Earlier this year, hedge fund Alden Global Capital wrote a check for $1.75 million to Cook County, Illinois, for the right to prey on some of its poorest and most disadvantaged residents. The hedge fund is famous for buying up and destroying local newspapers across the country, and recently gobbled up mobile home parks while drastically increasing rents, cutting maintenance costs and laying off staff. He is famous for having purchased liens on more than 600 tax delinquent properties in the country. Second largest county. Instead of paying unpaid taxes on these properties, Alden Global Capital can charge escalating interest rates and impose fees on those debts. If the defaulter fails to repay the amount in full within two years, he or she can claim ownership of the property.
In America today, tax lien investing is a multibillion-dollar industry, increasingly dominated by hedge funds and private equity firms. It's also a fundamentally predatory company. They use local tax enforcement mechanisms to exploit the hardships and misfortunes of struggling homeowners and extract their wealth and assets. Its primary victims are poor, elderly, and disproportionately black and Latino, both homeowners whose tax liens are purchased and residents of surrounding neighborhoods who suffer collateral damage. Any attempt to advance access, affordability, and equity in the U.S. housing market and undo the harm caused by racist and exploitative practices of the past must first benefit from those inequalities today. We must attack the financial forces that gain and exacerbate them, and the laws that enable them. Do it.
The tax lien industry has aggressively promoted the sale of tax liens as a silver bullet to solve municipal financial woes.
Illinois is one of 27 states that allows or requires local governments to sell tax lien certificates (equivalent to the amount of taxes owed on a property) at public auction when property taxes are past due. One of them. Through these tax sales, local governments receive the taxes owed. Bidders were virtually guaranteed a high yield by the interest (18 percent or more in many states) and fees (virtually unlimited in some states) that homeowners must pay to release the lien. You can get more return on investment. , or from acquiring title to real property where that is not possible.
The sale of liens at public auction by local governments dates back to the 19th century. From the beginning, these auctions have been places where investors profit through exploitation. In cities in the early 20th century, notorious “tax collectors” such as Jacob Gross in Chicago and Charles Wiltsey in New York, bought up numerous tax liens on residential real estate and sold their owners. They made their wealth by charging exorbitant amounts of money to get liens canceled or by waiting until the tax deadline. A settlement was reached and the title was claimed. They would then often try to sell the property back to the previous owner.
Critics denounced these plans as unconscionable. A number of people participated in this trade and saw the wealth created, but they felt it was “too ruthless” and begged for it. When announcing his company's decision to sell tax liens in 1911, one New Jersey real estate executive compared the act to “picking a penny out of a dead man's eye.” Others questioned whether it was in the public's interest to fire private debt collectors based solely on personal gain. As tax delinquency rates rose to record levels during the Great Depression; of milwaukee journal “Is there anything constructive about handing over arrears to individuals who want to collect high interest rates or seize the property of homeowners and businessmen?” he asked. Instead, they argued, government agencies should be responsible for collecting delinquent taxes and programs should be established to help those struggling to pay.
There are regular calls for an abolition of tax lien sales and a review of tax delinquency laws. Often they have come in response to cases of poor, often elderly homeowners who lost their homes to unscrupulous tax buyers due to small tax debts. However, with a few exceptions, state legislatures have resisted structural reform. This is due in no small part to the lobbying efforts of the tax lien industry, which has been actively promoting the sale of tax liens as a silver bullet to solving local governments' financial woes. In recent decades, the industry's political influence has only grown as state and federal governments have cut funding to cities while limiting their ability to raise taxes and levy new taxes.
The reason that Black and Latino neighborhoods suffer from higher rates of tax delinquency is tied to other characteristics of housing markets and tax administration that have historically created racial disadvantage. As numerous studies have shown, real estate in black and brown neighborhoods tends to be overvalued, forcing residents to pay higher taxes than those living in majority-white neighborhoods. Because these same neighborhoods are devalued on the open market, municipalities with large black and Latino populations tend to have smaller tax bases relative to their populations, resulting in lower Note that in town, these homeowners end up paying higher property taxes than white homeowners (while getting less in return).
In addition to bearing a heavier tax burden, low-income and minority homeowners may also be more likely to finance their home purchases with conventional mortgages, which often come with property tax escrow accounts. Instead, you have to save and pay your own property taxes. People who have paid off their mortgages (mainly elderly people or people who have inherited their parents' homes) must also secure funds to pay property taxes. This explains why he owns 70% of the homes sold in tax lien sales outright.
It is long past time for states to implement more humane and more effective property tax enforcement systems.
Quite logically, tax lien investors target poor communities and vulnerable homeowners because they are poor and vulnerable. It is precisely the conditions that create higher tax delinquency rates in poorer areas with majority minorities that make tax liens so attractive in these areas. One is because tax lien certificates yield greater profits the longer they remain unredeemed. Not only does interest accumulate, but in some states the longer the debt remains unpaid, the higher the interest rate and the amount and type of fees investors are charged on the debt. The harder a homeowner has to settle a debt, the more money a tax lien holder can extract from a homeowner.
Tax liens in poor areas are also attractive because of their speculative value. Tax lien investors can file liens at minimal cost on properties in areas where the market has bottomed out in hopes of eventually becoming a target for developers or gentrifiers. Meanwhile, their speculative investments often remain vacant and dilapidated, further deteriorating neighborhood conditions and hampering community-led revitalization efforts. In areas that are already showing signs of gentrification, investors can take advantage of low-income and fixed-income homeowners struggling to pay rising property taxes. If the owner is unable to resolve the mounting debt, as is often the case, the tax lien purchaser can claim ownership of the valuable property. According to a 2013 study; washington post And more recent research shows that this is exactly what individual and institutional tax lien investors are deploying in gentrifying markets in these states, where the primary victims are elderly, low-income, and Black. It turned out to be a strategy.
This is what happens when we rely on private interests, motivated solely by the opportunity to profit, to address public concerns such as tax collection and enforcement. Far from alleviating the root causes of tax delinquency for poor and minority homeowners and distressed neighborhoods, tax lien sales and the predatory market they have created exacerbate them. It is long past time for these states to adopt a more humane and more effective property tax enforcement system.
However, simply ending tax lien sales is not enough. We must also address the reasons why governments are drawn to them in the first place. As a nation, we must reinvest in our cities and towns and the critical public goods and services they provide. And we must do so by taxing the vast and highly concentrated wealth of those at the top, not by preying on those at the bottom.
