District of Columbia
How It Works
Washington, D.C., sells tax liens to private investors. Six months after purchasing a tax lien, the lienholder may file a foreclosure action in court. Upon foreclosure, the lienholder takes absolute title to the property. The lienholder keeps the equity or profits from the sale of the property. The government also retains a windfall when investors purchase a tax lien for more than the tax debt owed. When no investor purchases a tax lien, the government may foreclose through an administrative proceeding and keep any equity or profits from any subsequent sale.
An exception to home equity theft occurs when a lien is on owner-occupied homes and the property contains five or fewer housing units. In such cases, the judicial foreclosure triggers a subsequent sale of the property. Surplus proceeds from the sale are returned to the former owner.
The Impact
Homeowners caught up in this process lose, on average, 80% of their equity. For the 121 homes in our dataset, homeowners lost a total of $29 million.
Why It Matters
In District of Columbia:
- On average, homeowners lost their homes and all the savings in them for debts worth 20% of the value of the home.
- Investors were able to keep $24 million more than what was owed to them.
For around two decades, Bennie “Tops” Coleman, a retired Vietnam War veteran, lived in a brick duplex that he owned in Northeast Washington, D.C. Bennie bought this home in the late 1980s, after his wife passed away from breast cancer.1
But in 2006, Bennie neglected to pay his $134 property tax bill, resulting in D.C. seizing and selling the home he had planned to live in for the remainder of his life.
It all started with Bennie beginning to show signs of dementia in the mid-2000s. He would frequently forget to pay bills and buy food. His neighbors often checked in on him to make sure he was doing okay.2
When Bennie failed to pay his tax bill, the district placed a lien on Bennie’s home and charged him $183 in interest and additional penalties. The district was following its usual practice: If someone fails to pay their property taxes on time, the delinquent amount automatically becomes a tax lien on the home. Tax-delinquent homeowners get at least 18 months to redeem the home by paying the back taxes, interest, and penalties. Once the home is foreclosed, the lienholder can sell the home to a third party for a profit.3
Although Bennie’s son paid off the total for him in 2009, it wasn’t enough to prevent tax foreclosure. A Maryland company that had bought the tax lien demanded $4,999 in legal fees. Bennie could not afford the fees.4
His son wrote to the court for help, stating that he would hate for his father to lose his home at his age. Despite the circumstances, the court approved the foreclosure in June 2010. One year later, federal marshals came to Bennie’s home to evict him. Bennie refused to leave and slept on a chair on the front porch that night.5
Bennie was completely incapable of understanding the complex developments affecting his rights or showing up in court to fight for his home. “He has dementia,” his court-appointed conservator said. “He did not understand the ramifications of what was going to happen to him.”6
Two months after Bennie was kicked out of his home, the Maryland company sold it for $71,000. Bennie was not able to get a single penny back. He lost the place he believed would be his forever home and was left with no choice but to live in a group home.7
Unfortunately, Bennie is only one of the countless victims of D.C.’s predatory tax foreclosure system. For decades, the city has enabled home equity theft by selling liens on people’s homes to private investors and allowing those investors to pocket the owners’ equity as a windfall for satisfying the unpaid tax debt. These tax sales have affected the city’s most vulnerable homeowners: the sick, elderly, and financially constrained. Minority homeowners have been hit especially hard, making up 72 percent of all home equity theft victims in the district, according to a 2013 Washington Post article that reported on the home equity thefts occurring from 2005 to 2013.8
While the Washington Post’s findings remain relevant today, the district made minor improvements to its laws in 2014. Following the newspaper series and the attention it brought to the issue, D.C. passed the Residential Real Property Equity and Transparency Act to curb home equity theft in the district.9 However, the law only forbids home equity theft for a narrow set of properties: those that are owner-occupied with five or fewer units or where delinquent taxes total less than $2,500.
The Fifth Amendment of the U.S. Constitution forbids the government or private investors from keeping more than what is owed when a home is seized to repay a debt. This amendment applies to all properties, not just those excluded by the recent reform. Washington, D.C. must end home equity theft in its entirety to protect all homeowners from the type of injustice that Bennie experienced.
Resources
End Home Equity Theft Model Policy
Left With Nothing
State Summaries
Download Data
Legal Appendix
Demand Letter to Governor
Washington, D.C. Home Equity Theft Laws
Does the law commonly protect owners’ equity?
