With all of the recent discussion around collapsing vacants, negligent property owners, and the city’s tax sale system, there has been a lot of hand-wringing (and rightfully so, as someone was killed the other day when a vacant collapsed on a man while he was sitting in his car) and mutterings about tax sale foreclosures being “complicated”.
I disagree that the system is complicated — I think “convoluted and rife with fraud” would be a better way to describe what can go wrong after a tax certificate is purchased, including a large loophole in the law that allows the purchaser of the certificate to basically walk away from the whole thing, leaving the city to once again clean up the mess.
The Tax Sale Process: An Example
1234 My Street is vacant. I am the owner, and I’ve moved away, died, or otherwise have abandoned the home and haven’t paid the taxes on the home in some time. The City decides to sell my tax lien at auction.
Along comes Shadytown, LLC, the winning bidder on the tax lien. They immediately have to pay the overdue taxes plus any penalties, interest, etc. owed on the house. They can’t pay the rest of the bid price until they foreclose the right of redemption — meaning, they don’t actually own the home until they take title to the home and receive the deed from the City, if the owner doesn’t pay Shadytown, LLC the money they paid for the taxes. That money is usually increased on the part of the tax certificate buyer — interest, attorney fee, court costs, etc.
I, as the owner, have no intention to pay the taxes, interest, attorney fee, etc., to Shadytown LLC. Now we wait.
As the owner of the tax sale certificate, Shadytown LLC has to wait nine months in order to foreclose on the lien and take possession of the house. Keep in mind, after the tax sale, the taxes keep accruing, as they would for any other property. But still, Shadytown LLC has to wait to see if the original owner is going to pay. After the nine months goes by, and the original owner hasn’t paid the lien, Shadytown LLC has two years from the date of the sale, to file a complaint for foreclosure with the Circuit Court. Still with me? I warned you, it’s convoluted.
Here’s where it gets ugly: During this time, the property is in limbo. The original owner can’t sell it and Shadytown LLC can’t do anything with it until they foreclose on the lien and pay the balance due. If they don’t pay — the property remains in limbo. And can stay that way until the City decides enough is enough and puts the property back on the tax sale list for the second time, hoping someone else wants to get entangled in this mess. The City has to wait until the two year period has elapsed, so that means another two years have gone by with that house sitting empty, deteriorating even further, creating an even bigger nuisance for the neighbors.
If you’re saying to yourself “Well it sounds like the lien holder can back out and simply walk away from the lien and the property.” — you’d be correct. There’s the loophole. There’s no penalty for the tax lien holder when he walks away from the property, except the money he paid for the back taxes. There’s no penalty for the original owner, either, except the consequence of losing his property in the first place. That’s the loophole that needs to be closed — and fast.
There are several fees associated with City tax sales that property owners should be aware of:
- By state law, tax lien certificate holders must be repaid the lien amount plus 18%
- 6 1/2 months after tax sale, up to $750 in fees and costs may be added
- 9 months after tax sale, lien certificate holders may file to foreclose the right of redemption.
- Up to $750 more in fees and costs may be added after foreclosure is filed
Consequences of the Loophole
The most obvious consequence is the fact that the ability of the tax sale purchaser to dilly-dally around and not file the foreclosure on the lien in a timely fashion, thereby leaving the property in limbo for two years. The second consequence is the absolute mess it leaves our property records in, since the original owner is listed in SDAT for years after — even when that owner died many years prior to the house falling into arrears in the first place. The third consequence is to the taxpayers of the city and state. Court costs money. Judges, clerks, etc. are not free or cheap. Nor are attorneys, whether private individuals or employed by the City. When the City has to continually put the same house up for sale over and over again — it’s costing us money. Multiply that one house by the hundreds (if not thousands) “owned” (or not actually owned, because of the loophole) by tax sale purchasers, and you’re looking at a huge waste of tax money. Money that could be spent elsewhere.
The people who suffer the most in these situations are the people who live near these homes. They trust that state information is correct, so they go to SDAT and look up the owner of a property and file a 311 or other complaint with the City. Unbeknownst to them, however, that information is wrong more often than not, because of the “limbo status” of the home. Nobody’s being held responsible for the upkeep of the home, and many times, nobody ever will.
Closing that Limbo Loophole (as I like to call it) would allow our property records to be updated after the nine-month waiting period between the purchase of the tax lien and the foreclosing of the lien. During the remainder of the two year period, if you hold the tax certificate, you become the owner of record, and therefore are liable for maintenance on the home. The City would report the sale of the tax lien to the State Department of Assessments and Taxation, who would then update the property records to reflect your ownership. If, after the two year period for foreclosure lapses, the ownership would revert to the City and they could sell it again at auction, hoping for a better buyer the second time around. This would produce a chain of ownership, albeit temporary, but would add a layer of accountability we currently aren’t seeing. I daresay that added layer of accountability would prevent some current tax sale purchasers from continuing the process of buying tax certificates and walking away, and it would add a sense of urgency to maintaining the structural condition of the property so we don’t have more residents being killed underneath toppling vacants.