It’s a core piece of the conventional wisdom about home ownership: your equity is your security. But a recent Washington Pot story about the often-unscrupulous practice of tax lien investing points out that home equity it took years to build can vanish in a virtual moment – a fate not shared by mortgaged property.
According to the Ppst’s investigative story, a Washington DC homeowner lost his fully paid for home— with all its accumulated equity – all because of an unpaid property tax bill totaling just $134. The homeowner had a home worth nearly $200,000, which had been paid for in full two decades ago. But his property tax bill created the problem. In cases like this, the city can impose a lien on the property for the back taxes.
Enter the tax lien investors, who buy up tax liens at auction and charge the homeowner interest and other fees for a few months. Then, if the debt isn’t paid, they foreclose on the property –leaving the homeowner with nothing.
The practice of tax lien investing has been the target of the Washington Post's investigative report and is being monitored by housing advocates nationwide because of the practice’s potential for harming some of the most vulnerable homeowners – older individuals, many of whom are battling disabilities and illnesses.
All too often, tax liens are imposed on older properties that have been fully paid off for a while. The tax bill in question is frequently minuscule, often long forgotten, or neglected due to an owner’s battle with dementia or other problems. The Washington Post piece notes a case involving a 95 year old woman in a nursing home who lost her house for a bill of just $44.79.
Ta liens aren’t the only way that faith in home equity can prove unfounded. Mortgage holders are eligible for a wide range of tax breaks those owners of paid for properties can’t take. And in cases of disasters, mortgage holders may be able to get some support from lenders, as happened in the aftermath of the devastating Hurricane Sandy.
The riskiness of home equity is one reason Jason Hartman recommends keeping properties financed with long-term mortgages. That way, using other people’s money can be the best way to hold onto your own. (Top image: Flickr/kevindooley)
Sallah, Michael Debbie Cenziper, Steven Rich. “Left With Nothing.” The Washington Post online. 5 Sept. 2013.
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