According to a new report by the National Consumer Law Center, the number of Massachusetts homeowners facing foreclosure because of tax liens is increasing. Foreclosures are usually the result of defaulting on a mortgage however the NCLC report estimates $15 billion in foreclosures in the country in 2010 were the result of tax liens. Contributing to the issue of the increasing number of tax liens are the weak economy and local governments looking to solve their budget problems by raising property taxes.
Homeowners are simply too cash-strapped to pay their property taxes, even before the increases, and are finding themselves behind at an alarming rate. When a homeowner fails to pay property taxes, the municipality has the right to auction off the tax lien on their property to a debt collection company. These companies then turn around and charge interest rates as high as 50 percent on the outstanding tax debt. If a homeowner does not pay the owner of the tax lien can take possession of the property and resell it.
Those most at risk of losing their home because of a tax issue are the elderly and the unemployed, as well as properties without a mortgage, according to advocates for these homeowners. It is not uncommon for a homeowner with a couple hundred thousand dollars in equity to lose his or her property because he or she is behind on property taxes by just a few thousand dollars. An attorney with AARP said that a mortgage lender is usually responsible for collecting taxes from homeowners in their monthly statement so when a mortgage is paid off, tax bills can be missed.
A professor who specializes in tax-law foreclosures said that municipal governments that sell tax liens are not seeing the big picture. The practice may generate short-term cash but it has a tendency to generate long-term problems as well. Sales involving tax liens and tax foreclosures often result in legal challenges that can last years and be quite costly for local governments and homeowners alike. It may be well worth it for a homeowner to protect substantial equity in a property whereas a municipal government can spend thousands of dollars defending the sale of a $500 tax lien.
Source: The Wall Street Journal, "Tax Liens Trigger More Foreclosures," Kelsey Gee, July 14, 2012