A growing number of home foreclosures are tied to delinquent taxes instead of delinquent mortgage payments, reports the National Consumer Law Center. With property tax delinquencies estimated at $15 billion, the organization has labeled this trend as "the other foreclosure crisis."
In 30 states and the District of Columbia, local governments can sell property-tax liens to private debt collectors -- which then can charge interest rates up to 50 percent on the outstanding balances as well as levy other fees. Homeowners who do not settle up within a certain period may face foreclosure. In some communities, the problem involves not just property taxes but unpaid water, sewer, or municipal fees. And, in some cases, the practice is grounded in crime and corruption that prosecutors say force many property owners to pay higher interest rates than if their tax liens were bought "in open and honest competition."
Jurisdictions increasingly are trying to balance homeowner rights with the collection of delinquent taxes. Eight years ago, lawmakers in Rhode Island passed the Madeline Walker Act, which requires cities and other taxing authorities in the state to notify the Rhode Island Housing and Mortgage Finance Corp. of delinquent liens well before tax sales. Rhode Island Housing then works with homeowners to help them stay avoid foreclosure. New York City forbids the sale of tax liens on homes owned by low-income seniors, people with disabilities, and veterans. Some counties in Michigan have eliminated tax-lien sales and instead offer payment plans to struggling homeowners. In the District of Columbia, the Legal Counsel for the Elderly is calling for a new law that would ban the sale of tax liens under $2,500 on primary residences; cap legal fees charged to homeowners at about $2,200; and establish an ombudsman to help distressed homeowners.