In Baltimore City, a homeowner can lose her home through tax sale foreclosure for as little as $250 in delinquent property taxes or $350 in delinquent water bills. Unlike a mortgage foreclosure, a homeowner generally receives no compensation for loss of equity, even if the value of the property exceeds the amount of taxes due.
The Baltimore Tax Sale Working Group, a diverse coalition of public and private organizations, is working to better understand and fix this broken system and has recommended a series of reforms, including increasing the threshold amount of unpaid bills that can trigger a tax sale.
Such sales disproportionately affect vulnerable homeowners and those on fixed incomes who are likely to experience unexpected budget crises. For instance, several months ago, a low-income homeowner with no homeowner's insurance sought help from Neighborhood Housing Services of Baltimore when he faced tax sale due to several environmental liens stemming from a fire in his home. The Tax Sale Working group was able to piece together legal representation, a small loan and weatherization funds to keep the man in his home. Unfortunately, most homeowners are not so lucky.
The average homeowner is not represented by an attorney, and the ones who do come through the doors generally do not understand how the tax sale process works, paving the way for lien purchasers to take advantage of them. At the Pro Bono Resource Center of Maryland (PBRC), volunteer attorneys provide free assistance to at-risk homeowners. We find homeowners are sometimes charged fees above the maximum allowed under Maryland law or receive no notice or faulty notice about the tax sale process. PBRC's average tax sale prevention client has lived in her home for 21 years, developing significant equity that can all be swept away by one delinquent payment.
Baltimore's current tax sale system is more than just a process by which the city collects unpaid taxes — private investors can profit by buying tax liens and collecting 18 percent interest along with myriad other fees, sometimes from Baltimore's poorest citizens. Unpaid taxes and bills owed to the city are sold as liens to investors in an annual tax sale, and six months later, investors can seek to foreclose on the house.
After the tax sale, if the homeowner wishes to keep her home, she must navigate the complicated and confusing redemption process, which is laden with pitfalls and huge fees. PBRC's tax sale prevention clients had an average yearly income of only $21,000 but often faced a redemption payment of several thousand dollars, an insurmountable obstacle for these homeowners struggling to get by.
Tax sales also exacerbate Baltimore's vacant property problem in three ways. First, the tax sale system provides a cheap means for speculators to snatch up properties, incentivizing property flipping and other forms of irresponsible ownership. Second, the tax sale prevents reinvestment when tax sale certificate purchasers walk away from recording a new deed, creating problems with title. Finally, vacant properties cycle through tax sale year after year, piling up liens which no one will ever pay.
As further explained in a report recently released by the Abell Foundation, "The Steep Price of Paying to Stay," the Working Group has drawn from recent reforms in other cities to recommend the following:
•The city and state need to create separate protections for owner-occupied properties, increasing the threshold amount of delinquent taxes that places an owner-occupied property into tax sale and implementing installment payments for delinquent tax bills.
•The City Council should lower the 18 percent interest rate on the tax liens. The current rate invites investor speculation and unfairly burdens homeowners seeking to redeem.
•Water liens should be exempt from the tax sale in Baltimore City, as they are in other cities.
•Distressed homeowners should be informed about available resources and referred to available legal services by an ombudsman.
•Homeowners should receive better notice and the redemption process should be streamlined.
The current tax sale system profits investors and increases vacancies at the expense of the city's neighborhoods and poorest citizens. If handled appropriately, tax sales can be an effective means to fairly collect revenue for the city and reduce vacancies in Baltimore's neighborhoods. But reform is needed and it is long overdue.
Margaret Henn is the foreclosure prevention manager at the Pro Bono Resource Center of Maryland; her email is email@example.com. Robin Jacobs (Community Law Center), Lonni Summers (Maryland Volunteer Lawyers Service) and Dan Ellis (Neighborhood Housing Services of Baltimore) contributed to this op-ed.