When real estate owners default on their property taxes, it is relatively common for the local taxing authority to attach a lien to the unpaid tax balance. In such cases, after the statutorily mandated waiting period is over, the lien may be sold at auction to the highest bidder.
Generally, investors looking to purchase tax liens are invited to bid at a public auction. Though opinions of these investors varies – some view them as saviors of downtrodden areas, while others see them as vultures, preying on the weak and vulnerable – on the whole the system is intended to be fair and mutually beneficial.
However, there is increasing evidence emerging that these auctions have been anything but fair and equal. Corruption seems to have seeped into the very fabric of this system.
Banks Using Publicly-Funded Bail Out Money to Purchase Tax Liens
The $700 billion bailout was intended to prop up struggling banks. The banks were supposed to, in turn, help ensure that customers could remain in their homes. Yet since 2008, many banks have been criticized for not doing enough to meet this end of the bargain. In fact, many of these banks are instead using the funds to buy up struggling homeowners’ tax debt.
Since the 2008 bailout, major banks have made millions at taxpayers’ expense by buying up thousands of tax liens. The tax liens generally earn banks up to 16 percent interest, with the bank able to foreclose if the tax debt has not been repaid in full within three years.
Bid-Rigging Schemes Infest Tax Lien Auctions
In addition to banks unethically profiting from the misfortune of their customers, many of the auctions themselves have become unfair. Though the auctions are supposed to be fair and open, cases of illegal bid-rigging schemes have risen dramatically in recent years. This means that property owners are likely to pay higher interest on their tax debts since the bidding occurred without the intended open and honest competition.
The federal government has been attempting to crack down on this kind of illegal activity, mostly for the sake of struggling homeowners who are being forced to pay artificially increased interest rates. For those who are found guilty of bid-rigging, the conviction brings a maximum penalty of 10 years in prison as well as a $1 million fine for individuals. However, the maximum fine can be raised to twice the gain derived from the crime or twice the loss suffered by the victim if either of these amounts is greater than the $1 million statutory minimum.