May 15, 1997
BIG INVESTMENT FIRMS are making a mockery of the state's property tax sales, which until recently were orderly auctions that helped Maryland jurisdictions clear up delinquent real estate bills.
Investors violate the spirit, if not the letter, of the bidding process by offering absurd sums of money -- a trillion dollars and even "infinity" for tax-delinquent properties. Successful bidders win the right to pay the taxes and then to seek reimbursement from the property owners plus legal fees and interest rates ranging from 12 to 24 percent. Bidders such as Florida-based TransAm Financial Services, of course, have no intention of paying millions to foreclose on a $130,000 home if the owner fails to pay $180 in taxes and interest. It simply wants the right to collect above-market interest rates.
Hunger for these fees drove bids in Charles County to such outrageous heights that officials closed their annual auction. Frederick County's computers can handle only bids up to $9.9 million, so the $55 million bids pouring in proved that human savvy was too much for Deep Blue's more feeble cousins to handle.
This absurdity is no innocent pursuit. The unbridled fervor of large investors is squeezing out smaller investors with their unbridled fervor. These bidders wreak havoc among local officials. Governments anxious to balance their books lure investors by allowing successful bidders to collect the high fees and legal expenses. They never anticipated such madness.
Jurisdictions also are concerned that homeowners might wise up to this scheme and refuse to pay their taxes if they believe investors will bid millions, pay their overdue bill and hassle them for repayment for two years. An investor seeking to foreclose on a lien would have to pay the full bid amount to the homeowner. That would backfire on investors winning preposterous bids, but this could be an untenable scenario for local governments, too.
Baltimore County hopes to return sanity to this process by requiring participants to prove they have the money to bid more than 150 percent of a property's value. That plan could provide some temporary relief.
But these auction absurdities highlight flaws in Maryland's 54-year-old tax sale law that finance directors and state legislators must remedy in the next legislative session.
Pub Date: 5/15/97
