Tax lien sales shock, dismay

While most Georgia counties prohibit this practice, Fulton and Gwinnett counties routinely sell tax liens to private third parties who can pump up the lien value and use foreclosure to collect the debt.

Proponents say selling tax liens to private businesses lowers counties’ collection costs.

But critics say the tactic is an abdication of a county’s tax collection responsibility, removes due process protections for homeowners and places unnecessary financial burdens on taxpayers.

Putting the process in private hands, critics say, flips the creditor’s incentive at the property owner’s expense.

County tax collectors are interested in efficient, quick revenue collection, they argue. For-profit businesses make more money by delaying, running up the debt with penalties or foreclosing on the property and selling it at auction.

“The imposition of taxes is one of the most feared powers of government, and when that power is transferred to a private entity, not only are they not accountable like the government, but their incentives are entirely different,” said Frank Alexander, a law professor at Emory University who specializes in Georgia real estate and foreclosure law. “The investor’s only incentive is to maximize profits.”

That is why DeKalb County does not sell tax liens, said Andrew Booth, deputy tax commissioner and director of delinquent collections division.

“There’s no accountability to taxpayers and residents by the purchasers of the tax lien,” he said.

Proponents disagree. “It is our understanding that the third-party investors have more flexibility in setting up payment plans, which can give a taxpayer more time to pay and potentially avoid a tax sale,” Paula Martin, business service manager for the Gwinnett tax commissioner’s office, said in an e-mail.

Fulton Tax Commissioner Arthur Ferdinand did not return calls seeking comment. In the past, he has said his office sells liens to improve the efficiency of revenue collection.

Gordon is now intimately familiar with problems produced by sales of tax liens.

“As a person who has been responsible about paying my taxes and done everything I can to make sure this kind of thing does not happen, I feel like the organizations I’ve worked with — the tax commissioner’s office, my mortgage company and the sheriff’s office — have dropped the ball and are penalizing me for it,” Gordon said.

In 2005, a year after Gordon bought her apartment in northwest Atlanta, she appealed her tax assessment and, per standard procedure, her mortgage company paid only 85 percent of the 2005 tax bill pending the appeal process.

She won her appeal, but since only 85 percent of her taxes were paid, she still owed $220.

From that point, her story becomes a dispute over whether Fulton County notified her and SunTrust of the taxes, of their status as overdue and of the pending sale of the property. Gordon, her tenants in the apartment and SunTrust all say they got no notice. Fulton officials say they sent all required notices.

Even if the tax office did not send her a bill, it is still the property owner’s responsibility to pay, said Terry Noble, a tax administrator with the Fulton tax commissioner’s office.

Furthermore, he said, the tax commissioner’s office went beyond its legal duty by making the tax bill available online. SunTrust should have seen that when they paid her taxes, Noble said.

“There was nothing that went wrong in terms of what this office did,” he said.

SunTrust would not discuss Gordon’s case with the AJC, but told her in a letter that they checked online records every year and never saw any indication she owed taxes and did not receive notification from the county.

Gordon did receive a letter from Vesta in February 2007, four months after it purchased her lien for $291, informing her she owed them back taxes, she said. She thought it was a scam.

She called SunTrust and the mortgage company told her she did not owe any taxes, she said.

Vesta did not return phone calls seeking comment for this story.

Receipts for certified letters mailed by the sheriff’s office show the only notice to SunTrust of the tax auction went to the company’s main office in Richmond, and that a certified letter to Gordon at the apartment was never delivered.

The sheriff’s office sent certified letters to women in Decatur and Fairburn with similar names.

Gordon had changed her name, but she said finding her should have been simple. She owns another property in the county and a Google search of her first name and former last name returns a physical address, e-mail address and phone number. And that’s the name on the county rolls for the apartment.

In response, Tracy Flanagan, a spokeswoman for the sheriff’s office, said: “The Fulton County Sheriff’s Office did everything required according to the law, which includes title searches, Lexis Nexis, etc.”

