A license to steal

Our view: It's outrageous that shady operators can seize people's homes through tax liens on piffling municipal debts, and it's no less wrong because government gets a cut

May 19, 2010

Vicki Valentine had lived in her family's row home for more than a decade when a sheriff's deputy arrived at her door one day in February to strip her of her claim to the house. The cause: an unpaid water bill totaling less than $400, which the city had sold to investors years earlier at a tax sale. The investors piled up fees and interest on the debt totaling thousands of dollars — far beyond Ms. Valentine's ability to pay — then put a lien on the property and sued to foreclose.

Stories like this are all too common in Baltimore City, where hundreds of residents have been put out of their homes in recent years as a result of a tax sale process that allows unscrupulous operators to seize properties through liens on piffling municipal debts.

Three years ago, The Sun's Fred Schulte and June Arney wrote a series of stories describing how Baltimore's obscure system of ground rent was being abused by investors to charge people thousands of dollars in fees over minor debts. Their investigation found that, over a six-year period, 521 homeowners were forced from their dwellings for unpaid ground rent debts of as little as a few hundred dollars.

The Sun's reporting in that case outraged the Maryland General Assembly, which moved swiftly to enact a package of legislation providing new protections for homeowners.

A few weeks later, Mr. Schulte and Ms. Arney followed up with a report that investors were also buying up municipal liens and using them to extract thousands of dollars in fees over minor debts for unpaid water bills and other obligations. Over the previous three years, 400 people had lost their homes for non-property-tax debts, half of them for initial debts of $500 or less.

That report prompted a federal investigation into the matter that resulted in three Baltimore investors pleading guilty this year to illegal bid rigging in tax lien sales. Prosecutors say the ring compromised as many as two dozen tax sales in Baltimore and in several Maryland counties and netted the investors at least $10 million from homeowners targeted by the scheme.

Yet the state has done little to regulate tax lien auctions. Why? Because the Baltimore City government, which makes money from the tax lien sales, has lobbied against it. A spokesman for Mayor Stephanie C. Rawlings-Blake says the city is researching the matter and will pursue reforms if necessary, but historically, the city has opposed anything more than modest restrictions on the sales, saying they provide badly needed revenue during an economic downturn. On Monday, Baltimore auctioned off liens on a record 12,689 homes and other properties, twice as many as in 2006 during the height of the housing bubble, according to a report by Mr. Schulte and Ben Protess for the Huffington Post Investigative Fund.

The city says the tax lien sales are necessary because the threat of losing one's home is the only way to compel some people to pay their bills. But surely there are better ways to get people to comply with their responsibilities that don't undercut homeownership in the city and contribute to the problem of vacant and boarded-up housing that threatens struggling neighborhoods.

Why, for example, couldn't the city simply shut off water service when people fall seriously in arrears? That's what electricity, telephone and cable companies do, and it generally produces the desired result. Water is such an essential service that people who experience the shock of a cutoff are even more likely to pay up. The city says it has instituted new payment plans for property owners with unpaid water bills, and that the number of liens sold for that reason has fallen. But the 666 cases last year is still too high.

In any case, the exact number of such sales is to some extent beside the point. If it was outrageous and immoral for ground rent holders to collect disproportionate compensation for back debts, it's no less unacceptable for people to risk losing their homes over trivial city bills that have been artificially inflated by shady investors. The current system may make money for the city, but that's because it's the equivalent of a license to steal from vulnerable residents in a time of economic crisis — and that's no less wrong just because, for the moment at least, it's all perfectly legal.

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