The National Consumer Law Center recently prepared a report on what they call “the other foreclosure crisis.” Every state has a law that allows local governments to sell homes or other property through a tax lien foreclosure process if the property owner falls behind on property taxes or other municipal charges.
“Other charges”, in these cases, could be a water or sewer bill, for example. Under this process, a $300,000 home might be sold at a tax lien sale for less than $1,000. Of course the buyer would then be able to quickly resell the property and enjoy a very large profit. The home owner would be likely to face eviction and lose their home.
The inability to pay a small bill could lead to a home owner losing hundreds of thousands of dollars in home equity. This equity might be their most significant asset and the home owner could be counting on using that equity to finance a secure retirement.
Real life stories of tax lien foreclosures
The report included several real-world examples of how this tragedy can happen. “Vicki Valentine, an unemployed Baltimore homeowner, faced redemption costs that made it impossible for her to redeem. The Huffington Post reported that she had fallen behind on a $362 water bill she owed the city. As interest, penalties, and legal fees accrued, the debt ballooned to $3,600, ten times the original amount. The tax certificate purchaser eventually foreclosed on the home and Ms. Valentine was later evicted.”
In another case, a Montana home owner lost a home when they were unable to pay a $5,822 tax bill. After the tax lien was purchased by a Virginia-based firm that specializes in these kinds of transactions, the home owner was evicted and lost $150,000 of equity she had built up in the home.
That equity could have been used to save the home. If you fall behind on your bills or need cash to cover taxes, a reverse mortgage could be the answer. Home owners that are at least 62 years old can access the value of the equity in their home and the loan is repaid after they move away. There are no income qualifying standards for a reverse mortgage like there are for traditional mortgages.
The National Consumer Law Center has provided a valuable service by exposing this problem. No one should lose their home because of an unpaid bill of less than $400, or even because of unpaid property taxes. If you find yourself in this situation, consider a reverse mortgage. It could save your home.