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For several decades now, the D.C. government has sold the debts of homeowners behind on tax bills to private investors, who can then charge sky-high interest rates and fees and even foreclose on the properties. A Washington Post investigation revealed that hundreds of homes have been lost to foreclosure, including dozens with owner tax debts of less than $500. Legislation to address some of these issues was introduced last year, but is still pending. We explore the issues at play.
- Joanne Savage Attorney, Legal Counsel for the Elderly
- Marian Siegel Executive Director, Housing Counseling Services
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, a string of high profile rape cases put the spotlight on sexual assault in India. But meanwhile, a grass roots women's' rights movement has been quietly taking hold in the rural parts of that country. But first, for decades now, the District of Columbia government has sold the debts of homeowners, behind on their tax bills, to private investors.
MR. KOJO NNAMDIA Washington Post investigation has found that investors are charging sky high interest rates and fees on that debt, meaning that a tax lean of a few hundred dollars could turn into thousands in debt. And when the homeowner can't pay, foreclosure is the next step. While the District no longer sells debts of less than a thousand dollars, many of the other issues have yet to be addressed. Legislation before the D.C. Council was introduced last year, but is still pending.
MR. KOJO NNAMDIAnd joining us to discuss it is Marian Siegel. She is the executive director of Housing Counseling Services, which is a nonprofit, providing counseling, advocacy technical assistance to low and moderate income tenants, homeowner, home buyers and the homeless in the D.C. metro region. Marian Siegel, good to see you again.
MS. MARIAN SIEGELThanks for inviting me here today.
NNAMDIAlso in studio with us is Joanne Savage. She is an attorney with Legal Counsel For the Elderly. That's an affiliate of AARP, that provides free legal services to low income D.C. residents 60 and older. Joanne Savage, thank you for joining us.
MS. JOANNE SAVAGEThank you. It's a pleasure to be here today.
NNAMDIIf you'd like to join the conversation, call us at 800-433-8850. Have you ever had a lean on your property, and how was it resolved? 800-433-8850. You can send email to firstname.lastname@example.org or shoot us a tweet at kojoshow. Joanne, can you walk us through the process? What happens when someone is behind on their property taxes?
SAVAGESure. Well, by District of Columbia statute, the District has chosen to collect these past due taxes by essentially selling them off to tax lean purchasers. When the taxes, you know, if you miss your annual tax payment, the District, generally, every year, does a tax sale auction. Often, it's in July. They just did one this past July, and the lean purchasers come and bid on the right to purchase the tax liens on homes and also commercial businesses.
SAVAGEWe're most concerned with homes. And then to collect that debt from the homeowner. After a six month grace period, the lean purchaser can file suit to foreclose the homeowner's right to redeem their home to pay the taxes and get their home back. And that's when you really see homeowners getting into trouble, because the homeowner becomes responsible for the purchaser's attorney's fees. And so the debt that they had that was maybe a thousand dollars at the low end for this year, it's been lower in the past, has been accumulating 18% interest and now all of a sudden, the purchaser's attorney may claim that it's gonna take thousands of dollars to pay off their fees and get back the property.
NNAMDIAnd in the event that the homeowner says, look, I am impecunious. I just cannot pay 10,000 dollars in fees. What happens then?
SAVAGEIf that's what happens, they may lose their home. Under the statute, if the homeowner doesn't pay the fees, doesn't pay the taxes, isn't able to do it, the purchaser will get a judgment. And, I think what's surprising about this system is, you know, the purchaser, they foreclose and they're able to foreclose on the home, but they don't just foreclose and take back the 10,000 dollars that they're owed. At that point, the purchaser gets the home outright.
SAVAGEAll the equity in the home, all the value in the home. So, even if the purchaser, even if the tax debt was originally only 1,000, you know maybe with fees and interest, it's gotten up to 10,000. The purchaser is gonna get the value of the home, if it's 200,000, and the homeowner will see nothing at that point.
NNAMDIWhat recourses do homeowners have once their debt is auctioned off?
SAVAGEThey can pay the taxes to the city and pay the attorney's fees to the purchaser. Now, many, many homeowners are...
NNAMDIAnd of course the purchaser decides what those fees are.
