Property Tax Privateers

48 Pages Posted: 9 Aug 2021

See all articles by Christopher G. Bradley

Christopher G. Bradley

University of Kentucky College of Law

Cameron Baskett

affiliation not provided to SSRN

Date Written: May 26, 2021

Abstract

Many states permit local governments to sell third parties the right to collect overdue property taxes, together with interest and fees. We call these third-party investors “property tax privateers,” because they are empowered to pursue claims that are essentially the state’s, in search of a sizable bounty. Privateers are often anonymous LLCs with hedge fund sponsors who purchase tax liens en masse. Failure to pay the privateer means foreclosure and expulsion from one’s home. Foreclosure—sometimes over initial delinquencies of less than $100—destroys homeowners’ equity, damages communities, and disproportionately impacts the vulnerable.

This Article calls for an end to property tax privateering in its current form. If localities sell tax liens at all, the liens should be foreclosable only when a taxpayer sells the home or moves out of it on a long-term basis. This protects the ultimate right to have tax obligations paid out of the value of property while avoiding the waste and the harms of foreclosure. While our proposal doesn’t disarm privateers entirely, it blunts the edge of their most dangerous weapon.

Our approach contrasts with other, narrower proposals, which focus on detailed regulation of collection practices or advocate for limited, need-based prohibitions on foreclosure. We worry that other interventions (1) amount to little more than first moves in a never-ending game of cat-and-mouse that under-funded regulators and vulnerable property owners are unlikely to win, and (2) leave important aspects of the underlying problem unaddressed, such as those related to local government accountability and to the reliance on regressive and often discriminatory property tax laws and assessment practices. We welcome other interventions as complements to ours but call for more sweeping and clear-cut reform.

Keywords: Property tax, property law, local law, consumer protection, commercial law, foreclosure, debt collection

JEL Classification: k11, k34

Suggested Citation

Bradley, Christopher G. and Baskett, Cameron, Property Tax Privateers (May 26, 2021). Virginia Tax Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3898657

Christopher G. Bradley (Contact Author)

University of Kentucky College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

Cameron Baskett

affiliation not provided to SSRN

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