Actor and musician Richard Burton could lose his Baltimore home all because he hasn't paid a past due water bill, ABC News reports.
The bill was a little over $1,000, but when Burton couldn't come up with the cash, Baltimore officials put a lien on his home and sold the debt at auction –– essentially turning over his home along with it.
When municipalities sell residents' debts at auction, third parties (typically investors, retail banks, or debt collectors) can swoop in, pay off whatever taxes are owed to the government, and then jack up the interest rate for the debtor.
When Burton's debt was snapped up by Colorado Springs-based LienLogic, they added $2,000 worth of legal charges to his original balance at an 18 percent interest rate.
LienLogic is practically a poster child for companies that have managed to make bank on the backs of the foreclosure crisis. It started as $1 million venture in 2009 and by 2010 had invested $49 million in more than 900 properties, according to The Colorado Springs Business Journal.
When homeowners can't pay down their debts, they simply sue them for foreclosure. Chances are any homeowner who can't come up with funds for a $500 water bill probably can't afford to do battle in a courtroom either. Once a home is foreclosed on, the third party either flips the home outright, or finds renters to occupy it in the meantime. It's a simple way to make a ridiculous profit.
These days, cases like Burton's are all too common, with 33 counties in the country actively selling tax liens to third parties in order to fill in budget gaps. Annual tax lien sales have topped $15 billion per year, according to a recent report by the National Consumer Law Center.
"Homeowners throughout the nation, particularly the elderly and people with cognitive challenges, have lost or stand to lose family homes along with long-term equity which may represent their sole savings and security for retirement,” said NCLC Attorney John Rao. "As a result, foreclosures related to tax lien sales may destabilize entire communities."
Consumer advocates like NCLC have long called on state and city governments to update the antiquated laws surrounding tax lien sales. As it stands, homeowners who want to put up a fight can't do so without paying an assortment of interest and fees to have their property rights redeemed.
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