SAVAGEThat's right. Well, the statute says that the fees must be reasonable.
SAVAGEAnd, you know, many homeowners have a little more of the wherewithal to do that negotiation. Some know that they can go to the Superior Court and ask the court for mediation, ask the court to decide, in some cases, what a reasonable fee is. But, the most vulnerable don't realize that. They just, they don't understand the process. They're faced with an experienced attorney who's telling them that the only way to get back their home is to pay his or her fee at whatever rate she wants to claim that her value is on that day.
NNAMDIAnd there are particular programs for low income seniors, for example. Can you talk about that?
SAVAGEThere are. Yes, as far as programs that the District of Columbia offers?
SAVAGECurrently, low income seniors can qualify for a 50% reduction in their property taxes. That's very helpful to those who know about it. There's also a program that allows low income seniors to defer payment of their taxes. Now, the taxes don't go away. They sort of indefinitely defer and they kind of accumulate as a lean on the house. But, this isn't a lean that is subject to foreclosure. It just means that the homeowner can, the low income senior can continue to live in their house and not worry about those taxes.
SAVAGEWhen they transfer it, or when it passes through the estate, the taxes are collected at that point. Now, that's a great program. The problem we see is that the folks that are most vulnerable, who really need it, don't always know about it. The other problem we see is you may have a homeowner who's gone to tax sale. Maybe they had a spell in a nursing home or a health issue and they missed last year's taxes, so now they're subject to a tax sale. They have a fixed income, so they can't come up with that lump sum at once, and all along they would have been eligible for the deferral program, and yet, currently, the District interprets that as a program only going forward.
SAVAGESo, one change we'd really like to see is just to allow them to go back and retroactively put that deferral in place. It puts the District in the same place and would help many low income seniors get out from under the tax sale.
NNAMDIMarian Siegel, who is likely most affected by this policy? What population are we talking about here?
SIEGELWell, we see foreclosures, delinquencies and tax delinquencies in every population, from the million dollar homes to the hundred thousand dollar condos. We see it everywhere, we see it every community. It is not, it is not a poor person's issue.
NNAMDIThe District has sold these property tax debts to private investors for decades. Is anything different now?
SIEGELThey're faster. In the old days, and I think what a lot of long term residents got used to is being behind on your taxes didn't mean an immediate sale. Things moved slower, things weren't computerized and there was a period people felt they had to take action. That time is gone. The periods are quick, the redemption periods are short and the importance of getting that word out is important.
SAVAGEI was gonna add, one change the council also made, sometime around 2000, 2001, is to put the foreclosure practice into the hands of the purchaser. So, now it's the purchaser who brings the foreclosure suit. The District really is not involved in that. They just make a judgment as to whether the taxes have been paid and that's a real, you know, that leaves a real vulnerability. If you're gonna put, you know, many of these purchasers are, you know, forthright in their dealings, but I think you have to recognize that there's potential for abuse there.
SAVAGEAnd if you're gonna put it in the hands of the purchasers to bring these foreclosure actions, you have to make sure there are adequate protections for the homeowners.
NNAMDIIn case you're just joining us, we're talking about D.C. foreclosures in general and the Washington Post investigative series in particular, which is broken down into three parts. Part one, how the century old tax lean program turned into a predatory system of debt collection by outside investors. Around six firms have dominated the business, including some who were caught bid rigging a Maryland auction. That was in yesterday's edition. In today's edition, who's affected? Elderly, disabled poor and the process of foreclosure.
NNAMDIAnd tomorrow, in the Washington Post, you'll be reading about errors D.C. tax officials have made, declaring property owners delinquent even after they paid their taxes, forcing them to fight for their homes. If you have questions or comments, what protections do you think homeowners should have? You can call us at 800-433-8850 or send email to email@example.com. Joanne, you mentioned that the District said that the interest rates and the legal fees that private investors can charge on their debt has to be, quote unquote, reasonable. And Marian, it's my understanding that a homeowner can challenge what that homeowner feels may be excessive fees or interest rates. How?
