Report: Tax Sales Fueling Second Foreclosure Crisis

The Boston-based National Consumer Law Center (NCLC) says outdated state laws that permit local governments to sell property through tax lien foreclosures are fueling a second nationwide foreclosure crisis.
"Homeowners throughout the nation, particularly (the) elderly and people with cognitive challenges, have lost or stand to lose family homes along with long-term equity which may represent their sole savings and security for retirement," said NCLC attorney John Rao, author of "The Other Foreclosure Crisis: Property Tax Lien Sales." A tax lien sale may be started over nonpayment of a small delinquent tax bill for a few hundred dollars, and then sold at a tax lien sale for simply the back taxes owed on the property. If the homeowner fails to buy back the property, the purchaser acquires the home for very little. Thus a $200,000 home might be sold for as little as $1,200, and then resold for a huge profit. Currently, annual tax lien sales total approximately $15 billion nationwide and are on the rise due to the weak job market, depressed home values, and an increase in mortgage foreclosures, the NCLC said.
Homeowners most vulnerable are those who have fallen into default because they are incapable of managing their financial affairs, such as individuals suffering from Alzheimer's, dementia, or other cognitive disorders. And one government study found that last year property tax foreclosures in New York City were highly concentrated among low-income communities with large African American and Latino populations, groups also targeted by subprime mortgage lenders.
"Our report is a wake-up call for states to reform tax sale laws to keep speculators from reaping huge windfalls at the expense of fragile citizens while still ensuring local governments receive much needed tax revenue," Rao said.