If a homeowner has to make a choice between paying their mortgage or paying a tax or public utility bill, they might feel like the mortgage is the obvious way to go, lest they lose their house. But the fact is that you may be putting your property at risk by missing any of these payments.

We recently told you about the woman in Georgia who has spent years fighting eviction because her county wrongfully placed a tax lien on her property more than a decade ago. But a new report from the National Consumer Law Center claims that tax lien sales are a growing problem for U.S. homeowners, especially the elderly.

Say you fall behind on your property taxes, or choose to make your car payment instead of the water bill. It doesn’t take much for some municipalities to file a tax lien against a homeowner, often a debt of only a few hundred dollars, says the NCLC.

Those liens are often sold to companies that tack on substantial interest rates starting in the 18% range, and upwards of 50%. These lien buyers also charge huge fees to redeem the liens and avoid foreclosure. According to the NCLC, redemption penalties in Georgia, Iowa, Mississippi, New Jersey, and Texas all exceed 20%.

Seeing a potential for huge profits, lien buying is a $15 billion business in the U.S., and a number of state and local governments are eager to sell off these liens to bidders. The NCLC reports that in 2009, $1.8 billion of the $2 billion in Florida tax liens were auctioned off.

The NCLC report includes several stories of homeowners who lost their homes — or had to endure legal and bureaucratic battles — because of relatively small tax liens.

There is the Baltimore woman whose $362 water bill was sold off to a lien buyer. Interest and fees caused the amount to balloon up to $3,600. She couldn’t pay and lost her house.

An 81-year-old woman in Rhode Island owed $474 on her sewer bill. The tax lien buyer snatched up her lien for $836 and then made a huge profit by selling her house for $85,000.

A big part of the problem, says the NCLC, is that the laws regarding these sales are outdated and are not tied to current economic conditions. So while a savings account can barely score you 1% interest, tax liens provide disproportionately large returns on investment to lien buyers.

The group has called on state and local legislators to revise these laws, making it more affordable for people to redeem their liens and less attractive to predatory speculators.

“The consequences of homeowners not understanding their rights or the process of a tax lien sale is devastating for individuals, families, and communities,” says the NCLC’s John Rao. “To date, states have done very little. Will legislators and policymakers now reform their laws to help keep elderly and other homeowners from losing their homes due to a small property tax delinquency? We certainly hope so and the sooner they act to head off this swelling problem, the better.”

You can read the full report HERE [PDF]

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