The Problems with Property Tax Liens and How to Improve Property Tax Enforcement

by Cameron LaPoint and Daniel Burge1

Introduction

Imagine losing your 197,000-dollar home because you failed to pay a 134-dollar property tax bill. Many people would find such a circumstance hard to believe. But that is what happened to a retired Marine sergeant who was battling dementia in the summer of 2011. In fact, many homeowners are likely unaware, and understandably so, of the life-changing consequences that can result from failing to pay one’s property taxes.2

This policy brief shines a brighter light on tax lien sales and their consequences, which, in the worst-case scenario, can lead to taxpayers losing their home and all the equity in the property they have earned to date.

This brief has three central takeaways:

  1. The sale of unpaid property tax debts by local governments to private investors raises a host of serious economic, demographic, and legal issues. 

  2. When profit-driven investors purchase tax debt in an economically booming neighborhood, the demographic and economic changes already occurring in that neighborhood – which tend to negatively affect non-white, lower-income residents – get amplified.  

  3. Local governments can, and should, do more to prevent existing homeowners from becoming severely delinquent on their property taxes, including engaging in low-cost outreach and financial literacy campaigns, and redistributing at least a portion of sale proceeds back to distressed communities.      

The brief proceeds in four sections. The first section explains property tax liens in addition to their legal and financial consequences. The second section describes the tax lien sale process and the participants in the process. The third section summarizes new research by economist Cameron LaPoint that examines how tax lien sales affect the prices of nearby homes and, in turn, accelerate that neighborhood’s demographic and economic change.3 The final section offers policy recommendations.

  1. Website last updated Thursday, June 1, 2023.↩︎

  2. Sallah, Michael, Debra Cenziper, & Steven Rich, “Left with Nothing,” Washington Post (September 8, 2013): https://www.washingtonpost.com/sf/investigative/2013/09/08/left-with-nothing/↩︎

  3. LaPoint, Cameron (2023): “Property Tax Sales, Private Capital, and Gentrification in the U.S.,” SSRN Working Paper, No. 4219360: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4219360.↩︎