOUNDBITE OF CAR ENGINE REVVING)
COURTNEY JONES: You know, you may not go fast all the time. But it's just the fact that you can go fast whenever you want to.
BRYAN: The thing is Jones doesn't actually own the house he's living it - at least not anymore. He bought it six years ago in foreclosure for about $45,000. Jones' property taxes that year were more than $6,000. At the time, he was living on a monthly medical disability payment and a small pension from his time in the Marine Corps. Within a few months, Jones fell behind on his tax bill - short by just 400 bucks. When Jones couldn't pay, the county sold his unpaid taxes to a private investment company which started charging him interest. Eventually, that company was able to actually take ownership of the house.
JONES: I was pretty upset because - I was like, well, damn. You know, they bought my property for a few hundred bucks - three - $400. They took advantage of a situation or whatever. You know, they put you in a situation where you can't pay, and you have to play by their rules.
BRYAN: What happened to Jones is called a tax lien sale. Between a third and a half of all local governments do them - selling unpaid property taxes to investors who can then charge interest, often at high rates. If the homeowner doesn't pay, the investor can take their home. Frank Alexander studies tax lien sales at the Center for Community Progress and says the industry began taking off in the late '90s but then exploded during the recession.
FRANK ALEXANDER: It was a short-term solution for local governments. The local governments were selling one of their most valuable assets. So from a market perspective, this was pure gold.
BRYAN: Alexander says the interest rates tax lien buyers can charge make them a solid investment. Courtney Jones' bill was accumulating interest at a whopping rate that reached 36 percent. Alexander says while tax lien sales provide local governments quick cash, they can be an extra financial hit for residents already struggling to make ends meet.
ALEXANDER: The tax lien purchaser can put the homeowners in holes that they can't dig out of.
BRAD WESTOVER: The actual properties that get tax foreclosed - meaning it went all the way, and no one stepped up, that happens less than one half of 1 percent of the time.
BRYAN: That's Brad Westover, who heads the National Tax Lien Association. He argues that tax lien purchasers are doing a good thing for municipalities. They're pumping about $4 billion a year into local government - money they desperately need.
WESTOVER: Local government has to do what local government does, which is our public education, the city lights, cutting the lawn at the city park. Tax purchasers fund the taxes that would otherwise not be paid.
BRYAN: But Courtney Jones is among those who struggle to see the social good to tax lien sales. After months of legal wrangling, he's reached a deal with the company that took his house that will allow him to pay about $7,000 to get his deed back. But even if he comes out OK, Jones worries about the effect that these tax lien sales are having on his whole neighborhood.
JONES: It's not helping any of the communities with them doing it. Once they run this community down, they're going to go somewhere else.
BRYAN: Nationwide, delinquent property taxes last year topped $12 billion. That's according to the National Tax Lien Association, which says its membership has more than doubled in the last five years. For NPR News, I'm Miles Bryan in Dolton, Ill.
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