Friday, January 10, 2003

Tax Lien Sales: Money & Politics

By Arthur E. Ferdinand
Fulton County Tax Commissioner

In 1994, tax lien sales became big business in Fulton County when former Chairman Mitch Skandalakis and former Mayor Bill Campbell sold $27,665,615.53 in delinquent taxes to National Tax Funding, including liens of the elderly.

In an 08-18-1994 editorial by the AJC entitled "Selling property-tax debt good deal for city, county" the editorial board wrote "Since the purpose is to collect taxes owed, we say: Go for it. Nobody likes paying taxes, but it's an affront to responsible taxpayers that delinquents exist. Salting the wound, almost 75 percent of tax deadbeats are non-residents, living outside the city and county. Equity aside, selling off tax liens makes sense: 90 cents in the hand today will be worth more than $1 paid years in the future - if that dollar is collected at all."

With this infusion of much needed tax revenue, Skandalakis and Campbell were hailed as forward thinkers. When I became Tax Commissioner in 1997 the transfer of liens continued, but liens of senior citizens were excluded.

Except for two well-publicized cases of fiscal mismanagement, the cities of Atlanta and East Point, none of Fulton County's municipalities or school boards has experienced tax shortages during my tenure, as the tax collection rate in Fulton County soared from a state low 90% to a state high 99%.

Due to the county's high collection rate during my tenure, the millage rate declined steadily to control tax increases even as county executives approved the construction of capital improvement projects: four multi-purpose senior centers, a world-class natatorium, and several libraries and schools.

The fiscal good fortune of Fulton County and its municipalities is due in part to tax lien sales.

Selling tax liens is not a tax commissioner's policy, and State laws governing lien sales make no distinction between whose liens can or cannot be purchased.

Tax commissioners do not have the authority or luxury of creating distinctions where none are legislated. Nonetheless, in 2002, tax lien sales became a political lightning rod fueled by misinformation regarding the nature of lien sales, a single case of a perennially tax delinquent absentee owner whose property was foreclosed, and the backing of a legislator whose business was also chronically delinquent in paying taxes.

The 2002 Georgia Assembly enacted legislation that struck down a state statute that allowed tax lien sales. However, an overlooked state statute allowing lien sales survived. It is one of the few legislated mechanisms for collecting property taxes from those who do not pay.

On the basis of this surviving statute, Fulton County Superior Court Judge Jerry Baxter entered a ruling on November 12, 2002, ordering me to sell tax liens on demand.

The case repeatedly referenced in the Georgia Assembly was that of Ms. Bailey, a Paulding County resident who did not pay taxes on investment property she owns in Fulton County at 1619 Olympian Way SW.

According to Fulton County records, liens on her property were sold each year since 1993, after she purchased the property on August 7, 1992. Failure to also pay her tax lien holder resulted in foreclosure. Based on then existing law, the redemption cost for her property was significantly higher than the underlying lien value.

She turned to Attorney Glenn Richardson for help. Also a State Legislator, Richardson found an ally in State Representative Douglas Dean to enact legislation prohibiting tax lien sales.

After Ms. Bailey redeemed her property, her tax lien was once again sold for not paying 2001 Fulton County taxes. Since then Ms. Bailey's 2002 tax lien was also sold for non-payment of taxes.

While Ms. Bailey enjoys her residence in Paulding County, Fulton County taxpayers pay taxes to provide services at her Fulton County investment property.

Commercial property owners who are delinquent in paying taxes would benefit most from the prohibition of tax lien sales. On December 6, 2002 Vesta Holdings transacted a typical purchase of delinquent tax liens on 13,531 properties totaling $35,426,940.64. Of this amount, 22 percent or $ 7,881,644.06 was from homesteaded (owner occupied) properties, while 78 percent or $27,545,296.58 was from commercial properties.

Commercial residential properties accounted for half of the lien sale's value, $17,890,129.00. In a 08-18-1994 article Staff

Writer David Pendered for the AJC noted: more than a third of the available pool of tax liens is for rental properties where the owner lives off-site. Rental property owners reap the benefits of rental income and, based on the County Marshall's eviction schedules, generally do not tolerate late rent payments.

Interestingly, liens on properties valued over $100,000 accounted for 81% or $28,802,070.23 of the lien sale amount, whereas liens on properties valued at $100,000 or less, including vacant land, amounted to 19% or $6,624,870.41.

None of the liens in the Vesta Holdings purchase belonged to the elderly. Vesta Holdings does not purchase the liens of seniors. It makes for bad politics with low financial returns. This policy has been in effect since 1997.

Despite allegations to the contrary, no one has produced a single legitimate example of an elderly resident whose tax lien has been sold during my six years in office. Fulton County has a higher payment rate among the elderly than for the general population, and those unable to pay in a lump sum are offered customized payment plans. Close to a hundred such plans are now in effect.

The major beneficiaries of the lien sale to Vesta Holdings were: Fulton County $12,555,737.24; Fulton County Board of Education $7,871,226.32; City of Atlanta $4,787,158.08; and Atlanta Board of Education $9,380,922.76.

The 78 percent commercial composition of the tax lien sale to Vesta Holdings is typical. The case of Ms. Bailey, a delinquent non-resident absentee owner, is far from isolated. That the elderly are already protected is fact. Cash-strapped governments benefit from immediate use of tax revenues generated through tax lien sales. What then is the motivation to outlaw lien sales? Who profits? Is it to allow commercial owners to go years without paying property taxes as in the good old days?