Friday, March 21, 2008

Portnoff's Tax Collection Tactics Ruled Illegal

Today's Morning Call reports that Portnoff Law Accociates has been ordered to pay $5.2 million in damages to more than 16,000 state residents being charged illegal fees. In doing so, a Montgomery County judge has condemned Portnoff's "cavalier attitude towards the Rule of Law."

That ruling is no surprise to many of us. I first told you about Portnoff's tactics long ago - on November 2, 2006. hey actually make the dreaded IRS look reasonable.

This privatization of tax collection, called tax farming, has historically been quite unpopular. It led to civil war in ancient Egypt, and was a grievance before the French Revolution. In 17th century England, privatized "chimney men" were allowed to enter homes at will to collect a chimney tax. "There is not one old dame in ten,/And search the nation through,/But, if you talk of chimney men/Will spare them a curse or two."

Rather than taking a lesson from history, state and local officials have passed laws and signed contracts with profit-driven private tax collectors. Property owners now face the predatory practices of Pennsylvania's very own chimney men. The most prominent of these? Portnoff Law Associates, a law firm that specializes in sucking the blood out of taxpayers in 75 municipalities throughout Pennsylvania. Portnoff is the "tax farmer" for seventeen municipalities in Northampton and Lehigh County.

How did this happen?

The way our real estate tax laws are set up, a person behind on property taxes ordinarily has two years before he has to worry about his home being sold at tax sale. The county conducts annual tax sales for properties two or more years delinquent, giving a homeowner ample opportunity to set up payment plans with no attorney fees. And if a municipal lien is filed for an unpaid garbage or sewer bill, the lien must be paid before the property is sold. A municipality will always get its money. But that wasn't good enough for many local officials, who wanted their money right away.

This is where tax farmer Portnoff enters the picture. It lobbied state legislators to modify tax sale laws in 1996 so it could stick taxpayers with court costs and its "reasonable" attorney fees. And all was well for the chimney men, who made money hand over fist. But then something terrible happened. Pennsylvania's Supreme Court, in an uncharacteristic nod to the little guy, concluded in 2003 that the procedure was all wrong. So Portnoff went back to the boys in the land of midnight payraises. Five months later, a brand new law not only cured these procedural problems, but was even made retroactive all the way back to 1996. That way Portnoff wouldn't lose a dime. The vote was unanimous in the senate, and only three house members opposed this draconian law. No Lehigh Valley legislator spoke against it. It's amazing what you can do with a lobbyist like Malady and Wooten!

The net result is explained quite well by the Commonwealth Court's Judge Pellegrini.

"Imagine your credit card company has consistently charged you unlawful fees - tripling your bill. Upon realizing that illegality, you sue the credit card company to recover those fees. A month later, a law is enacted that says the credit card company cannot only charge those fees in the future, but can recover those fees it illegally imposed in the past. If that legislation is constitutional, what is the result? The credit card company receives a windfall, and you are left without a remedy to be reimbursed for illegally charged fees that tripled your monthly credit card payment."

And that's precisely what has happened. Portnoff's "reasonable" attorney fees tripled most tax bills. When it was discovered they were illegally imposed, the legislature not only made everything legal for private tax collectors, but also said that everything that had been illegal in the past is now wonderful.

Thanks to our pals in the state legislature, Portnoff can now soak us. Some tax reform.


Lehigh Valley communities have quickly jumped on the Portnoff Express. Said Bethlehem's Tax administrator Timko: "Are we happy? Oh yes, deliriously happy." Lehigh and Northampton County municipalities on this bandwagon include Allentown Downtown Improvement Authority, Allentown School District, Catasauqua Area School District, Allentown, Northern Lehigh School District, Northwestern Lehigh School District, Parkland School District, Salisbury Township School District, Whitehall-Coplay Area School District, Whitehall Township, Bethlehem Township, Freemansburg, Bethlehem, Easton, Lower Mount Bethel Township, Northampton Area School District and Wilson Area School District. If you live in any of these places, expect no mercy. Don't get sick. Check your mailbox every day.

