It's stories like this that make me urge money-strapped people to walk away from underwater mortgage. Imagine kicking someone out of a house they own
June 10, 2010

It's stories like this that make me urge money-strapped people to walk away from underwater mortgage. Imagine kicking someone out of a house they own outright over a $600 water bill!

Banks have no compunction whatsoever about screwing you if they can. So if you live in a state where you can walk away from your underwater mortgage without consequence, why on earth should you feel guilty? Shouldn't banks have to suffer for all the fraudulent things they did to pump up the cost of housing?

Rather than collect the overdue money they are owed, many local governments are selling tax liens. Buyers range from behemoths such as JPMorgan Chase & Co, and some regional banks and law firms, to small-fry investors lured by late-night television commercials promising quick riches. Investors generally bid in an auction for the right to collect delinquent taxes and other municipal debts on property owners, sometimes by paying only a few hundred dollars. When owners can’t pay, investors can pick up property at bargain prices.

It can be a good deal for everyone except the property owner. Selling the debts to investors can help governments efficiently ease budget woes without having the added expenses of debt collection, foreclosing and being a landlord.

Investors, meanwhile, can rake in hefty profits. That’s because they can tack on fees and steep interest rates, which can amount to 18 percent annually in Baltimore.

In Valentine’s case, legal fees and other charges climbed past $3,600–nearly 10 times her original bill.

Investors purchased an estimated $30 billion of real estate tax debt held by governments across the countryin 2009, double the amount a year earlier, according to the Florida-based National Tax Lien Association. Altogether, 29 states and the District of Columbia can sell tax lien debt to investors.

Lien sales in Baltimore have nearly doubled since the housing bubble of 2006. On Monday, the city sold 12,689 liens – a probable record. Properties ranged from boarded-up shells and vacant lots to row homes in gentrified neighborhoods and some commercial buildings.

City records show that one in five of these liens on properties is for unpaid taxes or other municipal bills amounting to $1,000 or less. If Baltimore’s 2009 tax sale is any indication, hundreds will stem from delinquent water bills; there were 666 such liens last year.

This is just plain crazy, because all the local government does is displace the problem. You've taken a relatively stable homeowner and pushed them out onto the street, where they will inevitably end up consuming much more in federal, state and local social services than it would cost if the city simply forgave the debt.

Not to mention the sheer immorality of it. Not that they care, of course. After all, we're running government like a business!

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