Consumer group: Elderly, vulnerable losing homes over just few hundred dollars in back taxes

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(AP) WASHINGTON - The elderly and other vulnerable homeowners are losing their homes because they owe as little as a few hundred dollars in back taxes, according to a report from a consumer group.

Outdated state laws allow big banks and other investors to reap windfall profits by buying the houses for a pittance and reselling them, the National Consumer Law Center said in a report being released Tuesday.

Local governments can seize and sell a home if the owner falls behind on property taxes and fees. The process helps governments make ends meet at a time when low property values and the weak economy are squeezing tax revenue.

But tax debts as small as $400 can cause people to lose their homes because of arcane laws and misinformation among consumers, says John Rao, the report's author and an attorney with NCLC.

The consequences are "devastating for individuals, families and communities," Rao said. He said states should update laws so speculators can't profit from misinformed homeowners and people who have difficulty managing their finances.

The rules for property tax sales can be confusing, especially to elderly people who can't keep track of their finances and people in minority-heavy communities that were targeted by subprime lenders. Here's how it works:

— The government files a public document called a tax lien saying that it can seize the property if the taxes remain unpaid.

— If the taxes aren't paid, the government auctions the lien to investors. Past investors include JPMorgan Chase, Bank of America and people who respond to Internet get-rich schemes, the report said. Homes typically are sold at steep discounts.

— For a limited time, the homeowner may buy back the home by paying to the investors the purchase price of the lien, plus interest, fees and other costs. That's possible because investors haven't bought the home itself — they have purchased the tax lien, which gives them the right to seize the home later.

— If the owner fails to pay all the costs, investors can sell the home at a big profit compared with the cost of buying the tax lien.

The report said state governments should make it easier for homeowners to retake their homes after tax lien sales. It said they should limit the interest and penalties investors can charge and increase court oversight.

It also called on local governments to let people pay back taxes or fees to investors on an installment plan, and to increase notice to homeowners and make sure they understand their rights.

Tax lien sales differ from most foreclosures, which happen when people fall behind on mortgage payments. In many states, homes sold because of tax debts can be sold for only the amount of back taxes owed.

That means a $200,000 home might fetch only $1,200, the report said. In the process, homeowners can lose thousands of dollars in home equity that they have built up by making monthly payments.

It is difficult to put a figure on the number of homes sold in tax lien sales because the information is spread among thousands of local governments, Rao said.

A JPMorgan unit estimated in 2009 that about $5 billion worth of tax liens are sold to investors each year, according to a transcript of remarks made at a government meeting in Kansas City, Kan.

Rao said he believes the actual number is much higher. He said Florida alone sold $2 billion worth of tax liens in 2008.

JPMorgan and Bank of America both said they have stopped buying and bundling and reselling tax liens but still hold tax liens that they already owned and manage them for others.

For elderly people, home equity might represent their only retirement savings. Many older Americans draw down the equity in their homes over time through reverse mortgages and other loans that use home equity as collateral.

People who got subprime mortgages before 2008 also face challenges staying current on property taxes. Subprime lenders are less likely to bill borrowers for the property taxes and then pay the taxes directly to the government. Instead, borrowers are expected to keep track of their taxes and pay them without help from the mortgage company. People with higher-quality mortgages tend to pay taxes and insurance to their mortgage companies as part of their monthly bills.

The report is the first comprehensive study of each state's policies and procedures for tax lien sales. An early copy was obtained by The Associated Press.

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[Vetzero58]

It is EVIL

Those responsible will pay due recompence for their error.

All in due time.

This cannot stand, God won't let it.

[technocoffee]

Yep, make them Oldies pay up so the rich people can cut their own taxes some more!!

[smittyc]

Folks the banks painted themselves into a corner. Collectively they are holding 13.6 million homes that will foreclose on. The buyers have left or are staying there for free, paying no homeowners insurance and making no mortgage payments. The meltdown of the subprime is still there just not talked about and that is why interest rates remain low. There are 8000 banks in the country and 3,000 are underwater just as in 2008-9. Currently the foreclosures are gaining steam again by the banks although the current administration has kept this problem out of the news. Overall, the rough ride has started up again and regardless of who is elected we are all looking at a double dip. There is no hiding place for the American economy and while my comment is political, the current administration wasted almost four years now in addressing this situation.

[boforillo]

This just is another example of government supported, bank operated theft!

[ssporleder]

How ANYONE that does not have 401K, etc. can survive at all, dumbfounds me.

Our system for the average retired person says that we do not care about them anymore.

It is a crying shame that people retire and get SS of $1500.00, then get taxed on it, and then have to PAY for medical supplients!

Why not just shoot us so we do not have to suffer?

We are kinder to our animals than to ouselves.

[ssporleder]

Oh, I forgot....if you are ILLEGAL, no worries, you get EVERYTHING for FREE!!

[erasmus111]

Only in America. Land of the corrupt and greedy.

[[e-mail]]

My mother almost lost her house this way. When her sister was dying of cancer she was upset and wrote a check for her taxes and accidentally underpaid by $6.00. She went to California and stayed with her sister until she died, and then came home. She got a bill for the $6.00 and planned to pay it with the next years tax assessment since it was such a small amount. Then, before the next assessment came out she got aa notice that her house had been sold for the $6.00 taxes. My husband happened to see the letter, which she didn't understand, and got her house back by paying the fees. this happened in the late 1980's or early 1990's. IT WAS IN COOK COUNTY ILLINOIS, AND THAT WAS WHEN WE WERE SURE GOVERNMENT WAS A BUNCH OF CROOKS IN COOK COUNTY AT LEAST.

[fredisalive]

Course when the banks own your legislators, they can whatever they want! In most modern societies banks cannot do this. Its easy every election year, they pump hundreds of millions of dollars on candidates likely to be bought, then they invite them on retreats and tell them what legislation is needed. The congressmen then come up with catch phrases that make it sound like its a legislation that will bring sanity to the industry and the cycle continues! Its a win a win for the banks and almost always a loss to homeowners and potential homeowners!

[MojitoMamma]

We should immediately audit congress members and senator's bank accounts every month so we will know exactly how much the banks are paying for their vote to destroy the middle class. We need to know who's getting the money, and how much it costs to buy a vote.

[[e-mail]]

Its called theft it is why the housing market performed this crash so the bankers and investors could steal back as many properties as possible from the people. IT should be considered treason for all the Congress and governmental officials who got sweet heart deals and stole the American Dream from Millions of Americans. Throw those responsible for theft of the Homes and livelihoods of the people in jail and quit wasting time and money throwing peaceful protesters in jail NOW!