Under our privatized tax collection laws, chimney men like Portnoff can collect "reasonable" attorney fees. But what Portnoff thinks is reasonable is outrageous to the rest of us. To open a file and send a demand letter, the charge varies from $150 to $200. And every breath they take after that ends up costing homeowners even more money. A title company can't even get a Portnoff employee to talk to them without a check for $25. But where privateers make the really big money is when they list your property for sheriff's sale, sometimes for ten times as much as the original lien. In September alone, Portnoff listed twenty properties for sheriff's sale in Northampton County.

Liens are filed only if a homeowner fails to respond to a demand letter that includes both bill and a $150-200 attorney's fee. Obviously, most people pay up quickly. But a lien analysis in Northampton County for the first ten months of 2006 is staggering: Easton, 271 liens ($81,300 for Portnoff); Bethlehem, 201 liens, ($80,400 for Portnoff); Northampton Area School District, 273 liens ($81,900 for Portnoff); Wilson Area School District, 69 liens ($20,700 for Portnoff); Northern Lehigh School District, 17 liens ($5,100 for Portnoff); Freemansburg, 19 liens ($5,700 for Portnoff); Lower Mount Bethel, 19 liens ($5,700 for Portnoff); and Bethlehem Township, 27 liens ($8,700 for Portnoff). In the first ten months of 2006, Portnoff snapped liens against 896 Northampton County taxpayers and has charged fees totaling $288,900.00.

Is this reasonable?

Wait, it gets better. For those sorry bastards who don't pay up, Portnoff's next step is to sell your property. To collect a tax bill totaling $465.77, Portnoff will sell your property unless you pay them $3,626.57! This is totally unconscionable. Attorney fees like these are neither reasonable nor bear any relation to the original bill. Portnoff listed 40 properties for sale in 2005, and walked away with $144,000 in its pocket.

What's interersting about all of this is that Portnoff makes a great deal of money, delinquent taxpayers lose a lot of money and become very disenchanted by our government, but municipalities make no more money than they would if they simply permitted the counties to collect these late taxes. Municipalities do not benefit from this privatization in the long run. And the homeowner always suffers.

Larry Kistler, Lehigh County's Tax Claim Bureau Director in 2002, told The Morning Call, "I can't speak to the reasons why municipalities have gone to Portnoff, but I've always thought the county system worked well. We work to keep people in their homes, and we recover 99 percent of the money within three years."

We've privatized just about everything being done in Iraq, and look at how that has turned out. And now we're doing exactly what Benjamin Franklin sarcastically predicted would guarantee revolution - entrusting tax collection to a group "composed of the most indiscreet, ill-bred, and insolent [men] you can find. ... Let these have large salaries out of extorted revenue. . . . If any revenue officers are suspected of the least tenderness for the people, discard them."


smart blonde said...

Wow, Bernie, we agree on this one! Our board hired them a few years ago, and I was very much opposed, and vocal about it. The excuse was there were those who could pay, but withheld their money until the last minute, being two years. The district wanted the tax money right away. My concern was for the person who really couldn't pay because of financial hardship.

smart blonde said...

While we are on the subject of history proving this to be a disaster, history also proves government redistribution of wealth to be a disaster. Taking money from those producing to give to those who don't usually causes productivity to slow down considerably. We have seen it in this country to a certain extent, part of the many reasons companies leave our shores.

Bernie O'Hare said...

Wow, Bernie, we agree on this one!

Who'd have thunk it!

Anonymous said...

Bernie, well well.... now, how is a municipality, school district or county to collect due real estate taxes? Well, it can do it in house or third party it. In today's contempt for government hiring staff and qualified staff (remember, you get what you pay for) third partying services is the norm and is EXPECTED. As taxpayers, we can not have it both ways. If we don't want government expanded, and a service is needed, then its third partied, ala Portnoff. How many times have you been to local government meetings and some clown says that government has to start acting like the private sector. Well, the rooster has come home to roost and all of these people are now complaining. As far as I am concerned, ALL government services should be provided by government employees. Hence, better accountability and oversight.

Bernie O'Hare said...

I oppose privatization of most core government services, especially tax collection.

Joe Hilliard said...

Great info Bernie! And a disgusting practice.

I am in favor of privatization. But not at greater costs to taxpayers as a whole or as individuals.

For example, if someone owes $100 I am okay with privatizing tax collection. But they are paid out of the $100. Say, $5. There is no extra burden for the taxpayer and the questions for the government are simple ones. Do we save money via lower overhead/administrative costs and/or do we achieve higher compliance?

