D.C. Tax Lien Sales Harm Citizens
October 2, 2013
Recently, the D.C. Office of Tax and Revenue (DCOTR) has been under public scrutiny for their mismanagement of tax lien sales. According to research conducted by the Washington Post; out of 9,000 tax liens that were sold to investors at auction in the past six years, nearly 1,900 were put up by mistake. Mistakes ranged from applying payments to wrong accounts, sending payment notices to the incorrect addresses, and not crediting payments to rightful accounts in a timely manner.
It isn’t uncommon for government entities to place tax liens on delinquent taxpayers’ property. Tax liens give the government or a private owner the first right to seize the property of a delinquent taxpayer for unpaid taxes. While the practice of using tax liens as a tool to recover assets for owed taxes is standardized, the threshold at which a lien is issued and the length of the property-owner’s payment window are not.
It is also common for governments to place the liens up for sale to investors, trading immediate cash for the right to the lien. As the Federal Reserve continues to suppress interest rates in an effort to stimulate the economy, tax liens are becoming a popular investment vehicle for savers because of the high interest rates and relatively low risk they offer.
But DCOTR’s process has been faulty and unfair. Not only is it extremely error-prone, but the thresholds for DCOTR tax liens have been extremely low. According to data reported by the Washington Post; out of 200 homeowners who lost their properties because of liens, one of three had liens less than $1,000. Three specific examples cite the minuscule amounts of $134, $287, and $406 as being sufficient enough in the eyes of DCOTR to place a lien on the property.
A balanced solution to the problem of these egregiously unfair tax liens must account for the needs of both parties. The government desires to provide services that depend on tax collection for funding while taxpayers need reliable information and a reasonable amount of time to pay their tax liability without fear of losing their home, or the added financially crippling expenses of high interest rates.
A simple way to address this problem would be to mandate a lien threshold based on a percentage of assessed property value which could be adjusted throughout the duration of the taxpayer’s delinquency. Setting this threshold in terms of a percentage, rather than a fixed nominal figure, accounts for flexibility in home values and inflation, which ensures the longevity of the policy.
In response to the Washington Post’s investigative report, Mayor Vincent Gray and the D.C. City Council went to work on emergency legislation to halt tax lien sales for certain citizens and nominally cap sales at $2,000 while also launching a 10 year review on the sale of tax liens. While these changes will cease exacerbating the issue, some underlying issues that manifested these terrible situations remain. There is still no reliable system in place to guarantee that delinquency notices are being delivered to the proper individuals, no proposed solutions to ensure the rightful accreditation of outstanding account balances, and no clear answers to why delinquent payers were being incorrectly informed about how much they owed on their tax lien. It is clear that plenty of work remains to right the ship that is DCOTR, but we feel that addressing these glaringly obvious issues would be in the best interest of those they claim to serve.