City may take action on inflated auction bids

Bill collectors run up property prices at tax sale

May 23, 1999|By Tom Pelton | Tom Pelton,SUN STAFF

Baltimore may move to curb the growing phenomenon of collection companies bidding imaginary money at the city's annual tax auction.

City officials are discussing the possibility of requiring companies that buy the rights to acquire properties with delinquent taxes to put down more cash to show they are serious, said Zack Germroth, spokesman for the city housing department.

"I wouldn't call it an overhaul, but certainly we are looking to make our tax sales better at a number of levels," Germroth said.

Some participants in the city's largest-ever tax sale last week at the Baltimore Convention Center complained that collection companies were bidding outrageous amounts of money -- the city repeatedly cut off bidding at $1 million -- for the rights to buy delinquent properties worth a few thousand dollars.

The speculative bidders acknowledged that they had no intention of taking possession of or fixing up the homes. They said they wanted to obtain liens from the city that will allow them to collect the delinquent taxes plus 24 percent interest.

Critics complain that this profiteering on the debts of homeowners does nothing to encourage redevelopment of homes in a city that has 40,000 vacant or abandoned residences. Impossibly high bids drive out serious buyers who might want to renovate properties.

"This sounds like a situation we need to look into," said City Councilman Nicholas C. D'Adamo Jr., chairman of the Budget Committee.

Supporters of the current process say the collection companies do the city a service by acting as its de facto tax collectors.

Speculative bidding at tax sales also has been a problem in Howard, Anne Arundel, Frederick and Charles counties in recent years. In Howard County, bidders in 1997 offered as much as a trillion dollars for a Dayton farmhouse.

To solve the problem of bidding amounts that companies never intend to pay, Baltimore County created a four-page contract for bidders in 1997. The contract requires anyone bidding more than 150 percent of a property's market value to show within 30 days the financial ability to pay the bid price.

Last May, Gov. Parris N. Glendening signed a law designed to curb speculative bids in tax sales.

The law allows cities and counties to charge fees to people who bid more than 140 percent of a property's value. Anyone who bids more must pay 20 percent of the amount over that threshold.

That law also allows governments to limit each company to a single bidder. This would foil a scheme common at last week's auction in Baltimore, where some companies had as many as six employees scattered throughout the audience driving up the price on the same property.

"It's a way of prohibiting companies from distorting the purpose of the whole bidding process," said Chris Younger, counsel for the state Department of Legislative Services.

Howard County took advantage of the state law, instituting the fee on excessive bids during its tax sale last June, said Grace Wu, deputy finance director.

Baltimore City also might take advantage of the law, Germroth said.

City officials are talking about requiring down payments on bids much higher than the actual values of properties. And they might create separate auctions for people who want to renovate abandoned homes and companies that want to collect delinquent taxes, Germroth said.

For several years, the nonprofit Community Development Financing Corp. has had a $40 million program that offers low-interest loans and the abatement of overdue taxes to buyers willing to fix up abandoned properties, Germroth said.

"The city likes the current system because it brings in revenues," said Stanley Sugarman, president of the Homewood Realty Co. in Baltimore. "But we have to ask: Is it doing the city any good? It just galls me that we have 40,000 vacant homes."

Pub Date: 5/23/99

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