A generation ago, ordinary folks showed up at annual auctions of properties that had unpaid taxes and fees, looking for a bargain or perhaps to help keep a neighbor from losing a home.
But that homespun feel has given way to high-stakes online bidding by groups of deep-pocketed real estate investors who compete for the right to collect property liens. Three such groups paid a total of more than $8 million to buy up nearly three-quarters of the liens in Baltimore's 2006 auction.
The tax sales are now dominated by investors "who have the capital to invest in dozens if not hundreds of properties," said Michael Sanderson, legislative director for the Maryland Association of Counties. "These are sophisticated investors."
For at least a half-century, the state has required annual auctions as a means for local governments to collect back taxes and put abandoned properties back on the tax rolls. Local governments have considerable leeway in how to run their sales and what types of municipal debts other than taxes they can sell.
As recently as 2000, Baltimore City, which conducts the state's largest such sale, couldn't sell 44 percent of the liens it put on the block.
But then real estate values in the region skyrocketed, and the General Assembly in 2003 eliminated a $400 limit on legal fees on cases that went to court. City officials had buyers for 98 percent of the more than 7,500 liens offered for sale last year.
"As the strength of the [housing] market has increased, people have realized these properties have value," said Baltimore Housing Commissioner Paul T. Graziano.
Because properties now are routinely worth tens of thousands of dollars more than the liens on them, investors face little risk, said Subhash Gupta, a former computer programmer who operates U.S. Liens LLC. Most homeowners, he said, will pay an investor whatever is required to avoid foreclosure and keep a roof over their heads.
Maryland law allows each county to set the amount of interest that tax sale investors can charge. Most range from 6 percent to about 20 percent on the unpaid balance. The law also permits legal, title search and other fees. Investors can sue to seize someone's house if the bill isn't paid within six months after a tax sale.
With so many liens being purchased and so much money to be made, some investors have filed lawsuits by the hundreds. In Baltimore City Circuit Court alone, there are 4,820 open tax foreclosure cases.
Janet M. Hostetler, an attorney at the Public Justice Center in Baltimore, said these costs take a toll on the public as well as on individual homeowners being sued.
"It's a waste of court resources," she said. "No one pays for the judge and the clerks except the taxpayers. It's just common sense that you shouldn't have to take it to court."
Local governments throughout the nation move to foreclose on homeowners who don't pay their property taxes, and high interest rates and fees are commonplace. But 20 states don't sell tax liens, while others keep the courts out of the process or limit investors' payoffs.
Michael Long, president-elect of the National Association of County Treasurers and Finance Officers and a tax collector in Klamath Falls, Ore., said his state doesn't issue tax certificates. Tax collectors sell the properties directly - but only after they are delinquent in taxes for at least four years and often much longer, he said.
"I was elected to represent the people, not take them under," Long said.
Florida has auctions for liens, but investors there compete by bidding the interest rates down, and private attorneys are not involved.
Miami-Dade County's interim tax collector, Fernando Casamayor, says almost all of the nearly 34,000 certificates sold last year generated only 5 percent interest. "Our goal is to collect the taxes that are due while still giving the homeowner the most reasonable rate of interest we can," he said.