How a $140 bill snowballed into foreclosure
For Dominick Vulpis, a $140 sewer bill has become a
$50,000 nightmare.
Vulpis didn’t know he had a big problem with the
four-year-old bill until last December, he said, when he was served with papers
notifying him that he had lost his Middletown, N.J., home to foreclosure.
Neither he nor his wife were notified of the foreclosure process until the
final judgment was granted last December, he said.
“It was never brought to my attention until it was too
late and we were served with papers saying we had to move out of our house,”
said Vulpis, a 60-year-old plumber. “I may pay a bill late, but I pay them. I’m
not trying to beat anyone for $140.”
Incredibly, that $140 debt snowballed to the loss of his
home after the town sold the lien on his property to an investor, an
increasingly common practice as cash-strapped cities and towns try to raise
badly needed revenues to close widening budget gaps.
Until recently, the bulk of tax liens sales were for
unpaid assessments on failed or unfinished commercial developments, according
to Anthony Mercantante, the administrator for Middletown Township, which sold
Vulpis’ tax bill.
“Now you’re seeing more and more single-family homes pop
up on the tax lien list,” he said. “They’re owner-occupied homes with people
who are having trouble keeping up with their tax payments."
Local governments have long used tax lien sales to
offload the burden of collecting unpaid taxes and recoup cash from homeowners
who missed payments. The rules governing such sales vary from state to state,
but typically involve auctioning off past-due property tax bills.
Investors bid for the right to collect the debt plus
interest that can run as high as 18 percent, attorney fees and other expenses
that are not capped in some states. The rules typically give the homeowner a
grace period to pay off the investor and reclaim their property. But the tough
economy has made that harder to do.
“People who used to be able to rely on their kids can’t
really do it anymore,” said Laura Newland, an AARP attorney in Washington,
D.C., who helps defend homeowners in tax lien foreclosures. “The kids are
unemployed and struggling themselves and don’t have the money to help out.”
If the homeowner can’t come up with the money, the
investor can foreclose on the home and negotiate a larger settlement. Once the
foreclosure is granted, they can claim the entire equity in the property -- a
payoff of hundreds of thousands of dollars for buying a tax lien worth just a
few hundred dollars.
“Investors will say to the grave, ‘We’re in it just for
the interest: We don’t want to deal with someone’s house,’” said Newland. “For
some of them I think that’s true. For others, based on their litigation
tactics, that can’t be true.”
Critics of the practice argue that such outsized profits
for third-party investors produce no added benefit to municipal tax coffers,
despite the potentially devastating consequences for homeowners.
Vulpis was eventually able to negotiate a settlement in
which his mortgage company provided the $37,500 paid to the investor, which
will be added to Vulpis’ mortgage balance, according to his attorney, who is
now negotiating a loan modification with the lender. For the investor, the
settlement represents a payoff of more than 260 times the cost of the original
tax bill.
Vulpis said the investor, Approved Realty Group, doesn’t
deserve such an outsized return.
“I think he stuck me up without a gun, this guy,” said
Vulpis. “If he was a nice guy he could have said, ‘OK, I understand what
happened, give me $5,000 for my troubles.’
But he wanted a lot of money.”
Approved Realty Group did not respond to phone calls
requesting comment.
Combined with attorney fees and added interest for the
higher mortgage balance, Vulpis’e total tab could top $50,000.
Attorneys who defend homeowners in these cases say they
can be costly to fight.
“I have represented people for years,” said Newland.
“Part of that is because the calendar is so full.”
Housing advocates note that among the hardest hit are
elderly and unemployed homeowners who are most at risk of foreclosure. Subprime
borrowers are also disproportionately vulnerable. During the housing boom, many subprime
lenders wrote loans to low-income borrowers without including the cost of tax
payments to entice them with artificially low estimated monthly payments. Most
prime loans require that a mortgage servicing company set up and manage an
escrow account to accumulate property taxes and insurance premiums monthly and
then pay those bills on the homeowner’s behalf.
“If we have to make a quarterly tax payment to the board
of education of $10 million but we’ve only collected $7 million because people
are slow in making their tax payments, we would have to bridge that gap by
financing it and paying interest on that,” said Mercante. “So all the other
taxpayers are paying a penalty because someone else is paying their taxes.
(Selling tax liens) seems a little bit cold, but taxes by their nature are a
cold process.”
Moreover, they say, the vast majority of tax liens sold
to investors are settled before a foreclosure judgment is granted.
“All of the protections that exist for the homeowners in
foreclosure law continue to exist,” said James Brooks, program director at the
National League of Cities. So selling a tax lien is not selling a deed to a
property. The homeowner whose lien has been sold is still protected by all the
relevant aspects of law.
But attorneys say homeowners often aren’t given proper
notice to defend their home from seizure before it’s too late.
Two years ago, the District of Columbia sold a tax lien
on the home Stanley Stefan lived in for nearly 40 years. The problem started
six years ago, after district tax officials erroneously revoked a homestead
exemption, which has since been restored, he said. But Stefan, a 68-year-old retired
chauffeur, said he didn’t learn until this year that there’s still an unpaid
balance on his tax bill, which an investor is now trying to collect, with
interest. Stefan has hired an attorney to try to reverse the tax sale.
“I want my property and no payment: I don’t think I’ve
done anything wrong,” he said. “I paid what I owed. I shouldn’t be held
accountable for a mistake the district made.”
Some states and local governments have moved to protect
homeowners from the harshest outcomes. Last year, New York City passed an
ordinance that allows homeowners to work out payment plans when they fall
behind, caps the rate investors can charge on uncollected tax bills and banned
tax lien sales for debts of less than $2,000.
The law also made it easier for homeowners to apply for an exemption
that prevents their liens from being sold.
As a result, the number of tax lien sales has dropped 24 percent so far
this year, according to the New York City Comptroller's office.
"It helps to strike a balance between those two
imperatives: the need for cities to raise more revenues and to make sure that
actions the city takes are not creating further harm for lower income families
that are already feeling the pinch,” said Josh Zinner, co-director of the
Neighborhood Economic Development Advocacy Project, a New York group that
lobbied for the changes.
Comments
Post a Comment