Jul 12

Hidden ‘Second’ Foreclosure Crisis?

Hidden ‘Second’ Foreclosure Crisis?

New Report Warns of Hidden ‘Second’ Foreclosure Crisis

New Report Warns of Hidden ‘Second’ Foreclosure Crisis

An unpaid tax bill of just $400 could cost you your entire home in some states. A new report is calling such growing cases a second “foreclosure crisis.”

Local governments are stepping up their efforts to collect unpaid taxes from home owners, facing shortfalls in their budgets to pay for services like schools, road maintenance, and police and fire department costs.

So in some states, laws allow municipalities to sell tax liens to investors on properties of home owners who fail to pay their property taxes or other municipal bills, like for sewers. Until the home owner pays up on the overdue bills, the investors can own a claim to the property. If the home owner fails to pay, the investor can take possession of the home through foreclosure.

Investors are being drawn to buying up the tax liens on these properties because of the interest they can charge to collect on the overdue bills, sometimes at rates of 18 percent or more on the outstanding debt, according to a new report from the National Consumer Law Center.

“It’s a win-win for investors,” John Rao, author of the report, told CNNMoney. The investors stand to get their investment back with the high interest to boot, or they may get the entire home at a big discount.

The National Consumer Law Center says that states need to do more to warn home owners that this can occur. The center also is pushing for states to lower the maximum interest rates that investors are permitted to charge home owners on the back taxes. The center also says states need to allow home owners to set up a payment plan for paying back the taxes they owe, instead of requiring them to come up with a big lump sum.

Source: “The Other Foreclosure Crisis: Losing a Home for $400 in Back Taxes,” CNNMoney (July 10, 2012)

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