Think that only credit card companies and gym memberships get passed off to collection agents? Think again.
In recent years, and now more than ever given the economy, local governments are selling overdue property tax accounts to private companies to gain immediate access to the money needed to supply public services. The downside is that these firms, called tax lien investors, can charge very high penalties and double the normal interest rates.
Housing and consumer advocates across the country are beginning to get wind of the tactics and have started calling for regulation. Although, municipalities have a strong argument for the raising of money this way because, like property taxes, it gets used to build roads, schools and supply public services. Not only that, tax lien investing has become big business, with many Wall Street brand names directly involved.
The demise of the real estate market in the last two years has left hundreds of thousands of unfinished houses on quiet cul-de-sacs in half-built neighborhoods across the country. It has also left in its wake millions of struggling homeowners. Should an overdue tax bill become property of a tax lien investor, suddenly the mortgage bill is not the only envelope instilling fear in the checkbook of its recipients.
Normally, governments do charge interest and late fees. Although, they do so at very reasonable rates. Why? Because they have no interest in seeing their communities becoming foreclosed ghost towns. Under the thumb of a private tax lien company, people are very likely to end up in foreclosure much faster. And, based on recent stats, a much more likely candidate for bankruptcy.
Tax lien investors have minimal concern for the preservation of towns and villages in which they have no role. Their stance is focused on collecting debts they purchased, not the building of schools or a playground. The underlying intention of their efforts, in essence, does not serve the community.
Private investors can move to foreclosure quickly, often taking priority over the mortgage holder because they "own the taxes," (taxes are required to be paid first in the event of a foreclosure) and also stack on 18 percent interest rates on what is owed. People subject to tax lien investment companies across the country are reporting immense increases in fines and interest that often end up pushing them over the edge.
The head of the National Tax Lien Association, Howard Liggett, was rather bold in a recent statement, saying that his industry's investing practices, " ... beats the heck out of any certificate of deposit."
In other words, tax lien investing makes a lot of companies a lot of money.
Overdue taxes are indeed a form of debt. And they need to be dealt with, just like your car payment and student loans. However, you enter into the agreement with your local government under the auspices of being treated as part of the community. Thus, it's easy to understand how the practices of tax lien investment firms could make an already financially challenged family feel even more abandoned by their community. And as a result, less likely to pay what's owed.