Monday, September 26, 2016
The Unfairness of Privatized Tax Collection
Few dispute that real estate taxes, which fund schools and many other municipal services, are very unpopular. But so far, any and all attempts at "reform" have failed. Even if successful, the tax burden would simply be shifted to an increased income or sales tax. One thing is certain - taxes are here to stay. The last thing on the minds of most public officials is being fair about it. The story I am about to tell makes that very clear.
Lehigh County officials are a bit more fair than their counterparts in Northampton County. In 2012, Commissioners went ahead with a reassessment that was at least intended to spread the misery more evenly. Northampton County Council members, who worry about keeping their seats, prefer to kick the can down the road while school districts and municipal governments routinely raise taxes. Their last reassessment was done in 1995.
How the County collects unpaid real estate taxes
If you fail to pay your real estate taxes or make payment arrangements, the County can sell your home after you are delinquent for a period of two years. Before that happens, the county runs ads in the local papers. People love reading them to see who is behind. Most delinquent homeowners come forward at this time and make payment arrangements. But there are still a few homeowners who, for whatever reason, fail to pay their bill or make arrangements. Their property can then be sold in what is known as an "upset" sale, which is held once every year.
Northampton County's upset sale takes place tomorrow at 2 pm.
At an upset sale, you can buy this property, but it is subject to whatever other liens might exist. You get the property along with whatever unpaid mortgages and judgments are out there. So most properties remain unsold. That's when the county kicks it up a notch, and schedules what is known as a "judicial" sale of the property.
The judicial sale is unlike the upset sale in that the County gets a court order authorizing a sale free and clear of all liens, except for the outstanding taxes. At this sale, almost all the properties are sold.
When the County sells your property to collect unpaid real estate taxes, it moves very slowly, and for good reason. People have a constitutional right to due process. County officials get very concerned when someone fails to respond to notices. Is the person really a tax deadbeat? Or is the homeowner an elderly person suffering from dementia? If there is any doubt in the minds of county officials, the sale will be delayed another year
Enter the tax farmer
Most school districts and many municipalities are unwilling to wait two years or more to get their taxes. They want their money now. Instead of relying on county officials who recognize they have some obligation to be fair to homeowners, they have actually privatized the collection of taxes by employing tax farmers.
Throughout history, tax farming has occurred in Egypt, Rome, Great Britain, and Greece. It has always been accompanied by abuse. Founding Father Benjamin Franklin predicted that privatized tax collectors, "the most indiscreet, ill-bred, and insolent [men] you can find," would lead to revolution.
Nevertheless, nearly every Lehigh Valley school district, along with cities like Bethlehem and Easton, use Portnoff Law to squeeze homeowners. They make their money by assessing attorney fees that in some cases are ten times the amount of unpaid taxes. Portnoff represents 130 municipalities and handled over 40,000 municipal collections in 2015.
Unlike county tax claim bureaus, which schedule tax sales only once a year, Portnoff and other tax farmers will go to work immediately.
The first step is to file a municipal lien, and of course, assess attorney fees. About a month later, Portnoff will file what is known as a writ of scire facias, which is a fancy way of saying that it is going to enter judgment against the homeowner, even though the municipal lien pretty much makes it impossible for the homeowner to sell the property without paying off the lien. After that, Portnoff will enter judgment and, of course, tack on more attorney fees.
The final step is the Sheriff's Sale, with even more attorney fees. In 2015, Portnoff listed 512 properties for Sheriff Sale, and ended up selling 73 of them.
Sheriff Sales Confuse Potential Bidders
This accelerated process is extremely unfair to homeowners, many of whom are already distressed financially. The extra money they pay to prevent a sale goes into the pocket of the privatized tax farmer, not the municipality. But it also unfair to bidders at the Sheriff's Sales They are accustomed to thinking that they are buying the property free and clear of liens. But the sale is actually an upset sale, at least at first.
Last month, in Northampton County, someone bought a property at a Sheriff's Sale. But on her way up to deliver her check, someone complimented her on buying a $50,000 mortgage. She panicked and withdrew her bid.
The Lehigh County Experience
The same thing happened in Lehigh County last week. Agent 99 was there, and told me what happened.
A downtown Allentown property was up for sale because of unpaid school taxes. Someone bid on the property.
The Deputy Sheriff handling the sale asked, "Do you know what you're bidding on?"
"You mean the address?"
"No, it's an upset sale. You're buying subject to any liens. Do you want to withdraw your bid?"
When someone in the back heard what was going on, he got very upset that bidders were not being told, in advance of each sale, whether the sale is "free and clear."
He was asked to sit down, but he was upset and refused, and eventually was dragged out of the room by two deputies as he complained, "This is not fair."
Of course, it's unfair. This is no longer about collecting taxes, but enriching Portnoff at the expense of everyone, from homeowner to unsuspecting bidders.
After this guy was dragged out of the room, the very next property up for sale was another Portnoff sale. This time, the Deputy asked Portnoff's attorneys to explain whether it is an upset sale.
"I have no legal obligation to do so, but I will," huffed the attorney.
That's a problem. Privatized tax collectors have no obligation to be fair. This is why tax farming should be illegal.
I contacted the Lehigh County Sheriff's office and spoke to the Deputy who ran the sale. She was unable to speak to me, and said I'd have to talk to the Sheriff. But he failed to return my call. The Portnoff lawyers also refused to explain what the hell they are doing. And why should they? They don't work for us.