Tax-sale shenanigans

Our view : Federal investigation should expose system flaws

June 06, 2008

Federal investigators looking into Baltimore's tax-sale auctions have found their canary. Steven L. Berman, a veteran real estate investor from Pennsylvania, has agreed to cooperate with U.S. Justice Department prosecutors as part of a guilty plea in a bid rigging scheme. Mr. Berman is not just any canary. He has participated in tax-sale auctions in the city and five counties for several years and should be intimately familiar with the system, its vulnerabilities and payoffs. Tax sales remain a largely unnoticed, little understood process by which governments recoup unpaid property taxes and other municipal bills. It's an insular world that deserves scrutiny.

While the auctions are an efficient, cost-effective way for local governments to collect unpaid property taxes, they can have nightmarish results for homeowners ensnared in the process.

Unfair aspects of the system, as recounted by The Sun in a 2006 series, led to changes in the law this year. But it's too soon to know if the reforms have made the process less burdensome for consumers.

Federal prosecutors allege the bid rigging scheme involving Mr. Berman occurred over several years. They say a handful of tax-sale regulars, including Mr. Berman, cut secret deals to avoid bidding against each other, benefiting from the lack of competition as they purchased sale certificates in volume. Later, they would file lawsuits to seize properties because of unpaid ground rent, municipal debts or legal fees. Homeowners often didn't know what hit them. Some couldn't afford to repay the bills and accompanying fees and penalties. Others failed to act fast enough to avoid foreclosure. Tragically, some of the lawsuits originated with relatively small unpaid bills that property owners were unaware of.

As the federal investigation continues and the extent of wrongdoing is revealed, Baltimore Mayor Sheila Dixon and other local officials need to bar convicted bidders from future tax-sale auctions. The city has a similar prohibition for contractors involved in bribery and bid-rigging schemes. The public's business shouldn't be sullied by such unscrupulous individuals, and Mr. Berman should face the stiffest penalty under the law.

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