The Two Sides of Tax Lien Sales - Washington City Paper

In June, I profiled a house that’s seen better days. The property, on Manor Place NW in Park View, has been boarded up for as long as anyone can remember. The city is unable to locate its owner, who appears to have died in 1988. He’s listed on various documents as Irby L. Dickinson, Irby Dickenson, Irby Dickson, and Irby Dickerson.

The neighbors would love to see the house purchased by a new owner and restored so it stops dragging down the mostly attractive block of rowhouses. The problem is how to get someone to buy it. The “principal collection mechanism authorized by District law” to return abandoned properties to productive use, according to David Umansky, spokesman for the Office of the Chief Financial Officer, is a tax lien sale, at which an investor can buy the property’s tax debt in hopes of later obtaining the property outright. But in the case of the Manor Place house, the tax owed, including penalties, is $358,274, while the house’s assessed value is only $243,480. In other words, no rational person would pick up the tab.

(There are two other systems by which the city can unload its tax bill and get these properties up and running. One of them, a so-called junk sale, hasn’t been used in more than two years, so as not to discourage participation at tax sales. The other, a repurchase program through the Department of Housing and Community Development, likewise hasn’t resulted in any acquisitions this year, as DHCD works on clearing out its property backlog.)

So when the tax debt gets too high, the tax lien sale system breaks down. Unfortunately, it can also break down when the debt is piddlingly low.

Mayor Vince Gray just called for a moratorium on tax lien sales in the District, in response to a Washington Post investigation that found that a small group of investors has foreclosed on dozens of homeowners with debts under $1,000. The investors buy the tax lien from the city, tack on interest and fees, and then seize the homes if the residents can’t pay.

To recap: When tax liens are too high, these sales don’t work. When they’re too low, they often result in a loss of property completely out of proportion to the actual debt.

Presumably, somewhere in the middle, they’ve at least occasionally functioned as intended. But it’s pretty clear that these tax lien sales, as they currently exist, are often ineffectual, and sometimes downright harmful. Some sort of change is needed to inject both more flexibility and more fairness into the system.

Photo by Aaron Wiener