In what a new report is calling “a second nationwide foreclosure crisis,” homeowners, particularly the elderly, are losing their homes because they owe as little as a few hundred dollars in back property taxes. At the same time, big banks and other investors are snatching up these homes for pennies on the dollar and reaping huge profits.
The blame, says the National Consumer Law Center (NCLC) in itsgroundbreaking report, lies with outdated state laws that permit local governments to sell property through a tax lien foreclosure process if the owner falls behind on property taxes, even if the homeowner owes as little as $400.
When a home is foreclosed on for back taxes, banks or speculators responding to “get-rich-quick” Internet schemes swoop in to buy the tax lien. The homeowner has a limited time to redeem their property by paying the investors the lien’s purchase price, plus interest and fees. But many state laws permit tax lien purchasers to charge homeowners extremely high interest rates that were set decades ago — as high as 20 to 50 percent. If, as often happens, the homeowner can’t come up with the cash, the investor sells the house at a huge profit compared to the cost of the tax lien.
For example, an 81-year-old Rhode Island woman was evicted two weeks before Christmas from the home she had lived in for more than 40 years because she had fallen behind on a $474 sewer bill, the report says. A corporation bought her house at a tax sale for $836.39 and then resold it for $85,000.
The report charges that individual tax sale purchasers and large investment companies, including Bank of America and JPMorgan Chase, have used the tax sale process as a profit center.
Most vulnerable are elderly individuals who have fallen into default because they are incapable of managing their financial affairs due to Alzheimer’s, dementia, or other cognitive disorders, the report states. The loss of a home is particularly devastating for seniors, whose only retirement savings may be their home equity. Meanwhile, the rules for property tax sales are complex and confusing.
The report estimates that tax lien sales nationwide total about $15 billion a year and are on the rise due to the weak job market, depressed home values, and an increase in mortgage foreclosures.
The NCLC makes a number of recommendations for preserving homeownership while ensuring payment of local taxes, including redemption payment programs, lower investor profits so it is easier for homeowners to redeem their homes, and court supervision of any property sales.
For more on the report, including a press release, a summary of state tax laws and the report itself, titled “The Other Foreclosure Crisis,” click here.
For a CBS News article on the report, click here.
To discuss elder law issues with an attorney, please call the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.