High interest in tax auction Houses: Collection agencies bid for the right to go after homeowners for tax debt plus a juicy 24 percent interest rate.

May 20, 1999|By TOM PELTON | TOM PELTON,SUN STAFF

Evelyn Cook, a 58-year-old emergency medical technician from East Baltimore, ventured into the city's largest-ever property tax auction, hoping to land a rowhouse to fix up for her granddaughter.

But she stormed out of the Baltimore Convention Center auction hall, muttering in rage and frustration.

Every time she tried to bid on a $10,000 property, dozens of intense-looking guys with cell phones and Encyclopaedia Britannica-sized three-ring binders would raise a forest of bright pink bid cards and inflate the price to $1 million.

"It's a racket," Cook proclaimed. "Most of these guys work for the same company. And these properties can't be worth $1 million."

While the city's annual tax sale has historically catered to people like Cook hoping to buy properties at a discount, increasingly over the past decade they have been dominated by collection companies eager to profit from the debts of homeowners.

These agencies bid ludicrous sums of money -- Baltimore sets the limit at $1 million so competitors don't drive up the price all day -- knowing that they will never pay a penny to buy or renovate the properties, according to industry veterans and city officials.

All the companies pay to the city is the amount of the overdue taxes, often a few hundred dollars. For this money, they purchase from the city a lien on the delinquent properties, said Jennifer Sproul, the city's collection division manager.

Using this legal device, the companies have the right to go after the tardy taxpayers for the amount of their tax debt plus a juicy 24 percent annual interest rate -- more than the return on many stocks, industry experts say.

The agencies threaten to seize people's homes and ruin their credit ratings. If they don't collect within two years, the companies can foreclose on the properties and take them over.

But they almost never do, knowing that in Baltimore's sagging real-estate market, owning the properties is more of a headache than they're worth.

Bidding a million dollars on the option to purchase a $5,000 rowhouse means nothing because they never intend to exercise that option. And the competition for the lucrative interest rate is so high, the bids quickly gallop into the stratosphere.

The agencies write threatening letters to delinquent taxpayers, then walk away if they don't get their money within 24 months.

The properties remain in the hands of the original owners, who often are in so much debt they end up on the city's list of delinquent taxpayers again the next year.

Critics object to this system because they say it does not encourage redevelopment in troubled neighborhoods.

They say it might drive the poor into abandoning their homes because they are overwhelmed by the interest rate, which is higher than even credit cards'.

"These are the sharks -- companies that rob people with a pen instead of a gun," said Abdul Matin, 45, a Baltimore grocery store owner who went to the auction yesterday to buy two rowhouses for rental income.

But city officials and industry supporters argue that the bounty hunters perform a valuable service. They provide money to a city desperate for revenue.

Louise Green, chief of the city's Bureau of Treasury Management, said the city hopes to collect $10 million to $11 million from the tax and maintenance liens auctioned at the convention center Monday through yesterday.

It was the city's largest tax sale ever, Green said, with the liens for 11,500 properties sold. Last year, the city auctioned the rights to purchase 6,800 properties.

The amount was significantly smaller last year because the city had a threshold of $200 in debt, instead of this year's $100, for properties to be included in the auction, Green said.

"The tax sale is becoming increasingly popular for these companies," Green said. "The number of serious bidders has risen from five or six to about 20 just over the last three years."

Bill Brown, the city's director of finance, said a growing number of states nationally are adopting the system that Baltimore and other Maryland municipalities have used for decades.

New Jersey, Florida and the District of Columbia allow an 18 percent interest rate, according to industry officials.

"More governments are using the tax sale process than ever before because it works," Brown said.

Zach Germroth, spokesman for the city's housing department, said the high interest rate does not encourage the abandonment of homes. He said most people who abandon their properties do so before the city slaps liens on them.

The city also offers programs for people who want to fix up abandoned properties, Germroth said.

Michael Sabracos, president of the Baltimore-based Tax Sale Group, said the competition among collection companies is fierce because the city's interest rate of 24 percent is higher than other cities'.

"We are not terrible people," said Sabracos. "We are just glorified collection agencies. We don't break any legs, but it can get pretty ugly if you don't pay your taxes."

During the rapid-fire auction before 300 bidders, the collection company agents hunched over binders brimming with financial information on the city's delinquent taxpayers, ready to shoot their pink bid cards up for people they considered good risks.

They engaged in black humor, calling Kavon Avenue "cave-in" avenue and laughing at an Irregular Court address: "Who would want to live there?"

Some of the companies admitted using employees scattered through the audience with different numbered bid cards who seem to compete for the same properties.

"It's just a line of work," said Heidi Kenny, owner of B & K Collection Agency of Baltimore. "There are ditchdiggers in the world for a reason, and there are collection agencies in the world for a reason."

Pub Date: 5/20/99

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