SIEGELYes. Homeowners can challenge it, but doing it on your own without legal support is difficult as was discussed. You have to go to court, you have to sit before a judge. Our first reaction, when we see situations like this with homeowners coming into our office faced with these type of debts, is to seek legal services if they qualify for them. And if not, to at least advise them on how to take steps that are valuable to preventing the loss of their home.
NNAMDIOn to the telephones. Here is Ben in Ashburn, Virginia. Ben, you're on the air. Go ahead, please.
BENHi. Well, thank you for taking my call. I do property inspections for banks, and I came across a very peculiar property up in the Virginia, West Virginia border, where it was a seven acre piece of land, one and a half acres in Virginia, five point five acres in West Virginia. And because they were in the foreclosure process, somebody from the mortgage servicer wasn't paying the West Virginia portion of the taxes and the five point five acre parcel, 10 percent of the garage, half the swimming pool, was sold at auction for, and the county's debts for four or six grand, something like that.
BENThe bank lost half its value, but that brings me to the question that applies to the District is, what happens to the mortgage when my house is sold or foreclosed on, you know, I still may owe the bank 100,000, 200,000, 300,000. Does the person who foreclosed on me, now do they have that debt? Do I still have that debt but no house? What happens there?
SAVAGEWell, both you and the mortgage company would be out of luck in that situation. The tax lean purchaser, their rights trump all others. For some folks, that's a little bit helpful because the mortgage company does have an incentive to come in and redeem the property and make sure that the tax sale purchaser doesn't take it. But, you know, we do see mistakes. We see sometimes that the mortgage company has, maybe the residence is on a couple lots and the mortgage company has missed one of them.
SAVAGEOne of the reasons that we see so many -- one of the reasons that the seniors in the District are hardest hit by this is they often have paid off their house. So, there's no mortgage company to assist in that, and they're the ones who, you know, they've paid off their house. They have the most to lose and they're also, sometimes, the most vulnerable.
NNAMDIThank you very much for your call, Ben. We move on to Carolyn in Bowie, Maryland. Carolyn, you're on the air. Go ahead, please.
CAROLYNI mean, when do we stop paying? Do you know? We built this country for free, everything downtown and everything all across. When do we stop paying? You know, where is the help? You know, and on your last call, your last call, who is to say what is derogatory to another person? Dan Snyder needs to go somewhere
NNAMDIWe've gotten through that part of our conversation, but if you wanted to talk about what's the situation with foreclosing that you wanted to address?
CAROLYNI wanted to address -- I think it's a shame in America -- we've paid and paid and paid. There is going to be a civil war and everybody needs to get guns, because this is ri...
NNAMDICarolyn, thank you very much for your call. Carolyn is clearly very upset about this, but on the other hand, Joanne and Marian, the investors behind these foreclosures point out that they are helping the city to collect legitimate debt, that homeowners are given several options. And that what they're doing is perfectly legal, to which Marian you say.
SIEGELWell, we have -- there's debt collection and then there's predatory action to take real estate -- the full value of real estate for just a few thousand dollars. We had a recent case of a retired police officer who was improperly being charged as -- by the district for investors property when in fact he lived in his property. In that case the mortgage company did step in and pay the delinquent taxes. And in effect, that switches it from a tax sale to a foreclosure process where now he was behind in his mortgage because the mortgage company paid the improper amount on taxes.
SIEGELIt all connects. Mortgage companies can step in and in some cases be helpful. And in other cases it just moves it from the point of a tax sale to a foreclosure.
NNAMDIJoanne, you're part of an alliance known as At Home, an alliance that's been working to address some of these issues. Can you talk about that?
SAVAGEYes. At Home the alliance to help owners maintain equity is a group -- legal counsel for the elderly as one of the lead sponsors along with our excellent pro bono counselor Crolin Morrang (sp?) has counseling services as a member of the coalition as well. This is a group that formed in recent years to really help inform the council and the district as to what's really going on here, you know, to point out some of the flaws in the system. Help them understand how this is affecting homeowners on the ground and to advocate for a reform of the system.
NNAMDIHere is Edmond in Charlestown, W.V. Edmond, you're on the air. Go ahead, please.
