…and the right to collect legal fees

by Walter Olson on September 8, 2013

The Washington Post splashes an investigative story about the tax lien business, in which outsiders buy up delinquent municipal property tax liens sometimes amounting to mere hundreds of dollars, then roll in lawyers’ fees and costs that can push up the bill into many thousands, eventuating in the foreclosure of family homes. The narrative is less than clear about exactly how the process works, and even leaves the impression that a tax lien purchaser owed, say, $6,000 can walk away with all the proceeds from the foreclosure of a $197,000 house without having to hand any of it over to mortgage holders, let alone the original owner. And some of the solutions offered (let’s not allow lien foreclosures on elderly people!) would have unintended consequences that are also, to be polite, underexplained. Still, enough of the story is there that an important general principle comes through: it’s dangerous for the law to put opportunistic actors in a position to run up $450/hour legal fees pursuing adversarial process that might not actually have been needed to vindicate their interests.

{ 1 comment }

1 Xmas 09.08.13 at 4:00 pm

Mind you, in order to be under the effect of a tax lien, you really have to ignore all the mail from your town or city. The house I was renting was taken by a tax lien purchased by a third party, the landlord literally disappeared for two years (not so much that we couldn’t pay her rent, however). She also avoided all of the court orders, sheriff visits to delivery subpoenas, public notice postings to newspapers and goodness knows how many phone calls.

The collection agencies don’t want to foreclose. They want the vig on the lien. If the home has a mortgage (most likely), they’ll lean on the bank that holds the mortgage. Tax liens take precedence over mortgages, and the tax lien holder will swipe the property away from the bank in a foreclosure proceeding (the government is always paid first).

The company that bought the tax lien on the property I was renting bought the first tax lien for a few thousand dollars, they were then on the hook for all additional tax, water and sewer and other municipal bills on the property for the three years it took to declare the taxes delinquent and get a foreclosure case fully through the court system. If, at any time, the home owner had contacted the lien company or city, she could have avoided the foreclosure. The bank (Bank of America), just let the foreclosure happen, she wasn’t paying her mortgage either.

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