Report: City Screw-Ups Put Thousands Of D.C. Homeowners At Risk For Foreclosure

We’ve written several articles over the years about how a small unpaid property tax or public utility bill can result in homeowners losing their homes to foreclosure, but a new investigative report from the Washington Post shows how systemic ineptitude in Washington, D.C., city offices has repeatedly left homeowners fighting against liens that shouldn’t exist in the first place.

For those unfamiliar, with how liens can spiral out of control, it basically works like this: You come up short on your property tax payment, or skip a utility bill payment in order to pay for something more important. The city or utility company puts a lien on your property for the amount of the debt. That lien then gets sold off to someone else, who begins tacking on fees and interest charges.

Depending on where you live, these add-ons can quickly balloon to several times the original amount of the debt. When you can’t pay, the lien-holder forecloses on the house. Furthermore, you often lose claim to any equity in the house, so even when the house sells for significantly more than the debt and what may be owed on the mortgage, you get nothing.

One can argue that liens, and the threat of losing one’s home, are a tough but dependable way to insure that homeowners pay their taxes, and that it’s the rare case that someone loses their home because of a small lien. But what about those instances where the lien shouldn’t have been in place at all?

The Post investigated liens placed by the D.C. Office of Tax and Revenue and found nearly 1,900 cases since 2007 where some type of error resulted in a lien being placed and sold off to an investor.

There’s the math teacher whose $1,400 tax payment was applied to the wrong house, the bank employee who had no idea she owed anyone money because the city was sending bills to a wooded lot in Virginia, but at least these people were able to eventually talk some sense into the city and save their homes.

Not so for the 95-year-old Alzheimer’s patient who lost her home over a $44.97 debt no one told her or her family she still owed.

According to the Post, her case goes back nine years, when she failed to pay a $406 tax bill. The city put a lien on her house and sold that lien at auction.

Her family found out soon afterward and contacted the city. The homeowner’s niece — a frickin’ IRS auditor — paid the city exactly what she’d been told to pay: $639.47.

The lien was never lifted and the lien-buyer added on $5,600 in fees (which the lien-holder claims to have charitably offered to reduce to $3,500), and so the house was lost (to an investor who was later convicted of rigging tax liens).

The city claims that the homeowner still owed $44.97 even after the niece paid the amount she’d been told — a fact no one felt obliged to mention to anyone.

When the Post investigated, the city could only produce an undated bill with that amount. No other records shown to reporters mentioned this lingering debt.

“If I had owed them $40 more, then why didn’t someone tell me?” says the niece, who is again, an IRS auditor. “It’s ridiculous — period.”

For its part, the city’s tax office defends the foreclosure.

“They were $40 short,” a rep tells the Post, presumably while throwing rocks at young children and the elderly. “It was properly foreclosed on.”

While it’s the wronged homeowners who are hurt the worst by these erroneous sales, the city’s carelessness is a huge drain on taxpayers. While the dollar value of one of these lien sales can be quite small, voiding a sale can result in massive penalties to the city. Over the five-year period investigated by the Post, it found that the city paid out more than $840,000 to buyers to void erroneous sales, not to mention the hundreds of thousands spent on lawyers.

“People’s properties would be sold erroneously,” a former operations manager for the city’s tax office tells the Post. “Lots of times, they just gathered up the files that were delinquent and said, ‘Here, this is what we’re going to sell.’ ”

He says that the office was so inefficient that piles of returned bills would just sit unopened, meaning that homeowners were not getting bills and notices, and that no one was looking into how to actually contact these homeowners.

The city’s tax office lays the blame for the high rate of erroneous lien sales at the feet of the homeowner, saying that payments made too close to the sale date could not be processed in time to halt the sale of the lien. However, officials in nearby Montgomery, Prince George’s and Howard counties in Maryland say that’s an ancient excuse from another era. Only about 1% of lien sales in these counties are done in error, compared to the astounding 21% error rate in D.C. between 2007 and 2012.

D.C. officials claim that the error rate was only 7% in 2012, but that’s still remarkably high, and may involve some number-fudging, as the error rate was 34% in 2011.

Perhaps it has improved now that the city’s CFO Natwar M. Gandhi has announced his plans to step down from the office he’s mismanaged for more than a decade.

You should check out the entire three-part Post report:
Part 1: How a small debt becomes a big problem
Part 2: Suspicious bids go unnoticed in D.C.
Part 3: D.C. tax office mix-ups put homes in peril