State Law Enabling Legalized 'Inflated Fee' Ripoffs Involving Unpaid R/E Taxes Has Banksters At Odds With Tax Lien Vultures As Homeowners Get Squeezed

In Jefferson County, Kentucky, the Louisville Courier-Journal reports on the process by which the local municipality peddles liens for unpaid real estate taxes to investors, state law that makes it easy for the investors to pull off 'inflated fee' ripoffs when enforcing these liens, and an apparently outraged banking industry, who object to the investors doing to the banks what the banks are notorious for doing to homeowners:

• Every year, investors [...] provide schools, metro government and fire departments with money in lieu of property owners who fail to pay their taxes. But in exchange, Jefferson County gives up hundreds of thousands, perhaps millions, of dollars a year that go to investors, typically based out of town — money that could be used to combat the problem of vacant and abandoned properties, according to experts on running city land banks.



• If the homeowner doesn't pay the back taxes, the investor can collect interest on the debt for up to 11 years or foreclose on the property, as in Henry's case. Like banks with mortgages, tax lien buyers gauge when the money they're owed exceeds a property's market value.



• Housing advocates say lien buyers can charge “excessive” fees, especially legal costs once a case moves to foreclosure, making it nearly impossible for the homeowner to avoid losing the property.



• “A lot of them, it's so far gone that there's not much we can do,” said John Young, an attorney with Legal Aid Society of Louisville,(1) who represents homeowners fending off tax lien companies.

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• In 2004, American Tax Funding, a Jupiter, Fla., company that calls itself “the nation's leading” bulk-buyer of tax liens, hired a lobbyist and convinced the Kentucky General Assembly to let it and other tax lien buyers add attorneys' fees to the liens, said Jim Ballinger, a Louisville attorney who represents American Tax Funding. That made tax lien investing more attractive because legal costs no longer threatened to eat into profits.

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• State Rep. Steve Riggs of Jeffersontown, who sponsored the 2004 legislation that helped make tax lien investing attractive, said it's a way for cash-strapped schools and fire departments to get at least some of the money that would otherwise go uncollected.

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• The tax lien holders get paid first from any proceeds at the foreclosure sale, which has drawn the ire of banks that hold mortgages. After lobbying unsuccessfully this spring to curb the tax lien buyers' business, the Kentucky Bankers Association recently filed suit in Franklin Circuit Court, calling the whole process unconstitutional.

For more, see Tax lien sales cloud Louisville's control over houses.

(1) The Legal Aid Society of Louisville provides free civil legal services to qualified low income Kentucky residents living in the following counties: Jefferson, Oldham, Trimble, Henry, Shelby, Spencer, Washington, Marion, Nelson, Bullitt, Larue, Hardin, Grayson, Breckinridge, and Meade.