Housing Complex

The Two Sides of Tax Lien Sales

lienIn June, I profiled a house that's seen better days. The property, on Manor Place NW in Park View, has been boarded up for as long as anyone can remember. The city is unable to locate its owner, who appears to have died in 1988. He's listed on various documents as Irby L. Dickinson, Irby Dickenson, Irby Dickson, and Irby Dickerson.

The neighbors would love to see the house purchased by a new owner and restored so it stops dragging down the mostly attractive block of rowhouses. The problem is how to get someone to buy it. The “principal collection mechanism authorized by District law” to return abandoned properties to productive use, according to David Umansky, spokesman for the Office of the Chief Financial Officer, is a tax lien sale, at which an investor can buy the property's tax debt in hopes of later obtaining the property outright. But in the case of the Manor Place house, the tax owed, including penalties, is $358,274, while the house's assessed value is only $243,480. In other words, no rational person would pick up the tab.

(There are two other systems by which the city can unload its tax bill and get these properties up and running. One of them, a so-called junk sale, hasn't been used in more than two years, so as not to discourage participation at tax sales. The other, a repurchase program through the Department of Housing and Community Development, likewise hasn't resulted in any acquisitions this year, as DHCD works on clearing out its property backlog.)

So when the tax debt gets too high, the tax lien sale system breaks down. Unfortunately, it can also break down when the debt is piddlingly low.

Mayor Vince Gray just called for a moratorium on tax lien sales in the District, in response to a Washington Post investigation that found that a small group of investors has foreclosed on dozens of homeowners with debts under $1,000. The investors buy the tax lien from the city, tack on interest and fees, and then seize the homes if the residents can't pay.

To recap: When tax liens are too high, these sales don't work. When they're too low, they often result in a loss of property completely out of proportion to the actual debt.

Presumably, somewhere in the middle, they've at least occasionally functioned as intended. But it's pretty clear that these tax lien sales, as they currently exist, are often ineffectual, and sometimes downright harmful. Some sort of change is needed to inject both more flexibility and more fairness into the system.

Photo by Aaron Wiener

  • Corky

    The real injustice is the fact that tax lien holders who sell the foreclosed properties are not required to refund any remaining equity from the sale to the previous homeowner. They basically get to steal a house minus the taxes owed to the District. A more reasonable system would permit lien holders to obtain a reasonable profit and costs from a foreclosure, but be required to return any remainder to the owner. No one should be able to steal tens of thousands in equity to pay off a 1000 tax lien.

  • sensationalism

    People should simply pay their taxes.

    Further 200 homes have foreclosed in 8 years. During that time many thousands of homes have gone on the market. The post cherry picked the worst instances.

    The only bad thing about this program are attorneys fees. Cap them at 1 or 2k.

    There is no incentive for someone to pay anothers debt if there is not an off chance of foreclosure. Every state in the country has tax liens and attached foreclosures.

    Again manage attorneys fees, make concessions for the elderly and handicapped in a primary residence read: not owners of vacant or blighted properties, and don't throw out the baby with the bath water

  • http://blog.inshaw.com Mari

    People should pay their taxes, yes. However the system is screwy. I do sympathize with the families of the elderly who who need conservators, but these tax sales can also deal with several problem properties that have been essentially abandoned.
    Yes, the city needs to do something about properties they have liens on that are several times more than the value. Neighbors don't want a tiny bit of Detroit next door. One year of not paying and losing one's home is tragic for the household, several years of failing to pay (ex. vacant properties) and the property isn't foreclosed on is tragic for the community.

  • RealDC

    The system is BROKE: Where a 95 yr old lady with Alzheimers has a $44 tax bill and her tax lien is sold. Then her house is foreclosed on and is sold for $300,000 and the lien holder keeps all of her equity. OUTRAGEOUS!!!

    If not true, then OTR should state otherwise.

    At this point, folks need to be FIRED and held liable!!!


  • http://citypaper SLY

    That Cordi guy is very arrogant.