REFORMING BALTIMORE’S TAX SALE SYSTEM

— February 2022 Update —

Baltimore City Announces a New Tax-Sale Exemption Program

A successful application to the program would remove certain homes from the tax sale in the year they apply. To qualify, the assessed value of the home has to be $250,000 or less and:

• The homeowner has lived in their home as a primary residence for at least 15 years;

• And one of the following:

  • The homeowner has a total annual household earned income of $36,000 or less; or

  • The homeowner is at least 65 years old and has an annual earned income of $75,000 or less; or

  • The homeowner is an adult currently receiving disability benefits from the Federal Social Security Disability Insurance Program or the Supplemental Security Income Program and has an annual earned income of $75,000 or less.

For more information go to the city’s tax sale exemption information page.

Huge Problems for Homeowners

A sale to private entities of a property’s delinquent tax bill - and therefore the right to foreclose on that property if taxes, fees and costs aren’t paid - has been a practice questioned by community advocates for decades. Key issues with the program include:

• A homeowner can have their property placed on the tax sale list for as little as missing one payment on their property tax bill. One untimely illness, accident, death in the family or job loss could be all it takes. If the taxes owed are more than $750 (or $250 prior to 2016), an investor can purchase the right to collect those taxes plus fees and additional costs incurred by that investor.

• Those additional costs can add up quickly. To reclaim the liens, homeowners must pay the past-due tax or fee, plus 12 percent interest (18% prior to 2017) and hundreds of dollars in court costs, legal fees and postage. A $500 tax bill could grow to six times the original number in just two years, and turn into a $3000 bill, according to an Abell Foundation report.

• The program disproportionately affects the elderly, who have often paid off their mortgages, and therefore no longer pay their property taxes monthly via an escrow account. So they can face large lump sum tax bills that catch them by surprise and which are difficult for them to pay-off quickly, often because of other pressing medical needs.

• One advocacy group wrote in a Baltimore Brew op-ed that the typical homeowner they help in their clinics is 82% black, 75% women, the average age is 68, average income is around $20,000 per year (or $5000 below the poverty line), and they been in their home for an average of 27 years. So these are not the kinds of folks many would argue Baltimore wants to be throwing out on to the street by selling their houses (and all their decades of accrued equity) out from under them.

• The minimum amount for non owner-occupied properties to become eligible for inclusion in the tax sale is still just $250.

• The minimum amount owed in Washington, DC to be eligible for inclusion in the tax sale is $2500, more than three times the amount in Baltimore, and 10 times the amount for non-owner-occupiers.

• Fundamental fairness aside, owing to low household income levels, these foreclosed-upon families are often without a safety net, and, after their house is sold out from under them, the city and state frequently becomes their safety net, usually at a much higher costs to city services than the small amount of uncollected property taxes.

In May of 2021, Baltimore Mayor Scott removed 2,500 properties from that year’s tax sale list of 14,000 properties. Combined with city legislation that went into effect in July 2021 seeking to aide the elderly, disabled and low-income homeowners caught up in the system, as well as a state bill passed in 2019 that barred the city from sending properties to tax sale based on water bills alone, action seems to be moving in the right direction. Notably the mayor also established a Tax Sale Work Group to investigate the problem, and also used federal grants and city funds to purchase and clear the liens of 454 residents of owner-occupied properties.

However, we join other organizations in advocating for the city to go farther and quickly establish a “Tax Sale Services Office” that would target outreach to homeowners with liens below $10,000 and hold their liens for a period in which counseling will be provided and payment plans will be offered.

And we call on the city to completely reform the way, and to whom, vacant properties are disposed of in the tax sale system - as described in the next section.

Watch the latest recordings of the meetings of the mayor’s Tax Sale Work Group here.

And read the full 2016 Abell Foundation report, “The Steep Price of Paying to Stay” here.

For further pro-bono (free) help, see the Maryland Pro-Bono Resource Center webpage on tax sales, here.

Communities Destroyed by Vacant Property Tax Sales and Speculators

Properties (and Communities) Caught in a Debt Trap

One of the biggest problems with the tax sale system is that of properties stuck seemingly forever in limbo, accruing ever-greater debts, penalties and interest, upside down in appraisal-to-debt ratio, and therefore with little hope of them ever being sold out of the system and rehabbed.

