Baltimore City auctioned off more than $20 million worth of tax, water and other liens this spring in an online auction. These liens are tied to almost 7,000 properties, assessed at a total of more than $720 million.
But while the tax sale system provides local government with badly-needed funds up front, it short-changes our communities.
The complexities of the tax sale system mean that only those with sophistication and wealth can bid (this year's top four bidders in Baltimore City bought nearly 60 percent of the certificates), and it invites speculation.
Tax sale "investors" pay off an outstanding debt, then are allowed to collect high interest rates (18 percent in Baltimore City) and high fees from the homeowners on top of the original tax bills or foreclose on the properties.
These bidders can essentially become the new owners of the property for the amount of the taxes due, which can be as little as $250. They can then flip the property or drain it of any remaining equity. This process exacerbates the adverse effects already felt by communities long struggling with vacant properties or ravaged by recent mortgage foreclosures.
If the bidder realizes there's no value to the property at some point in the tax foreclosure process, he may simply walk away, refusing to record a deed, leaving the title to the property clouded and in limbo. Anyone who subsequently wishes to purchase the property must clear the title, a potentially arduous and expensive process.
If no one bids on the property and the local municipality does not foreclose on it, the property simply sits until it cycles back into the tax sale, often after acquiring even more liens.
As the liens pile up, and the title becomes tangled, it becomes more and more difficult for reinvestment to take place. A home may become so far underwater that no rational developer or buyer would dream of diving into the depths of debt to save it. Community gardeners may take interest in creating a green space on the site of these vacant properties, but ownership remains out of reach if it takes thousands or even millions to fund their flowers.
Instead of clearing title, promoting reinvestment and furthering productive reuse, the speculation in the tax sale system perpetuates a vicious cycle of vacancy and abandonment. These vacant, abandoned properties become harbingers of crime, fire, trash and further disinvestment.
As dismal as this system may seem, hope remains. Residents throughout the city remain steadfast in their commitment to preserving their communities despite all these obstacles.
It is this commitment that inspires me at Community Law Center, with the Baltimore Homeownership Preservation Coalition, to lead an effort aimed at breaking this cycle. We convened a diverse work group to study the system and find ways forward. We are looking at innovations that ensure revenue collection while also protecting both homeowners and neighborhoods. Our goals include making the system simpler and more compassionate, transparent, efficient and effective.
In other cities, such as Detroit, Philadelphia and Cleveland, efforts are underway to utilize tax sale foreclosure reform as a way of tackling the myriad of problems associated with vacant buildings. Detroit's Blight Removal Task Force Plan includes an entire section on property tax reform. There, the county treasurer recently sued hundreds of property owners to re-possess properties they acquired through tax sale but failed to maintain. Cleveland's Vacant and Abandoned Properties Action Council recommended county tax lien sale reforms to minimize irresponsible ownership. In Philadelphia, a report by the Pew Charitable Trusts paved a pathway for a bipartisan effort at state-level reforms. While these cities all differ from Baltimore in important ways, their efforts can inform our work.
The time has come for Baltimore to look beyond the easy money obtained in the tax sale process and really examine what it does to our neighborhoods. We are convinced there must be a better way, but it will take all of us working together to make it happen.
Robin Jacobs, a staff attorney for Community Law Center, chairs the Tax Sale Foreclosure Committee of Baltimore Homeownership Preservation Coalition. Her email is email@example.com.
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