Auctions allow private investors to acquire rights to collect overdue property taxes, levy escalating fees on homeowners, and foreclose on those who do not pay. Some auctions, like this one in Washington, D.C., take place in person. Others occur online, where bidders can buy property tax liens by the thousands. Credit: Emma Schwartz When Florida retiree Gladys Walker fell behind in paying taxes on her modest Pompano Beach home, she had no idea one of America’s biggest banks and a major Wall Street hedge fund engaged in frenzied bidding for the right to collect her debt—all $768.25 of it. “I just couldn’t come up with the money,” said Walker, 67, a former hotel worker who makes do on a monthly Social Security check. Barely more than a year after a taxpayer bailout of major financial institutions, Bank of America and the hedge fund, Fortress Investment Group, spotted a fresh money-making opportunity – collecting the tax debts of tens of thousands of people like Walker. The bank and hedge fund can add interest charges and fees, and they bundled the debts as securities for investors. In late May and early June, proxies for the two institutions quietly bought hundreds of millions of dollars in homeowners’ property tax debts in Florida by bidding at a series of online auctions held by county tax collectors. They didn’t use their names but donned multiple other identities, dominating the auctions and repeatedly bidding on the same parcels – in the case of Walker’s small home, more than 8,000 times. Then, in September, Bank of America’s securities division packaged $301 million worth of the tax liens it and Fortress had acquired into bonds pitched privately to major investors. The anticipated return – estimated at between 7 to 10 percent – is possible because buyers of tax debts can assess a panoply of interest charges and other fees. When the debt goes unpaid long enough, the liens buyer can seize properties through foreclosure. Because the bonds were sold privately, there’s no public record indicating who purchased them, the prices paid, or the anticipated return. Moody Investment Services spokesman Tom Lemmon said the type of offering, known as a tax lien securitization trust, is fairly uncommon. Bank of America, he added, may make additional offerings in future years. A Bank of America spokesman, while otherwise declining comment, said that the bank and Fortress had not acted together in bidding in the auctions. Bank of America spokesman William Halldin said by email: “Our bids were made independent of any other organization. Any suggestion that they weren’t independent is simply incorrect.” Fortress, which is headed by former Fannie Mae chief Daniel Mudd, had no comment. The Florida securities deal illustrates how financial institutions, including some beneficiaries of federal bailout dollars, are actively creating new ways to profit from the financial distress of homeowners. Acting as surrogate tax collectors, they can help local governments quickly and efficiently bolster their budgets by tens of millions of dollars and in some cases find new owners for dilapidated property. Miami-Dade County, for instance, took in more than $374 million in June 2009 from the sale of about 60,000 property tax liens. added by: toyotabedzrock
