Tuesday, April 12, 2016

Tax Takings

The city of Lowell has scheduled a tax lien auction for April 27, 2016 at 10 am in the city council chamber at Lowell City Hall. In today’s Lowell Sun, the city advertised 226 different properties to be included in the auction. Because the city offers the properties in large bundles at such auctions, potential bidders hoping to snag a particular parcel by itself may be disappointed. At past auction, bidders have typically been fairly large companies in the business of buying tax takings. These companies than aggressively pursue the extinguishment of the right of redemption and thereby gain full title to the property which is then sold to a third party buyer.

From the city’s perspective, these auctions generate an infusion of cash late in the fiscal year. In fact, many of the parcel owners will show up at city hall in the next two weeks and bring their taxes current in which case their property will be pulled from the auction. Historically, the city would just treat these tax takings as a lien on the property and await the property’s sale or refinance at which time the back taxes would be settled. Because this disrupted revenue estimates and cash flows, the city opted to introduce these tax auctions a few years ago. The only downside of the auction is that occasionally a long-time homeowner, usually elderly or disabled, ends up losing their property to back taxes that come nowhere near the fair market value of the property. However, since this process has already occurred several times and there has been no outcry about inequitable results, I can only assume that the risk of an unfair result is more theoretical than real.

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