Homeowners who paid off their mortgage can still loose their home to foreclosure if they default on property taxes. This hurts a lot.
As if the current foreclosure mess weren’t enough, some banks have been creating front entities in which they are buying up tax liens en masse, then harass homeowners with legal fees while hoping to put them through a foreclosure and make a killing on the property.
How Tax Liens Work (Really)
When a homeowner defaults on their property tax, the county places a lien on the property, then sells the right to collect the tax to a private investor. Interest accrues at a rate of up to 50 per cent per year while the investor waits for the homeowner to pay up. If the homeowner pays his or her back taxes with penalties and other fees in the allotted time, the holder of the tax lien recoups his or her original investment with a sizeable profit. But what if the homeowner can’t pay everything he or she owes? Tax liens are secured by the property and are senior to almost all other types of debt (except for liens of the federal government such as IRS tax liens, but also HOA dues and other claims which survive a foreclosure).
If the homeowner fails to pay up, the holder of the tax lien can seize the property through foreclosure. Homeowners who can’t pay their property tax bill must sell their home at a loss before it’s too late. The county is out of the woods, the taxes are paid.
Counties have their own bills to pay so they are selling tax lien certificates left and right. But guess who is buying them up? The same banks we the taxpayers propped up with bailout money.
Banks discovered tax liens as a safe and high-yielding investment vehicle and there is nothing wrong with that, except that some banks are not satisfied with high yields. Instead, they are pushing the envelope. In an apparent attempt to increase the likelihood of default and subsequent foreclosure, banks hire an army of lawyers and then go about harassing homeowners with legal fees you can only describe as excessive. In fact, they range from excessive to astronomical.
Banks are so image-conscious, however, that they set up new legal entities in order to disguise themselves. According to http://huffpostfund.org, Bank of America has been using front entities by the names of:
– Osprey, LLC,
– Ecru, LLC,
– Bennu, LLC,
– Investments 2234, LLC.
All of them are run from a single P.O. box location:
P.O. Box 403357
Atlanta, GA 30384
JPMorganChase hides behind an entity which calls itself Plymouth Park Tax Services, LLC, and is the largest tax lien investor in the country, also known as XSPAND (which is a DBA).
Fortress Investment Group, a hedge fund, disguises itself as Travis Farm Investments, LLC and Pleasant Valley Capital, LLC for example. (There is nothing “pleasant” about this.)
In June, Bank of America acquired tax liens on properties in Florida owned by low-income residents and nonprofit public interest groups, including a Salvation Army shelter, a preschool and a wildlife rescue group involved in the cleanup of the oils spill in Gulf of Mexico, along with some glamorous properties of the very wealthy.
Five big banks involved in tax lien investing (or, shall we say, in predatory tax lien investing) collected a total of more than $106 billion in TARP bailout funds, courtesy of the taxpayer. But when the taxpayer chokes up on the tax bill, he or she ends up homeless. Banks can borrow from the Fed at interest rates hovering near zero, then buy up tax liens and collect outrageous fees on top of astronomical interest rates, and then harass homeowners into foreclosure. It may be legal, but it sure as hell is unethical. When will Washington finally wake up and rein these banks in?