Property Tax

Arizona Owners Can Lose Homes Over As Little As $50 In Back Taxes

(Source: AZCentral) By Emily Mahoney and Charles T. Clark

It was the home where Devoe Poleeson, the proud family cook and grill master, taught his daughter how to fry eggs. It was the home where he set the oven timer to awaken the kids for school before he left for work. And it was the family gathering place — for holiday parties, wedding receptions and even wakes — during the four decades he lived in the modest west Phoenix home.

The mortgage had long since been paid off. But in 2010, a decade after Poleeson’s death, an investor from Utah legally seized the home because a mere $808 in property taxes had gone unpaid.

“It was tragic for us, for our family, because … we grew up in that house and all of our memories are there,” said Patricia Miller, Poleeson’s daughter. “It was a loss that we just couldn’t really do anything about. There just wasn’t enough money from the insurance he had left to cover everything.”

The avalanche of foreclosures that devastated Arizona’s real estate market after the 2008 crash arose when thousands of homeowners were unable to pay their mortgages. But since then, other homeowners have faced their own foreclosure crisis, quietly losing their homes at a rate that didn’t peak until 2015.

Tens of thousands of people were at risk of foreclosure in recent years after they fell behind on their property taxes. And, like Miller, hundreds of those people lost their homes, and all their equity — not to the bank or local government, but to private investors.

Homeowners who fall behind on tax bills by as little as Poleeson’s $808 — indeed, sometimes by $50 or less — can have their debt bought by other investors or banks. With what’s known as a “tax lien” on the property, those investors then have the right to collect not just the debt, but compounding interest, too.

If homeowners can’t pay the tax plus interest, they lose their homes and all the equity they’ve gained.

A review of more than six years of data on tax-lien foreclosures across Arizona shows most of the hundreds of thousands of property-tax liens in the state were paid off, sidestepping foreclosure. And a closer look at Maricopa County shows many tax-lien seizures involved vacant lots.

But of the cases that do lead to foreclosure — 1,734 in Maricopa County since 2010 — more than a third are primary residences. That means that 642 homeowners lost their homes and all their equity.

The data shows just how much can be lost:

  • One investment LLC bought a tiny tax lien — $48.65 — on a faded fixer-upper in south Phoenix, then foreclosed and sold the house for $43,600.
  • Another purchased a $1,390 tax lien on a house in north Glendale, then took the house in foreclosure and sold it for $210,500.
  • In Maricopa County, high-poverty neighborhoods such as the Maryvale area, where Poleeson lived, have been disproportionately affected. Hardest hit are areas with large populations of Latinos and African-Americans, such as west Phoenix, south Phoenix and south Glendale.

“If you successfully foreclose, you normally find them … in socioeconomically depressed neighborhoods,” said Barry Becker, a prominent local attorney who has his own tax-lien investment company. “No one loses their house in Paradise Valley. Very few people lose their house in Scottsdale.”

 Many cities and counties across the country sell tax liens, andthe system has an immediate public benefit. Investors pay the back taxes immediately, meaning property-tax revenue is restored to counties that have been counting on it in their ever-tightening budgets.

But because the system lets investors pocket the interest or take the home, some say it distorts the government’s duty to help, rather than hurt, taxpayers who may be struggling the most.

“It’s very vicious and draconian way of enforcing taxpayer compliance, and we should never lose sight of the threat underlying the tax lien is you’ll lose your property and all of its equity,” said Andrew Kahrl, a professor at the University of Virginia who has studied the history of the tax-lien industry across the country. “The part that should give lawmakers pause are the cases when people lose their homes over a small unpaid tax bill. While rare, it happens more often than people want to recognize.”

Continue reading at AZCentral