Gordon sued SunTrust in small claims court last month to get the company to take responsibility for the $8,200 and acknowledge they received a certified letter before the tax auction, but she’s not confident about the outcome.

How a tax lien sale works

Fulton and Gwinnett don’t sell all their tax liens. Gwinnett uses the process to collect many older liens while Fulton uses the practice more regularly, experts say.

Here’s how it works:

The county issues a tax lien and sells it to a third party for the cost of the overdue taxes and accumulated penalties. The purchaser can add 1 percent a month in interest, plus fees, according to state law, giving the private lien holder incentive to sit on the case.

If the property owner fails to pay the taxes, fees and penalties within one year, the lien holder can foreclose on the property and sell it at auction to satisfy the debt.

The sheriff’s office is required by law to make multiple efforts to notify the property owner and other interested parties, such as a mortgage holder, of overdue taxes prior to an auction.

But the private lien purchaser isn’t required by law or by the counties to contact the property owner.

DeKalb makes phone calls, sends e-mails and even visits the property because, ultimately, they serve the taxpayers, Booth said.

State law gives the original property owner another year after an auction to pay the accumulated debt and get his property back. At this point, however, the buy-back cost has increased dramatically, in part because the property purchaser can add 20 percent of the auction purchase price to the tax penalties.

This encourages lien investors to pay a high price at auction, Alexander said, because there’s a high profit built in.

“There is no other investment in the United States that yields this high of a rate of interest and is secured by a first lien on a piece of real property,” Alexander said.

‘Not something we track’

It’s not clear how effective the practice is for collecting tax revenue.

Fulton County officials couldn’t explain whether they keep records showing how many tax liens it sells or their value.

“It’s not something we track,” said Noble, of the tax commissioners office. But W. Shannon Sams of the county attorney’s office said the county has that information, but has no “existing” record showing it. He would not clarify.

Atlanta City Council member Joyce Sheperd said poor organization and communication at the Fulton tax commissioner’s office create confusion in the billing process even before the liens are sold. The Fulton tax commissioner also handles property tax collections for the city.

“Their record keeping is horrible and there is no way to know if a taxpayer is behind,” Sheperd said. “My concern is that Fulton County does [not do] their due diligence and follow a process of notifying folks and keeping their records up to date.”

The Gwinnett tax commissioner’s office sold 2,917 tax liens worth $8.1 million in 2009, according to the tax office.

Twenty states and the District of Columbia allow the sale of tax liens to third parties, according to GovernmentAuctions.org.

Tommy Tedders, president of the Georgia Association of Tax Officials, said most counties in Georgia do not sell tax liens because, while the tactic can benefit a county that has difficulty collecting taxes, it generally does not serve taxpayers and is an “unpleasant experience.”

Rita L. James’ story

Intown Ventures sued 75-year-old Atlanta resident Rita L. James in 2008 to force her to tear down a portion of the house she has lived in since 1964, according to documents filed in Fulton County Superior Court.

James’ house straddles two subdivision lots, according to county records. After Fulton County sold a tax lien on one of the lots for four years worth of taxes totaling about $1,400, Intown Ventures bought the lot.

James’ lawyer, Francis X. Moore, said Fulton billed the property as one parcel for three decades and then in 1994 started billing for two parcels. But the tax bills for the second lot, notices of overdue taxes and notices of the lien sale were addressed to a person James does not know at an address that does not exist, Moore said.

“I think it’s just awful that people go around preying on people they know can’t fight back,” James said.

Adam Caskey, a lawyer with the firm representing Intown Ventures, said his clients do not want to tear down James’ house, but she refuses to negotiate. Dan West, the owner of Intown Ventures, said he offered to let James stay in her house until she dies or has to leave for extended medical care, but James declined.

James and her children should not have to give West any portion her property, Moore said.

“Inject profit into the collection of taxes and this is what you get,” he said.