Connecting state and local government leaders
Some cities slap liens on homes for unpaid bills, then sell those liens to the highest bidder.
This story was originally published by Stateline, an initiative of The Pew Charitable Trusts.
The Rev. Alvin Gwynn Sr. couldn’t believe it. His Baltimore church, Friendship Baptist, got a city water bill charging him $3,000 for using 700 gallons a day—mostly during weekdays when only one person was in the building.
The reverend asked for a public works department hearing on the 2014 water bill; there, officials admitted error and promised to adjust the bill. But the next quarter, he got another four-figure bill—the original $3,000 plus another $2,000. Told he was limited to just one hearing a year, he asked for another in 2015, where the city again acknowledged error.
But the mistaken bills kept coming. And the department stopped holding hearings, he said. With the agency having twice admitted mistakes, Gwynn’s church decided not to pay. In 2017, the city put a lien on the church, then sold the lien.
Scrambling, Gwynn sent an employee to pay the bill. They managed to persuade the city to reimburse the lien holder.
The close call with losing the 30-year-old church drove Gwynn to join a Maryland coalition that’s trying to change the Baltimore law that allows the city to put liens on property because of past-due water bills. In many cases, the city sells the liens to the highest private investment bidder. Residents can lose their homes, and congregations can lose their churches.
Maryland is one of a handful of places where state and local governments are looking into how to regulate cities and municipalities’ use of unpaid bills and taxes to put liens on property and profit from them.
Studies show that homeowners sometimes neglect water bills to pay for electricity and other utilities when money is tight. They put off payment, figuring they will catch up later. Some may not understand that a water bill is not part of their mortgage payment—particularly if they were used to paying rent with utilities included.
Property tax delinquencies, including unpaid water bills, amount to an estimated $15 billion a year in the United States, according to a 2012 study by the National Consumer Law Center.
“A $200,000 home may be sold at a tax lien sale for $1,200,” the study found. “Homeowners may lose … their sole savings and security for retirement. As a result, foreclosures related to tax lien sales may destabilize entire communities.”
The elderly and disabled are most at risk, the study found. They may have difficulty managing their financial affairs because of Alzheimer’s disease, other forms of dementia or cognitive disorders.
Pending legislation in the states is aimed at giving homeowners more notice when they are in danger of foreclosure because of unpaid city bills, more time to appeal, an opportunity to satisfy the loan once the property is sold to an investor, and other consumer-oriented provisions.
In addition to Maryland, bills have been filed this year and last in Arizona, Maine, Massachusetts, Montana, New York, Rhode Island and Virginia.
“It’s justifiable that the town takes the property for nonpayment of taxes,” University of Massachusetts law professor Ralph Clifford said in an interview, adding that smaller liens like water bills or other fees fall into a similar category as taxes. “But it has to be done in a way that’s fair to the consumer.”
He said a judge, not a city tax agency, should determine whether houses should be foreclosed on. “And if you have a property where $1,000 in taxes is owed, you don’t take a property that’s worth $200,000.”
Gwynn, a Baltimore native, is backing a bill sponsored by Democratic state Sen. Mary Washington that would eliminate tax lien sales for churches, homes and other buildings solely because of overdue water bills.
The bill, which has a companion bill in the House and was approved by a Senate committee in late February, applies to Baltimore only. Washington, who introduced a similar bill last year as a member of the House, said momentum has been building.
“Water is not just any utility, it’s something that everyone needs,” Washington said in an interview. “It’s a human right. Losing your home for an unpaid water bill is unconscionable.”
She slammed Baltimore for putting liens on homes for unpaid water bills and then selling the liens for millions. “It’s part of their business model,” she said.
Her bill would decrease Baltimore revenue by at least $5 million a year, according to the bill’s fiscal note.
Following news reports prompted by complaints to the water department and an outcry by activists, Baltimore’s Democratic mayor, Catherine Pugh, backed legislation that put a moratorium on liens for overdue water bills.
A spokesman for Pugh said in an email that the mayor supports the new legislation.
The sales also are lucrative in Massachusetts: In Worcester, for example, NPR affiliate WGBH reported that investors paid more than $2.6 million in auction premiums (the amount investors paid to the city to buy the liens above what the city was owed) over the past three years.
Lowell too got $96,000 above what it was owed in taxes or fees, and Pittsfield also brought in $145,000 for two auctions, one in 2015 and one in 2018, the news station reported.
Worcester officials did not respond to phone calls from Stateline about the unpaid water bill issue. But City Manager Edward Augustus told the WGBH that if city residents ignore water bills, the city has no recourse but to start lien proceedings.
“We don’t want to go through this process,” Augustus said. “But if nobody is communicating with the city and just ignoring the 12 notices that they’re receiving, what is the city to do? Say everybody else has to pay that share of the bill?”
Clifford, the UMass law professor and author of the paper “Massachusetts Has a Problem: The Unconstitutionality of the Tax Deed,” said in an interview that in many cases, cities initiate the procedures while the homeowner is still unaware there’s a problem.
Many times, he said, homeowners are elderly, and if they have been ignoring water bills, they may well be ignoring other notices from the city. In Massachusetts and Baltimore, the foreclosure process can begin without a court hearing over the unpaid bills.
Legislation in Massachusetts includes a provision for homeowners to be notified sooner if their home is about to be auctioned for nonpayment of taxes.
And when a property is purchased, the new owner would be required to notify the homeowner, who may have no idea their property is being sold, and give the previous owner ample time to satisfy the amount owed before actually taking over the property.
Janice St. Amand, a community activist who works on foreclosure prevention for NeighborWorks HomeOwnership Center of Central Massachusetts, sees a handful of homeowners annually who come to her when it’s almost too late.
“A lot of homeowners I see figure water and sewer is a small bill,” she said in an interview. “They choose between paying water or electric, and they figure they will get caught up on the water. But then it gets out of control.”
If a homeowner doesn’t come up with a payment plan for the water bill and stick to it, a city can auction off the water bill lien. As a last resort, the homeowner can sometimes “redeem” their property from the investor, but they must pay interest on the outstanding bill, sometimes as high as 16 percent, St. Amand said.
St. Amand recounted the case of one of her clients who had cancer, ignored the water bill, and the lien got sold to an investor. Eventually, the homeowner owed $30,000 because of the compound interest. “I spoke to the investor; she wanted her money,” St. Amand said. Eventually, she advised her client to file for bankruptcy.
Kimberly Armstrong, a 50-year-old who raised three children in her Northeast Baltimore home of 23 years, went to the state lawmaker who is sponsoring legislation, Washington, for help after she got a water bill “for like a crazy amount.”
First it was $1,500, then $2,500, she said. She tried to get the city to explain “why the heck I had gotten these crazy water bills,” and why her home was in danger of going into a tax sale, but never got a sufficient explanation, she said.
The moratorium last year stopped the process, but now she hopes water bill liens would be gone for good under a new Maryland law.
Her home, she said, is the “epicenter of my family. Thanksgiving, Christmas. I raised three children here. My dad lived with me for several years. I’m the only person in my family to actually own a home.”