The Baltimore Sun profiled one house assessed at $5,000 but with close to $2 million in debts. In 2017, the paper estimated the city included in their tax sale 1,400 such properties caught in a “debt trap”, and sold only 16 of them, raising a total of $50,000 for city tax coffers. The Center for Community Progress estimated that there are at least 4,000 of these properties in the tax sale system that are stuck there, owing to flaws in the system, dragging down the communities and blocks in which they’re found - seemingly in perpetuity. The city has been re-cycling that same $5000 house in tax sales for 30 years.

Incidentally, we know as well that we can’t demolish our way out of this problem. The Baltimore Sun found that, from 2012 to 2014, the city spent some $40 million in demolition funds and only reduced the total number of vacant houses by 300, to 16,500. In total, vacant properties in Baltimore cost the city $88 million per year just to maintain, secure and caretake.

We need a new way of thinking about the value of these houses to taxpayers, and what they would ultimately contribute to tax rolls being occupied versus circulating endlessly through the tax sale system in the hope of some modest short-term gain from a lien sale. They represent tens of millions of dollars in lost lost property, income and sales taxes, not just from potential occupiers of that house, but from increased occupation in affected houses and neighborhoods nearby.

In some of the biggest and most complex cities on the Atlantic and Pacific Coasts, even in what had been their most blighted areas (South Bronx, NY; Southeast Washington, DC; South LA - and yes, Greenmount West in Baltimore), transformational change has been realized, and existing communities and housing structures – the old buildings with “good bones” – were at least part of the reason those areas have come back. We need a new model for disposal of Baltimore’s wealth of vacant “debt-trap” properties - many of them uniquely vernacular in architectural style and potentially highly-attractive to future homeowners.

Lien Investors, Confusion, Expense and Vacancy

A second equally-sizable issue with the tax sale system is how it actually grows the proliferation of vacant properties in Baltimore’s lower-income communities, by transferring ownership of property, or property liens, to investors with little interest in seeing the communities prosper, interested only instead in collecting exorbitant fees and interest from some of Baltimore’s poorest and most-disadvantage residents. Going through the process to satisfy a lien held by a private entity can be tremendously cumbersome, expensive and confusing for residents unfamiliar with the system, and the result is often that the lien is never collected on, the property is vacated, and owing to low appraisals, the investor has no interest in rehabbing the property. So another vacant is added to the city’s roles.

Speculators and the Crushing of Green Economic Shoots

A final flaw with the system, and perhaps its most difficult to deal with, is that of speculators buying the liens of already-abandoned properties in hopes of flipping a property in an area showing green economic shoots (or early indicators of growth). These speculators have no interest in rehabbing the property and bringing it up to code, but rather are just trying to buy low and flip it higher. When the unrealistic sale price is not met - since it’s now out of the range of low-income homebuyers, but not yet on the radar screen of middle-income homebuyers - the speculator either gives up on the property, or decides to wait for the neighborhood to further “turn around”. Either way, the property is left vacant and run-down for an extended period, dragging down property values and ultimately, if there’s enough aggregation of speculative activity, crushing green economic shoots.

The city’s housing department made one attempt to deal with this kind of speculative activity in one area with a strong community organization guiding it: Southwest Baltimore. But in an opaque investigation and yet-to-be-released report by the city’s Office of Inspector General (OIG), the then-Mayor Young and the OIG determined that the program was counter to city interest and shut it down. The problem, according to them, was that the program seemed to favor that community organization - a coalition of seven neighborhood organizations and seven anchor institutions - over other developers. And the community group was allowed to “vet” potential developers in their community and make recommendations to the city about tax sale properties. The community organization pushed back on any uncharitable characterization.

Finally, it should be noted that vacant properties are not just a significant challenge to Baltimore communities, but also a tremendous opportunity to put in place an affordable housing buffer against future increases in property prices that are sure to come. The city and community groups must work together to ensure this uniquely affordable period in Baltimore’s history isn’t wasted, and Baltimore remains in perpetuity an affordable housing oasis in the mid-Atlantic corridor.

See draft in rem property tax enforcement legislation from the Center for Community Progress (p.48).

Read here why the finance folks in Baltimore City government may be resistant to changes in the system.

Read how the city, in the summer of 2021, reviewed its ownership of approximately 8,300 vacant properties.