Wall Street's Sneaky New Way to Make Bank from Struggling Homeowners
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Two Baltimore area men convicted in the Maryland bid rigging investigation, for instance, made at least $10 million threatening homeowners with foreclosure unless they paid them fees that often amounted to ten times the taxes owed, according to federal prosecutors.
In another example, the Huffington Post Investigative Fund reported in May on the case of Vicki Valentine, an unemployed mother of four who lost her Baltimore home over what began as an unpaid city water bill of $362. She was unable to pay the thousands of dollars in legal fees and other charges due to investors and keep the mortgage free property, which her family had owned for nearly three decades.
Collection policies vary widely among the 29 states that conduct lien auctions, compounding the uncertainty and confusion. In addition, it's far from sure if growing concerns over the legality of paperwork used to support property foreclosures nationwide will have an impact on the tax-lien market, officials said.
In most states, the owner of a property tax lien--even if it's just a few hundred dollars on real estate worth many times that much--is given the highest priority under the law. A tax lien can wipe out a mortgage, for instance, and courts generally won't challenge that supremacy, meaning that in some cases investors can walk away with homes for little more than the taxes due on them.
Some tax collectors worry that banks or others might turn to tax lien purchases as a way to guarantee a less messy path to foreclosure. In some areas, it might be much easier and quicker to foreclose by securing a tax lien on a property on which the bank holds a mortgage. That's possible in Florida, though it is not permitted in New Jersey, which considers it a conflict of interest.
Nobody knows how many banks are bidding on property they hold mortgages on because tax collectors aren't equipped to collect the data. That leaves Florida collectors unsure who will be presenting certificates of ownership two years from now when homeowners whose liens were sold this year might be faced with a foreclosure action.
Other collectors, though they are pleased at how efficiently online auctions can generate tens of millions of dollars in newfound revenue, acknowledge bidding rules are lax and that they lack the expertise to police the sales.
Walker, the Florida retiree, said she realizes she had an obligation to pay her debt. But she said she feels it's wrong for faraway investors on Wall Street to be taking advantage of her shaky finances. "I don't think it's fair," she said.