District of Columbia Councilmember Jack Evans (D-Ward 2) introduced legislation this week aimed at changing how the city manages the sale of properties with delinquent taxes, from requiring more notice to homeowners to lowering the interest rate and placing caps on attorney fees.
The bill (PDF) stems from a recent push for reform by a relatively new coalition of legal service providers, law firms, and advocates known as the Alliance to Help Owners Maintain Equity, or AT HOME. Proponents say existing laws don't always protect the due process rights of homeowners, especially elderly and low-income residents, and can require them to pay much more than they owed in taxes to redeem their home.
But lawyers for investors who participate in tax sales have warned that making some of the proposed changes, such as lowering the interest rate on unpaid taxes and capping attorney fees, could push away investors who generate revenue for the city.
Evans introduced a similar bill in November, but the legislative session ended before the council could take action. He co-introduced the bill with Councilmember David Grosso (I-At Large) during the first legislative meeting of the year on January 8.
The goal, Evans said in a phone interview, is "to find a way in these economic times to help people keep their homes." As the city's recent boom in population pushes up property values, he said, "we're trying to protect people who are here."
During a tax sale, investors bid on tax certificates for delinquent commercial and residential properties. After a six-month waiting period, the investor has another six months to sue the property owner in District of Columbia Superior Court. The property owner can pay the taxes, interest – the city charges 18 percent annual interest – and the investor's attorney fees to redeem their property, or face foreclosure.
An estimated 97 percent of owners redeem their property, so tax sales are viewed less as a way to buy property than as an investment opportunity.
In pushing for reform, proponents identified several points in the tax sale process that they viewed as unfair, such as the amount of notice homeowners are given and the fact that attorney fees are uncapped. The Office of Tax and Revenue has maintained that they do give enough notice and that there are a variety of resources available for homeowners who can't pay their taxes.
The proposed legislation would require quarterly notices of tax delinquency and for a detailed final notice to be sent at least 90 days before a tax sale is advertised. The bill also would allow homeowners to pay what they owe in installments. "It's very important to provide homeowners with…clear and accurate notice," said Amy Mix, a supervising attorney for the Legal Counsel for the Elderly, a nonprofit legal services arm of AARP.
Once a property is sold, the bill would require the city to notify the homeowner within two months. Under the current law, owners are notified when they're served with the investor's complaint, at which point attorney fees are on the table. The law would reduce the interest rate from 18 percent to six percent and place caps on attorney fees.
Attorney fees are often the biggest obstacle for homeowners, Mix said. Fees can run as much as $4,000 or $5,000, which she said is prohibitive for a homeowner who had trouble paying $1,000 in taxes.
But Seth Slomovitz, a local attorney who represents investors, said the proposed legislation would make tax sales "dead in the water." The lower interest rate would remove any meaningful hope for profit, he said, especially since investors already complain that it takes too long for the city to make payments.
Slomovitz said that the attorney fees cap doesn't recognize the amount of legal work that can be a part of tax sale cases, which, besides filing the complaint, can require multiple court appearances and significant research to find property owners to make sure they're served.
Evans said he hasn't encountered any pushback so far, but will be open to other ideas when the council holds a hearing on the bill.