- Analysis
-
No. Washington, D.C. regularly sells tax liens to the highest bidder, who transfers all titles and claims to the purchaser. The government keeps any surplus, and investors take a windfall.
- Citation
-
D.C. Code Ann. §§ 47-1382(g), (h); but see Coleman through Bunn v. District of Columbia, 70 F. Supp. 3d 58, 64 (D.D.C. 2014) (denying motion to dismiss a takings claim challenging the taking of equity value of property).
Are there any exceptions to that rule?
- Analysis
-
Yes. For owner-occupied residential properties with five or fewer units, judicial foreclosure triggers a resale, the surplus proceeds of which are retained for the former owner. Moreover, residential properties with less than $2,500 in taxes owed are exempt from sale.
- Citation
-
D.C. Code §§ 47-1382.01, -1332(c)(2).
Does the government sell tax liens, or does it sell property outright, and what procedures does it use for the sale?
- Analysis
-
The government sells tax liens at auction to the highest bidder.
- Citation
-
D.C. Code § 47-1346.
What interest and penalties accrue for delinquent taxes, and who collects them?
- Analysis
-
Delinquent taxes accrue interest at 10% per year, compounded daily. After the tax lien is sold, interest accrues at 1.5% per month.
- Citation
-
D.C. Code §§ 47-4202(d)(2), -1334.
What is the redemption period—the length of time to pay the debt prior to permanently losing title?
- Analysis
-
Redemption may be made at any time before the issuance of a final judgment of foreclosure, which is available for at least 18 months after the lien sale. Foreclosure actions may not be instituted until six months have passed from the tax lien sale, and final judgments may not be issued until either one year has passed from the initial scheduling conference or four months have passed from service of process on the owner, whichever is later.
- Citation
-
D.C. Code §§ 47-1370, -1374(e).
If equity is stolen, who profits?
- Analysis
-
Equity is kept by investors and the government. The property will ordinarily sell for much less than the property’s value because investors must wait to foreclose and cannot collect interest on the surplus paid. Upon the foreclosure of unprotected property, any surplus funds paid for the tax lien are apparently kept by the government.
- Citation
-
D.C. Code § 47-1382(g).
How much time does the previous owner have to claim the surplus proceeds, and what are the procedures for claiming them?
- Analysis
-
For qualifying properties, the law places an affirmative burden on the government to pay back the surplus proceeds.
- Citation
-
D.C. Code § 47-1382.01(d).
What types of foreclosures are used in the state?
- Analysis
-
Typically, judicial. However, where the tax lien is owned by the government, the mayor may utilize administrative foreclosure proceedings.
- Citation
-
D.C. Code §§ 47-1370, -847.
What types of notice does the state require?
- Analysis
-
(1) Notice of tax delinquency, (2) notice of impending lien sale, (3) notice of tax sale held, and (4) notice of foreclosure petition filed.
- Citation
-
D.C. Code §§ 47-1342, -1341, -1353.01, -1371, -1374, -1375.
1 Michael Salla, Debra Cenziper, and Steven Rich, “Left with Nothing,” Washington Post.com, The Washington Post, September 8, 2013, https://www.washingtonpost.com/sf/investigative/2013/09/08/left-with-nothing/.
2 Salla, Cenziper, and Rich, “Left with Nothing.”
3 Amy Loftsgordon, “Can I Get My Home Back after a Tax Sale in Washington, D.C.?” NOLO, MH Sub I, LLC, retrieved November 7, 2022, https://www.nolo.com/legal-encyclopedia/can-i-get-my-property-back-after-a-property-tax-sale-in-washington-d-c.html.
4 Salla, Cenziper, and Rich, “Left with Nothing.”
5 Salla, Cenziper, and Rich, “Left with Nothing.”
6 Salla, Cenziper, and Rich, “Left with Nothing.”
7 Salla, Cenziper, and Rich, “Left with Nothing.”
8 Salla, Cenziper, and Rich, “Left with Nothing.”
9 D.C. Act 20-378, July 15, 2014, https://lims.dccouncil.gov/downloads/LIMS/29179/Signed_Act/B20-0023-SignedAct.pdf