Foreclosure

The data shows just how much can be lost:

» One investment LLC bought a tiny tax lien — $48.65 — on a faded fixer-upper in south Phoenix, then foreclosed and sold the house for $43,600.

» Another purchased a $1,390 tax lien on a house in north Glendale, then took the house in foreclosure and sold it for $210,500.

» In Maricopa County, high-poverty neighborhoods such as the Maryvale area, where Poleeson lived, have been disproportionately affected. Hardest hit are areas with large populations of Latinos and African-Americans, such as west Phoenix, south Phoenix and south Glendale.

“If you successfully foreclose, you normally find them ... in socioeconomically depressed neighborhoods,” said Barry Becker, a prominent local attorney who has his own tax-lien investment company. “No one loses their house in Paradise Valley. Very few people lose their house in Scottsdale.”

Many cities and counties across the country sell tax liens, and the system has an immediate public benefit. Investors pay the back taxes immediately, meaning property-tax revenue is restored to counties that have been counting on it in their ever-tightening budgets.

But because the system lets investors pocket the interest or take the home, some say it distorts the government’s duty to help, rather than hurt, taxpayers who may be struggling the most.

“It’s very vicious and draconian way of enforcing taxpayer compliance, and we should never lose sight of the threat underlying the tax lien is you’ll lose your property and all of its equity,” said Andrew Kahrl, a professor at the University of Virginia who has studied the history of the tax-lien industry across the country. “The part that should give lawmakers pause are the cases when people lose their homes over a small unpaid tax bill. While rare, it happens more often than people want to recognize.”

How tax liens work

When a property owner falls behind on paying taxes, county treasurers place liens on properties with delinquent property taxes. If the taxes remain unpaid after two years, the treasurers auction off those liens to investors, who then pay the delinquent tax, recouping money the counties need.

Investors who bid on those liens buy the right to collect those taxes — with interest — and take the property if the owner will not or cannot pay within three years.

The back taxes aren’t a huge chunk of the county budget, but the amounts are still significant. In 2016, Maricopa County recovered nearly $17 million in unpaid taxes through its lien auction, although that is less than 1 percent of the county’s $2.2 billion budget that fiscal year.

In interviews, several county treasurers noted that tax-lien auctions benefit both taxpayers and homeowners. The county gets the money it is owed. Delinquent taxpayers actually may benefit, too: For as long as the county holds the lien, the back taxes accrue interest at 16 percent a year. Buyers, though, can bid down the interest rate — in essence, those willing to charge less interest to the property owner win the bid.

A lien buyer may get far less than 16 percent interest, but tax liens are almost guaranteed to turn a profit. The property owner either repays the taxes with interest or the investor gets to foreclose and sell the property.

In addition, tax liens take priority over most other types of debt, including banks’ stake in properties when owners default on their mortgages.

When investors foreclose on a home, they often can quickly sell it for an enormous profit, as was the case with Poleeson’s house.

After he died in 1999, his four children found it difficult to sell the home because he left no will. Property taxes were paid intermittently. In 2007, their $808 tax lien from 2004 was sold at auction. The family then was obligated to pay the overdue tax to the investor, plus 16 percent annual interest.

That investor foreclosed on the house in the 3500 block of West Earll Drive in Phoenix in 2010 and sold it for $16,000 when the real estate market was near rock bottom. Eight months later, the house was sold again — for $54,900.

The tax-lien foreclosure peak in Maricopa County came in 2015, when investors foreclosed on about 400 properties, ranging from vacant lots to mobile homes in Glendale to apartments in Phoenix to houses in Buckeye.

As Poleeson’s case underscores, many foreclosures involve homeowners who have died.

Kahrl, the professor who has studied tax liens, said it’s common in such cases for property taxes to slip through the cracks.

“If you have a husband who takes care of their family finances ... the year after that person’s death, along with all the other things you’re dealing with, you miss your property taxes,” he said.

Changing investors