Just How Magical Is the Tax Sale Threshold? D.C. Tax Chief Weighs In.
Amid the growing controversy over D.C.'s sales of tax liens, a practice that's led people who owe just a few hundred dollars to lose their homes, one magic word has regularly been invoked as a panacea: threshold. When the Washington Post released its investigation of tax lien sales, officials in the chief financial officer's office (which oversees the sales) were quick to note that properties with liens in the hundreds of dollars haven't been subject to tax sales since 2008, because the Office of Tax and Revenue had imposed a $1,000 threshold—in other words, tax debts under $1,000 wouldn't be offered up at these sales.
On Friday, Mayor Vince Gray proposed raising the $1,000 threshold to $2,500, among other changes. Ward 2 Councilmember Jack Evans, who chairs the Council's finance committee, has put forward emergency legislation that would set the cap at $2,000.
To better understand the circumstances surrounding the threshold and the effect that raising it would have, I spoke with Stephen Cordi, who heads the Office of Tax and Revenue.
Who or what is to blame for the widespread loss of property over small tax debts detailed in the Post investigation?
"If you were looking for a principal reason for the Post story, it was that there was no threshold," Cordi says. "It’s worth remembering that all of the stories recounted in the Post represented properties sold at tax sales before 2008. Despite 10 months of looking, they found no sales in 2008 or later for a few hundred dollars."
Cordi takes credit for raising the threshold and helping fix the problem. "The threshold prior to 2008 was way too low, which I recognized as soon as I got here," he says. "I got here in 2008. And in my first year, I set the threshold at $1,000." Since then, the threshold has fluctuated, though it's held steady at $1,000 for the past two years.
What was the initial reason for implementing the threshold?
"Anything that goes to tax sale requires a lot of manual work on our part," Cordi says. "So part of the reason for setting the threshold is making sure we have the capability to handle it."
That would imply that the threshold was put in place to lighten OTR's workload, not to spare homeowners with small debts. So was the reason for the threshold primarily administrative or out of a sense of fairness?
"Primarily both," chimes in OTR spokeswoman Natalie Wilson.
Why was it set at $1,000?
"There was nothing magic about the thousand," says Cordi. "That was an effort to limit the number of properties we’d have to handle and provide an element of fairness. And both factors weighed upon the decision."
The 2013 tax sale listing features lots of properties with tax debts under $1,000. Many are in the $200 range. Why are these still being listed?
The implementation of the threshold was an administrative move by OTR, but city statute requires OTR to publish a list of all properties with delinquent taxes, says Cordi. Just before the sale, OTR sets the threshold, and properties with tax debts below the threshold aren't offered for sale.
If OTR can implement and alter a threshold administratively, then why is Gray proposing legislation to raise it?
"If he wanted it to be statutory," Cordi says, "then he’d need a statute."
It seems like raising the threshold will lessen the degree of the problem, but not its essence: People will still be able to lose homes worth hundreds of thousands of dollars for debts of, say, $2,500, right?
"Your observation is correct that the threshold only impacts what gets offered in the first place," says Cordi. "But it’s worth remembering that very few homestead properties ever get foreclosed on." Cordi also notes that the number of properties OTR advertised as tax-delinquent has declined steadily in the aftermath of the recession, dropping from 6,303 in 2010 to 4,286 in 2013.
What happens to delinquent properties that fall under the threshold?
Pretty much nothing. "The city has only one collection tool for real properties: the tax sale," says Cordi. "And so if somebody’s under the threshold, the property will not be sold until the amount rolls up over the threshold. That can happen pretty quickly if you don’t pay the subsequent year’s taxes."
The limitations of the tax sale bring up another problem: vacant properties whose tax bills are so high that no sane person would buy them at a tax sale. How can the city return these properties to productive use?
"Your observation’s correct," says Cordi. "In fact, at this most recent tax sale, we sold less than half of the properties offered for sale. The reason is that a lot of these are vacant or blighted properties, which carry higher tax rates. A property that’s vacant or blighted is underwater in the worst way." Cordi says the proportion of properties up for sale at tax sales that have actually been purchased has dropped consistently in the past few years.
There is one other mechanism for unloading these properties, which Cordi calls a "half mechanism." That would be the so-called junk sale, which sells high-debt properties to the highest bidder, often at prices below the actual tax debt. But there hasn't been a junk sale since 2011, and before that, it had been "many years" since the city had held one, according to Cordi.
"We don’t want to appear to have given up too easily," Cordi says. "We’d like to offer them for a few years at tax sale. We don’t want to appear to be throwing the District’s money away."
Photo by Darrow Montgomery