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9 Sep, 2013 13:25

DC residents losing property in ‘predatory’ debt-collection program - report

DC residents losing property in ‘predatory’ debt-collection program - report

Washington DC officials have set up a controversial program that allows out-of-state investors to initiate foreclosures against homeowners who have fallen behind on their taxes, in some cases for just hundreds of dollars.

The District of Columbia for many years placed liens – a means of debt security - on properties when homeowners failed to pay their taxes. Those liens were then sold at public auctions to investors who were able to make a profit by charging the homeowners interest on top of the tax debt until the total bill was repaid.

The program, however, has turned into a “predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts,” an in-depth Washington Post investigation reported.

In many cases, homeowners were left homeless after a foreclosure was placed on their residences.

The paper relayed the story of Bennie Coleman, 76, a decorated veteran of the Marine Corps, who was forced out of his $197,000 house by US Marshals as movers cleared out his home of all his worldly possessions.

The reason for Coleman’s eviction: He was unable to foot the bill for $134 in property tax.

The report described a scheme where well-funded investors moved into town and “scooped up” liens against homeowners. At this point, the system spiraled out of control as the investors started charging the homeowners exorbitant amounts in legal fees and other costs that “far exceeded their original tax bill.”

Although some families were able to come up with the money and save their homes from foreclosure, others were not so fortunate.

Tax lien investors have demanded foreclosures on nearly 200 houses since 2005 (assessed at $39 million) and are now moving to take 1,200 more - and despite the fact that some of the homes have been in families for generations.

Investors also assumed control of businesses, parking lots and vacant land - around 500 properties in all - or an average of one a week, the Washington Post report revealed. In “dozens of cases,” the tax liens amounted to less than $500.

“This is destroying lives,” Christopher Leinberger, a distinguished scholar and research professor of urban real estate at George Washington University, told the paper.

Officials at the DC Office of Tax and Revenue defended the program, arguing that “without tax sales, property owners wouldn’t feel compelled to pay their bills.”

Of the nearly 200 homeowners who lost their properties in recent years, one in three had liens of less than $1,000.

The report found that more than half of the foreclosures were in the district’s two most impoverished neighborhoods, where “dozens of owners” were forced to vacate their homes just months before purchasers sold them. In one incident, a brick house with a $287 lien was sold by an investment company less than eight weeks later for $129,000.

More disturbing, is that dozens of homes were taken by companies whose executives were caught “breaking laws in other states to win liens.”

Instead of taking steps to solve the problem, however, the District of Columbia’s tax office mistakenly selling nearly 1,900 liens in the past six years, thus forcing unwitting families into the nightmare of drawn-out legal battles.

The paper pointed to the story of one 64-year-old woman who spent two years fighting to save her home after the tax office erroneously charged her $8.61 in interest.

The report put a spotlight on the problem at a time when thousands of individuals and families stand to lose their homes to foreclosure.

Every Wednesday, the DC Superior Court is a scene of chaos as nervous homeowners are forced to defend themselves against lawyers working on behalf of investors. To date, the tax lien industry has filed for more than 7,000 foreclosures in the past eight years alone.

“This is highway robbery,” Brenda Adjetey, who showed up in court last week to protect her home after her $1,100 tax bill nearly quadrupled over hefty legal fees charged by the investor.

The Post revealed that 72 percent of pending foreclosures are in neighborhoods where less than 20 percent of the population is white.