Bennie Coleman, a retired veteran living in Washington, D.C., lost his house because he didn’t pay a $134 property tax bill:
The retired Marine sergeant lost his house on that summer day two years ago through a tax lien sale — an obscure program run by D.C. government that enlists private investors to help the city recover unpaid taxes.
Municipalities selling tax debts to private investors is not a new phenomenon. But this particular program has a whiff of economic injustice to it:
For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid.
But under the watch of local leaders, the program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found.
As the housing market soared, the investors scooped up liens in every corner of the city, then started charging homeowners thousands in legal fees and other costs that far exceeded their original tax bills, with rates for attorneys reaching $450 an hour.
This is one of the very few cases where I’m inclined to say that “there ought to be a law” against this sort of thing. There are better ways to collect De Minimis tax debts than filing for a lien, then selling the lien to private investors who will foreclose on the property and make money off of the homeowner’s misery. This is just bad public policy.
It would be trivial to fix this. You could easily place a monetary floor—say, $1,000—on the amount of unpaid property taxes a person must owe for the District of Columbia to be eligible to place a lien on someone’s home for unpaid property taxes. Property tax debts falling below that amount would need to be collected through traditional means, like money judgments and wage garnishment. You can even attach the homeowner’s personal property first to satisfy the debt. That way, elderly, retired pensioners don’t get thrown out of their home so that a private investor can make money off of the homeowner’s misfortune.
Why the District of Columbia feels that their current system is an effective way of serving the people of D.C. is beyond me. You can still get the taxes owed to the District by garnishing wages, withholding tax refunds, or repossessing personal property. I don’t see any reason why these are unviable means. These are almost certainly preferable to throwing someone out of their house.
It’s easy to fix this. One hopes that someone in D.C. government will get a clue and do so.