April 13, 2008|By Fred Schulte and June Arney | Baltimore Sun reporters
Rather than try to collect back taxes and other debts on their own, many Maryland counties sell the right to collect them to investors in annual auctions. The process is intended to help find new owners for abandoned properties, and to help restore downtrodden neighborhoods.
Legal fees
Investors make money by charging property owners interest and fees that can amount to thousands of dollars. Typically, these lien buyers file lawsuits - thousands in Baltimore alone last year - to collect their debts, while adding legal fees and other charges on homeowners. Those who don't pay risk a court judgment that entitles the lien holder to seize their property.
Most taxing jurisdictions nationwide threaten homeowners with some sort of penalty, including foreclosure, if they don't pay their taxes. But Baltimore's policy of adding minor debts such as water bills and fees that many homeowners ignore - the $30 rental property registration, for example - has sparked criticism from advocates for the poor and some Maryland lawmakers.
Last year, The Sun found that at least 400 city homes were lost over debts other than property taxes during a three-year period.
A federal grand jury in Baltimore began investigating possible mail fraud and restraint-of-trade violations in tax-sale auctions in several Maryland counties last year, according to government documents. The Sun reported last year that three investment groups bought about two-thirds of the liens auctioned off in the city in 2006. The investor groups have denied any wrongdoing and said they are cooperating with the federal probe, whose current status is unclear.
Emergency legislation
Concern that homes could be seized over a paltry debt prompted the General Assembly to pass emergency legislation that increases the minimum debt that could trigger a tax sale from $100 to $250.
That affects about 10 percent of the city's properties in the tax sale.
The legislation also caps attorney fees at between $1,300 and $1,500, depending on the status of the case. And it requires lien buyers not only to notify the homeowner of the debt, but also to contact any party of interest, including the mortgage holder.
The new law follows a year of work by a task force, established by Baltimore Mayor Sheila Dixon, that made recommendations including setting a discounted water and sewer rate for low-income senior citizens, reducing the turn-off threshold for city water and sewer accounts from $500 to $250 and expanding the use of payment plans.
Gov. Martin O'Malley is set to sign the new law on April 24. It would apply to liens sold in tax sales starting this year.
"I think the new legislation should restore a sense of sanity back into the tax sale market," said Jay A. Dackman, an attorney who once was one of the most active in local tax sales but lobbied this year to have the system reformed. "The whole purpose of the legislation was to just stop the abuses. I'm happy about that."
Della said many of his colleagues initially wanted to get water and sewer bills out of Baltimore's tax sale. But they agreed to a compromise that raised the minimum amount triggering a lien for sale, because city officials argued that all water customers would share the tab for any bills that didn't get paid.
