Baltimore homeowners can lose their property for as little as $250 in unpaid taxes, a threshold far lower than in other cities, according to a new Abell Foundation report. But amazingly, Baltimore City claims this is a benevolent policy that benefits homeowners by forcing them to address unpaid taxes before the sums get too big for them to handle. The logic behind that reasoning is as tortured as it is absurd. If Baltimore wants to help city homeowners, it needs to raise threshold so they don't get hauled into court and have to pay potentially thousands of dollars in additional costs to settle a piffling fee.
The city relies on property tax revenue for a large portion of its budget; when property owners don't pay up the city can't pay for fire, police, schools and other essential municipal services. The city needs a means to make sure scofflaws pay up, and the tax lien process has traditionally been seen as offering an efficient way to accomplish that. The city sells tax lien certificates to third-party investors for cash up-front and lets the investors become de facto tax collectors — with the ability to charge exorbitant interest and fees. If the homeowners don't pay up, the investors can file to foreclose on the property and seize all the equity their owners have built up over the years. In many ways, it's just as egregious as the flawed ground rent system that prompted a rush to reform after a Sun investigation several years ago, but this time, it's the government that's doing it.
The Abell report makes clear just how badly the deck can be stacked against low-income homeowners. Interest and court costs can turn a $500 tax bill into a $3,000 debt within two years after the tax sale.
The system puts not only homeowners but also neighborhoods at risk. Families who are forced out of their homes because of foreclosure leave behind vacant properties that can become magnets for vandalism and crime that drags down the value of all the other properties in the neighborhood — ultimately reducing the city's tax base. Those families are more likely to need additional services after losing their homes, putting a bigger strain on city resources. And the process frequently creates tangled title to properties, making it that much more difficult for the city to put them back into productive use. In all, the system is penny wise, pound foolish at best.
That's why the city's insistence on maintaining the current ridiculously low threshold for imposing tax lien sales is patently absurd — as is the idea that raising it to a more reasonable level can't be done without a change in state law. In 2008 Baltimore County raised the threshold from $250 to $500 on its own. The reform produced no detrimental effect on the county's property tax base but did achieve an immediate reduction in the number of people losing their homes as a result of tax lien sales.
Not only does the current threshold allow third-party investors to reap a windfall on the extremely modest sums needed to buy up a tax lien, but the city apparently isn't even following the state law that requires it to flag older homeowners who have lived in their dwellings for 20 years or more to offer them services, such as installment payments or debt reduction plans that would allow them to remain in their homes, according to the Abell report. As a result, African-Americans, senior citizens, people with disabilities and the poor make up a disproportionate share of those at greatest risk of losing their homes.
Housing advocates say the current system makes no sense and that Baltimore City should follow the example of Baltimore County and cities like New York and Washington, all of which have found ways to still collect taxes and hold tax sales but to protect homeowners as well. Baltimore's housing stock may differ from that in other parts of the country, but it is clear that as a city it derives no benefit from a lower tax lien threshold.
The same is true of the city's policy of allowing tax lien sales to collect unpaid water bills of as little as $350. It's simply another opportunity for wealthy investors to prey on the poor who are left with a choice between paying the outrageous fees required to redeem their properties or ending up on the streets. The city isn't helping anybody by allowing people to be kicked out of their homes over such minor sums, and officials who try to paper over that fact with glib assurances that it's all in the best interest of poor and minority homeowners aren't kidding anyone but themselves.