Homeownership under threat, lawmakers intervene
Unpaid water or property tax bills may lead to foreclosure in Conn.
In Connecticut, unpaid water or property tax bills can mean losing your home through a foreclosure.
An exorbitant statewide 18 percent interest rate on delinquent property taxes is threatening homeownership, a coalition of Democrats and Republicans on the legislative Planning and Development Committee agreed Friday, approving legislation that would cut the rate to 12 percent.
Proposals to lower the rate have failed in recent years under opposition from municipalities that contract-out their delinquent taxes, resulting in homeowners confronting rapidly rising tax debts and other fees collected from private companies that can often result in foreclosing on properties. Last year, of the 6,300 foreclosures in Connecticut, at least 175 were because of unpaid water or property bills.
“The public has suffered with way, way above-average and aboveappropriate interest rates on delinquencies for a very long time,” said Sen. Norm Needleman, D-Essex, who is also the first
selectman of his town. He acknowledged that interest rates have recently gone up. “Even when they were 1 and 2 percent (interest), we were still charging people 18 percent on delinquencies,” Needleman said, stressing that the goal should be to give people incentives to pay their taxes.
Needleman suggested that during upcoming legislative compromise discussions, before the bill is debated in the House and Senate, lawmakers might consider indexing the delinquent tax interest to a base level, plus increases linked to inflation.
“What we don't want to do is make it so it's impossible for people to ever get caught up,” Needleman said. “Having a lot of experience with this, I know that if somebody is going through a bad time and they have 18 months of delinquencies, they may never get caught up, because the first part of their payment, if they try to get caught up, is paying interest. I've just seen people lose their houses because they can never get caught up. I think that charging people 18 percent when the prime rate was 3 percent, or when people were able to borrow money at 2 percent mortgages is an almost an unconscionable amount of money.”
“I absolutely agree that
interest rates are excessive,” said veteran Rep. Tami Zawistowski, R-East Granby. “What I would really like to see in this bill is an option for the municipalities to be able to eliminate the interest or lower the rate for any hardships they may see. If you see somebody losing their house, I'd love to see municipalities to have the option to be able to lower that rate, at least temporarily. It does nobody good to lose their house.”
The bill next moves to the state Senate.
“I do very much like the concept of a municipal opt-out on collecting the interest, based on the governing body,” said Rep. Tom Delnicki, R-South Windsor.
There are several other active bills to address foreclosures, including legislation in the Banking Committee on which DelNicki serves. While most committee members on both sides of the aisle on Friday approved the rate reduction, the legislation was opposed by the two top Republicans on the panel, Sen. Ryan Fazio of Greenwich and Rep. Joseph Zullo, who is the municipal legal counsel for his hometown of East Haven.
“It is entirely possible that 18 percent for delinquent taxes is too-high an interest rate,” Fazio said
during the committee debate. “However we have also seen interest rates go up a lot recently. I think I would like to see some kind of middle ground set.”
Several municipalities sell off these liens to debtcollectors that reap the 18 percent interest. These businesses also often add on additional legal and processing fees. Between the increased fees and high interest rates, equity homeowners had in their properties can be quickly drained.
Cities and towns have an incentive to outsource the collection of these unpaid
water and property tax bills. Cities immediately get paid 100 percent of the amount they are owed when they sell the lien, and that helps provide them with revenue to fund municipal services now. This is particularly attractive to places like Bridgeport that have historically struggled to collect taxes from more of their residents than other cities.
Housing advocates, however, say homeowners have few consumer protections from these debt collectors and capping how much interest they can be charged is appropriate.