In tax-lien limbo

At the corner of Wylie Street and Chester Avenue in southeast Atlanta’s Reynoldstown neighborhood, a sullen, one-story house is covered in misspelled graffiti. The garish reds and blues clash violently with the flaky sea green exterior.

Every window is busted and jagged openings have been cut in the boards covering them and the doors. A circular saw blade lies on the porch under code enforcement notices tacked to the wall by the city.

The house is a magnet for crime and rodents and lowers surrounding property values, neighbors say.

Community development groups and tax officials in Michigan, Ohio, Pennsylvania and elsewhere have struggled with the proliferation of similarly vacant and rundown properties.

A contributing factor, they say, is the sale of tax liens. It burdens such properties with debt that exceeds their value and puts them in the hands of speculators who may sit on property as it deteriorates.

As a result, many municipalities have stopped selling liens.

Fulton County, however, still relies on the sale of tax liens as its primary method of collecting delinquent county and Atlanta city taxes, despite concerns over sometimes outrageous costs for property owners, questions about whether the practice saves the county money and negative effects on community revitalization. To a much lesser extent, Gwinnett County also sells tax liens.

Fulton County Tax Commissioner Arthur Ferdinand continues to decline to discuss the county’s sales of tax liens or release property tax data that would support analysis of the practice. The Atlanta Journal-Constitution has sought his input since late last year. He has not returned phone calls.

Fulton sold a lien for 2005 taxes on 55 Chester Ave. and, since 2006, taxes totaling $2,767 have not been paid.

Tax liens and overdue taxes are not the only reason Chester Avenue and similar properties remain vacant and decrepit. But community development experts say liens in private hands discourage development by adding costs and legal complications to clearing land for construction.

In Georgia, unless a property owner receives notice of a lien sale and settles the debt sooner, the legal process after a lien is sold drags out a year or more. Private companies may hold liens longer because they accumulate fees and interest, and once a property is sold, they can wait for a development project that needs the land.

In the interim, the companies often don’t pay taxes on vacant properties or maintain them.

Jeffrey Landers lives near the Chester Avenue house and has tried for years to get something done about it.

“It’s a definite danger,” he said.

A few blocks away at 83 Kenyon Street, a different story unfolds.

Rather than allow the property to wallow in a cycle of foreclosure and neglect, JPMorgan Chase avoided a lien by clearing back taxes and donated the site to Resources for Residents and Communities, a nonprofit community development group.

Less than a year later, the organization replaced the crumbling mess with a new, energy-efficient house. The house is on the market and producing tax revenue for Fulton County.

Other local governments across the country have created government authorities that pay overdue property taxes, raze blighted structures and work with community groups and private developers to return property to tax rolls.

Benefits vs. burdens

At least 35 local governments across the country sell tax liens, according to an analysis performed for the AJC by But it’s not clear how frequently these governments use the practice, because counties and cities often sell tax liens on an irregular basis.

Tax Commissioner Ferdinand has said in the past that selling tax liens to private companies helps his office increase the collection rate for overdue tax bills and provides immediate revenue for government services that taxpayers rely on.

Still, some government finance and community development experts believe the modest short-term gains cause substantial long-term loss.

Genesee County, Mich., sold tens of thousands of tax liens in the 1990s, but stopped the practice in 1999 after determining the county was losing money by not collecting penalties itself, said Dan Kildee, former treasurer of Genesee County.

“It’s a good business model for lien purchasers, but the problem is the government is giving up control of the lien and the profits from the collection of the tax liens,” Kildee said. “It’s privatizing profits and making the losses public.”

Along with disrupting revitalization efforts, dilapidated properties lower the value of surrounding homes, said Dan Immergluck, a professor at Georgia Institute of Technology’s School of City and Regional Planning. Houses within a quarter mile of a vacant or foreclosed property can lose up to 9 percent of their value, he said.

As the properties depress the tax base, they also use more government services, such as code officers, police officers and firefighters, than occupied properties, Immergluck said.

“There’s more argument now than ever not to do tax lien sales,” he said.

The procedures

That’s a conclusion the city of Pittsburgh came to years ago.