The same principle would apply to delinquencies. Other than the original amount plus statutory penalties, the private agency would collect a portion of that total amount, but should not be permitted to add other fees or costs. Then the questions are the same as above.

This is another special interest giveaway by Harrisburg politicians.

Anonymous said...

You mean redistributing my money to fat pension buyouts for guys like PPL's Miller. This same culture derideing pensions for employees. You mean the same redistribution that takes my money and gives tax breaks like KOZ, LERTA and etc. You mean the redistribution of wealth that rewards multi-national companies for shipping jobs overseas, by huge tax breaks.
I am sure as a "SMART" blond that must be what you are refering too.

Anonymous said...

Please explain:

"history also proves government redistribution of wealth to be a disaster. Taking money from those producing to give to those who don't usually causes productivity to slow down considerably."

I don't think you never been on the short end of the stick.

Joe Hilliard said...

Here is what my research shows.

The Senate voted 47-0, so no Senator voted against this bill. Senators at the time seem to have been: Dent, Boscola, Wonderling.

The House voted 195-3, so it is safe to assume that it is likely that no local Reps voted against this bill. Reps at the time seem to have been: Mann, Freeman, Browne, Rooney, Reichley, Grucela, Samuelson, Harhart, Semmel, Dally.


Anonymous said...

Another example of privatizing a government service at the Federal Level.

"The contractors that provided the workers are The Analysis Corp. and Stanley Inc. Stanley, of Arlington, Va., this week won a five-year, $570 million government contract extension to support passport services."

This is the current passport scandal in today's various newspapers. They were caught snooping into both Hillary's and Obama's passports.

To Hilliard, you are wrong sir. You can not control these contractors. Once the contract isssued, who is really watching the roost with any control over the contract on a day to day basis. No one. The contractors are not physically located in the government offices and, frankly, do their own thing. I speak from experience as a high level local administrator that manages many contractors providing sensitive services. The politicians look good, but have no clue what they are REALLY getting when it comes down to interaction with the people.

smart blonde said...

Anon, smart is really about my fashion sense, but I'll do a post on this at lvpoliblog next Tues or Thurs. Look for a post titled Redistribution of Wealth, it's got quite a history.
Yes, I've been on the short end of the stick many times, and it made me work harder and watch my money more closely.
About those passports, McCain also had his passport checked out, and it was by the same company that checked out Obama's. This makes me think perhaps Hillary's people were somehow behind it. Yes, she was checked out too, but by a seperate entity, not the same as Obama's.

Anonymous said...

Re: smart blonde 10:28 AM

I happen to be one of those unfortunate souls who was in financial distress when it came time to pay my local real estate tax. A tax bill due for a little more than $300.00 was in excess of $800.00 once it was turned over to Portnoff for collection.
Portnoff refused to set up a payment plan for repayment. I robbed Peter to pay Paul in 2 installments. Then, I looked into refinancing my mortgage to include the taxes.

Anonymous said...

can you say Al Copone ?

Anonymous said...

Is smart blond Pamela V.?
Whats with the if things are tough I work harder pitch? So if someone has two jobs making $8 an hour at one and $9 at another, they should work harder at what? No matter how hard they work employers will still pay the same. Add in travel time, maybe even eating and things can get crazy.

It is a shame in the great nation that the concept of working hard has been pervereted into if you ever have a problem in life -Tough, it is because you are a lazy person.

No wonder the Republicans revile FDR so much. He was the only member of the ruling class that ever gave a damn.

consigliere said...

i think municipalities should be ashamed of themselves for unleashing these people on their own citizens.

Anonymous said...

We should not throw the baby out with the bath water here.

If the government could just fix potholes properly (let alone the VA, IRS, and Postal Service), I'd be willing to reconsider support for privatization.

Most government services have become jobs programs for friends of the political class. Those intended to be served get a smaller and smaller percentage of the top line budget because administrative slopping takes increasing amounts off the top. It currently costs 90 cents to administer $1 of federal aid.

A government that can't police its own inefficiency will continue to be subject to calls for more privatization.

Anonymous said...

I really would like to know the source of some of these claims. No, a thrid party account by Fox News is no more credible than the MC.