Private firms collecting back Fulton taxes fall behind

Experts such as Frank Alexander, a law professor at Emory University who specializes in real estate and foreclosure law, question the practice. “The important public policy point is that the purchaser of the tax liens and properties at tax sale are not necessarily responsible players, and they may actually contribute to the problem,” Alexander said. “We are selling to these [companies] governmental power to collect tax liens and the question is, are these players who we want exercising this power?” Alexander said.

Fulton County routinely sells tax liens to private third parties who can pump up the lien value by tacking on monthly interest charges and use foreclosure to collect the debt. Gwinnett, in the metro area, also sells some liens, but far fewer than the state’s major player, Fulton.

Some real estate tax experts criticize both the fairness and the effectiveness of the practice. Experts say selling tax liens can put properties in limbo for years, while, often, no one pays property taxes, possibly canceling any cost benefit of selling the original liens.

The private players include:

● Harpagon, a sister company of Vesta Holdings, the largest tax lien purchaser in Georgia. Harpagon owes about $120,000 in Fulton and Atlanta property taxes dating back to 2008, according to Fulton County Tax Commissioner’s online data.

● Heartwood11, a tax lien and deed purchasing company formerly managed by Vesta and a subsidiary of BankAtlantic. Heartwood11 owes about $300,000 in Fulton and Atlanta taxes dating to 2006, according to county online records. Fulton County collects Atlanta property taxes. BankAtlantic did not return multiple calls from the AJC.

Because the Fulton tax commissioner’s office did not return calls about the liens over two months and declined to release related data, the AJC could not determine how many companies buy liens, how much revenue the practice generates or how many properties are foreclosed on after the liens are sold.

Robert Proctor, a lawyer representing Vesta Holdings and sister corporations, said lien purchasers use the same process the government uses to collect tax debts, but reduce the expense through the efficiency of the private sector. And Proctor said the amount Vesta’s sister company owes in taxes is small compared to the revenue they provide to the city and county.

“I do not know what the critics would have us do differently,” Proctor said. “Government does a poor job of nearly everything other than killing people or imprisoning people.”

Complex process

When a tax bill is overdue, cities and counties typically issue a lien against the property in the amount of the overdue tax. Most public agencies pursue tax debt collection with their own staff. Fulton sells these liens — which they are allowed to do 30 days after notifying the property owner of a delinquency — to private companies. After that, the property owner deals with the private lien purchaser, not the county.

Vesta and other companies that buy the liens can use courthouse-steps sale of the property to collect the debt.

There are notification requirements in Georgia law.

But, for an article published in December, the AJC talked to Fulton property owners who, because of failings of the system, didn’t discover they owed overdue taxes until their homes were in foreclosure and they owed thousands of dollars to settle relatively small tax bills.

There’s a built-in incentive for the private lien purchasers to draw out the already complex process, because they make more money: The companies can continue adding fees and interest to the costs a property owner will have to pay to settle the debt.

During the months or years between the purchase of the tax lien and the auction of the property, the taxes often go unpaid.

State law is unclear about who owes the taxes between the lien sale and the property sale — the original property owner or the eventual purchaser of the property at auction.

Harpagon and Heartwood11 also ran up delinquent tax bills after they bought properties at auction — sometimes after they bought properties they had themselves foreclosed on.

But, in addition, 280 properties owned by Heartwood11 account for about $700,000 in these limbo taxes that accrued between lien sale and property sale; properties owned by Harpagon account for about $180,000 in these limbo taxes.

These two companies alone are connected to more than $1.3 million in property tax revenue that Fulton has not been able to collect.

Proponents of lien sales say the practice allows Fulton to gets its money quickly and to avoid paying staff to collect debt. However, because Fulton County has refused to discuss the practice in detail or make its data easily accessible to the AJC, it’s impossible to independently verify whether the cost of unpaid taxes cancels the benefits of selling the liens.

John Ayoub, a former attorney with Fulton County and now a real estate tax lawyer, thinks not. He said the original property owner, already in arrears, in most cases would not have paid those taxes.

“For [the county] to get some money out of these situations is better than getting no money,” Ayoub said.

But Alexander, the Emory professor, said he suspects Fulton is losing money on the deal.

“The very simple idea is fraught with danger for governments,” Alexander said. “Simply selling the 2008 lien, they don’t know what’s going to happen [to tax bills] in 2009, 2010 and 2011.”

Where burden lies

Proctor, speaking for Vesta and Harpagon, defended the practice of selling liens.

Lien purchasers, he said, invest in revitalizing neighborhoods, remove political considerations from the tax collection process and ultimately do not cost delinquent taxpayers anymore than they would pay a government collector, he said.

“Once you owe [property tax], you owe it, and once you don’t pay, your neighbor has to pick up the burden,” he said. “It’s just like stealing from your neighbor.”

The delinquent tax amounts owed to Fulton by Harpagon — $120,000 — and Heartwood11 — $300,000 — are trivial, he said.

“We don’t have to pay them, we can just let someone else foreclose on them,” he said. “The county is not losing money on these properties because no one wants to own them.”

When Vesta purchases a lien, at least the county and city receive some tax revenue, Proctor said.

Vesta buys tens of millions of dollars in Fulton County tax liens, and Harpagon could owe a small fraction of that in taxes, he said. The $120,000 figure, however, may not be accurate as the tax commissioner’s website often has errors, Proctor said.

State Rep. Wendell Willard, R-Sandy Springs, worked to change state law in 2006 but with notification regulations to protect taxpayers.

Willard said these issues with the industry might bring the tax lien sale process to the attention of the state Legislature again.

“Maybe it’s something we need to look at,” he said.