Pittsburgh sold $64 million worth of property tax liens to two private companies from 1996 through 1999. Pittsburgh has a population of 312,000, far fewer than Fulton’s one million plus.

In 2000, the U.S. Court of Appeals 3rd Circuit ruled the city improperly allowed Georgia-based National Tax Funding, a precursor of Atlanta’s major lien purchaser, Vesta Holdings, and Florida-based Capital Asset Holdings to charge higher interest than allowed by state law, according to court documents. As a result, property owners received $10.5 million in refunds, $45 million in credit for past payments and $125 million in bill reductions.

The practice of selling liens also obstructed redevelopment efforts and forced the city to buy back thousands of liens at a steep discount in 2006.

Pittsburgh no longer sells tax liens.

Selling tax liens seemed like an easy way to generate quick revenue, but hampered revitalization, said Aggie Brose, the deputy director of the Bloomfield-Garfield Corp., a Pittsburgh community development organization.

In Pittsburgh, as happens in Fulton and other communities, interest and penalties accumulated after the sale of liens and often surpassed the value of vacant and rundown properties; redevelopment may be prohibited by those costs. Private companies may invest a few hundreds dollars, or even less, to buy a tax lien and do not pay subsequent taxes, so they can afford to wait.

When government holds a lien, it can clear the back taxes to encourage development. But with liens owned by private companies, Brose said, nonprofit and for-profit developers found their projects held hostage by companies with no incentive to compromise, for example by donating property to a nonprofit or forgiving the lien at a reduced cost.

“Has it been a thorn in our side in getting the blight out of the neighborhoods? Yes,” Brose said. “Have they caused problems here for home owners? Absolutely. It’s like a fungus.”

Atlanta revitalization organizations have had similar experiences.

Pete Haley, executive director of University Community Development Corp., which promotes community improvement in the neighborhoods around the Atlanta University Center, has watched many properties rot under the weight of bloated tax liens.

In addition, the often cash-poor organization has paid thousands of dollars in fees to Vesta after Fulton County sold tax liens on their properties as soon as bills became delinquent, Haley said. Non-profit development organizations, dependent on not-always-predictable grants for funding, can be slow to pay their bills.

University Development has returned about 40 properties to the tax rolls over five years. Now, they house young couples and singles and provide stability to neighborhoods once dominated by rental properties.

Despite the philanthropic nature of their work and even though it increases tax revenues, tax commissioner Ferdinand does not work with redevelopment groups, Haley said.

“Vesta buys the liens because they know we’re going to buy them back,” he said. “I know the commissioner is under the gun to raise revenue for the county, but he’s doing it on the backs of nonprofits who are trying to revitalize neighborhoods.”

Vesta did not return calls for comment.

Joe Schilling, interim director of the Metropolitan Institute at Virginia Tech also sees this pattern.

“For these [private] tax lien purchasers, the future of these neighborhoods is not their top priority,” he said.

Revitalization argument

Others argue that the revitalization of intown neighborhoods such as Cabbagetown and Grant Park would not have occurred without the sale of tax liens.

The sale of tax liens to private companies can actually help produce a clear title in cases, for example, when properties have multiple owners or absentee owners, said John Ayoub, a former attorney with Fulton County and now a real estate lawyer who represents tax lien purchasers.

“In the beginning, in Atlanta, what Arthur [Ferdinand] did was huge,” Ayoub said.

But, in the aftermath of the real estate market crash, he agrees most depressed properties sold at a tax sale will remain abandoned and tax-delinquent. There may be an innovative approach to replace the sale of tax liens, he said, but public officials are reluctant to pursue a healthier strategy.

“It would almost be better if the city owned them now,” Ayoub said.

“If the government would take them over, that would be fine, but they’re not going to because they want them on the tax rolls because they’re pining for that money.”

This captures the essence of the problem, said Kildee, of Genesee County.

Since Atlanta property values have plummeted, the county may have no choice but to develop a new system, he said.

“What a tax lien purchaser does is not mystical and it does not require super human powers,” Kildee said. “It just requires a system and government can absolutely implement this system.”