Foreclosure threat defended on delinquent city water bills

Hearing held on measure that would remove such liens from annual tax sale

April 12, 2007|By June Arney | June Arney,sun reporter

City officials defended yesterday their policy of selling delinquent water bills and other small debts to private debt collectors along with back-tax bills, saying Baltimore would possibly jeopardize its finances if it can't use the threat of foreclosure to collect overdue bills.

Their comments came during a hearing of the City Council's Taxation and Finance Committee on a proposal by Bernard C. "Jack" Young, the 12th District councilman, to eliminate water-bill liens from the city's annual tax sale. No vote was taken.

Young reintroduced his bill -- which he first proposed in 2005 -- after The Sun reported last month that at least 400 city homes have been lost over debts other than property taxes in the past three years. Most stemmed from unpaid water and sewer bills, but some included alley repaving charges, sidewalk repairs and fees to register rental property. About half of the foreclosures involved unpaid charges of $500 or less.

Young's original bill was withdrawn late last year after city officials argued that many homeowners wouldn't pay their water bills if they didn't face potential foreclosure. City officials maintained their opposition yesterday.

"Without the tax sale, we'd have to raise rates unconscionably," said Stanley J. Milesky, chief of the city's Bureau of Treasury Management. "That has an impact on everyone in the city, not just the homeowners at risk."

Last night's hearing took place after the city's decision earlier in the day to delay a proposed 30 percent increase in water and sewer bills that would affect nearly 2 million residents, after auditors said that the city is collecting millions more than it needs to improve its aging underground infrastructure. Comptroller Joan M. Pratt said she believes the city has collected $40 million more than necessary over the past six years in sewer and water rates.

The city's next tax sale is scheduled May 14. As of March 22, the sale list included 2,697 properties that are on it solely because of unpaid water and sewer bills, according to city officials.

Milesky noted that the city's overdue water debts have fallen from about $21.8 million on Feb. 1 to $7.3 million. "That's the best snapshot I can offer to what would happen if we didn't have the tax sale to reinforce this," he said. "The easy answer is to take water bills out of the tax sale, but I would tell you there is great risk in that."

Milesky credited the city's move to send an additional billing notice with reducing water and sewer bills from more than 20 percent of total liens last year to 13 percent this year.

But officials also acknowledged that the system could be improved, particularly in notifying homeowners of overdue bills.

"We recognize our communication efforts haven't been the best," said Helen L. Holton, who chairs the committee. "I want to see the day when there's not even one house lost."

Baltimore, like many other Maryland cities and counties, sells the right to collect back taxes to investors in annual auctions, rather than trying to collect itself. Those investors buy the right to charge interest and fees that often amount to thousands of dollars, and the right to sue to seize the homes if the debts aren't paid.

Baltimore Mayor Sheila Dixon told The Sun last month that she ordered her staff to look into the feasibility of an amnesty program for water bills, similar to one for unpaid parking tickets.

Baltimore lawyer Jay A. Dackman thinks there is a simpler solution.

"Pull the water bills out of the tax sale until the state figures out how it's going to make the proper reforms to tax sales," Dackman said in an interview yesterday. "Until the state figures out a way to reel in all the costs, let the city cut off the water [instead] because people are getting hurt."

Dackman, one of the most active lawyers involved in tax sales in recent years, has said he will no longer buy liens because legal fees charged by investors to homeowners have gotten out of hand.

The city will not have to worry about losing money on water bills once they shut off people's water for nonpayment and start charging cut-off or turn-on fees, he said.

"People are going to come racing down to the Municipal building to pay their water bills," he said.

John Gasque, one of about a half-dozen people who testified at the hearing, agreed.

"When your water bill is $500, it should be shut down," he said at the hearing. "At BGE, you don't pay your bill, you get shut down. If you shut down at $500, people's going to pay those bills."

But Jay Sakai, who heads the city's water and wastewater department, warned that every $1 million of revenue that goes unpaid translates into a water bill rate increase of about 1 percent.

"The reality of people not paying their water bill means that everyone who does pay pays more," said Sakai. Gasque, who is active in community groups in the city, told committee members that something has to be done about investors reaping big profits at the expense of city residents.

"I'm tired of seeing the carpetbaggers coming and taking people's properties over nothing," Gasque said. "Baltimore's a war zone now with these properties."

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