EDMONDYeah, I'm curious. It varies from state to state as far as the interest rates. When someone goes to the courthouse and they bid on a property, many of the states regulate what interest rate can be charged on that. And they also have a timeframe for that property to be paid off in order for that person to lose the property. So it's not instantaneous. And there's a lot of time that has to pass in many states and a controlled interest rate.
EDMONDAnd second, I'm not sure why escrow isn't mandated in loans. I mean, the federal government puts regulations and rules on all these loans for mortgages anyway. Why is it mandated that the insurance or the taxes are included in that regardless and giving the person no choice. The taxes have to be paid when the mortgage payment is paid. I mean, this way a person -- you know, especially an elderly person doesn't fall behind in that. It's automatically paid.
NNAMDIExcept in some cases the mortgage has already been paid off. As to the regulation of the fees and the characterization as reasonable, the District of Columbia apparently has not put a specific cap on the fees. But it's my understanding that there is legislation pending before the D.C. council on this matter. What would it do, Joanne, and where does it stand?
SAVAGEThat's right. There was a legislation filed in January. It hasn't been acted on yet, although I believe that the vast majority of council members signed on as cosponsors of the Residential Real Property Equity and Transparency Act. The bill would -- it has a number of key provisions, just picking up on the caller's question about the interest rate. D.C.'s statutory interest rate is actually 18 percent, which is really on the high end. In many jurisdictions that's the ceiling and the auction bidders will take that interest rate down from the 18 percent.
SAVAGEAnd, by the way, you know, the district is collecting 18 percent for a period of time as well as the tax purchaser. So it would -- the pending bill would lower that interest rate to 6 percent, which is a far more reasonable figure. It would put a cap on -- a presumptive cap on the attorneys' fees. These are fairly by the book cases, so I think it's reasonable to make a judgment about how much a typical attorney should be reimbursed for doing one of these cases. It would improve the notice that homeowners get. They do receive some notice now.
SAVAGEAlthough by statute right now, if they don't receive notice the law says that that's no reason to stop the foreclosure. That's no defense, even if it can be proven that they didn't receive notice. But they are supposed to receive some notice right now, but it's inadequate. It's confusing to many homeowners. It doesn't tell them where they can get help and what's really happening to them. And that's one of the things we'd like to see, them directed to some of the existing organizations, including us, that can help them out. And it would also allow a payment plan.
SAVAGESo, you know, if you're a homeowner and you're on a fixed income, you're used to paying $500 twice a year, you miss a year, you've been in the hospital, something's gone wrong. All of a sudden you owe the 1,000, you owe the interest in fees. And so, you know, knowing that you owe, you know, $3,000 now doesn't necessarily help you if you can't come up with that money as a lump sum. So a payment plan would allow folks to avoid a tax sale.
NNAMDIAnd Mayor Vincent Gray has called for a moratorium on tax lien sales, however I saw one Tweet that pointed out that these tax lien sales only happen one day a year. And that day is usually in July. So calling for a moratorium on them in September doesn't do anything to solve the problem at all. Finally, Marian, the Post investigation highlighted several cases of a few hundred dollars in debt resulting in foreclosure. Is that the norm or, as you mentioned earlier, it's all across the board?
SIEGELWell, that -- the minimum amount changed I believe in 2007 to $1,000.
SIEGELBut whether it be $1,000, $2,000, $3,000 or $4,000, losing a property perhaps that has no other debt on it that might've been in your family for years over any amount at that kind of arrange is not really acceptable when there is not a clear process for responding to a point of affordable levels for many of the clients. But, yes in fact, we see -- we have had clients come in with million dollar properties in tax liens. Generally they have the ability to either quickly sell or to redeem through other sources of income. So it's the lower income families that tend to be most adversely affected by actual sales.
NNAMDIMarian Siegel is the executive director of Housing Counseling Services. Marian Siegel, thank you so much for joining us.
NNAMDIJoanna Savage is an attorney with Legal Counsel for the elderly, an affiliate of AARP that provides free legal services to low income D.C. residents 60 years and older. Joanne Savage, thank you for joining us.
NNAMDIWe're going to take a short break. When we come back, a string of high-profile rape cases put the spotlight on sexual assault in India. But a grassroots women's rights movement has been quietly taking hold in the rural part of that country. That's up next. I'm Kojo Nnamdi.
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