Evening star., 1942-05-11
Reforms Proposed
To End Tax Sales
Writer Explains How System
OF Auctions Benefits Buyers
OF Delinquent Property Claims
By John w. Thompson, Jr.

By John w. Thompson, Jr.
District legal officials now are whip
ping into shape proposed legislation to
end once and for all the long condemned
practice of annual auction to private
buyers of properties delinquent in real
estate taxes.
This hangover from the Middle Ages,
when kings farmed tax collection rights
! to their favorites, has been on the
statute books in it's present form since
before 1900
| Under the proposed changes, the auc-
ton practice would be continued, but
| the properties would be bought in
only by the District government, which
would receive the 1 per cent month
interest which now goes into private
pockets.
1t is difficult to estimate the thousands
of dollars that have been made for pri-
vate individuals through the failure OF
! citizens to meet their tax obligations to
their local government. But the score or
so OF buyers who, year after year, appear
at the January auctions and purchase
tdh OCl GlllCdUCo Oll IIle CtlOlCcSL QcuIl-
quent properties are collecting more than
per cent on their investment, according
to some OF their admissions to the tax
collector. The District is left to buy in
what Rufus -Iusk of the Washington
Taxpayers Association calls "the lem
ons."
Here is what happens: At the auction
Joef
bought in" 1892 lots for s314,5O4 The
District was forced to buy in the re-
naming 1853 delinquent properties-or
some 500 more than the private pur-
chasers-for S31, ,191. This means, Of
course. that the District was getting 1
per cent month, or II per cent year,
on $4,000 while private buyers were
getting the same rate on $314,0O0. And
if there had been the slightest chance
of collecting that interest on the prop
critics held by the District the private
buyers would have bought them in, too.
The private buyers, who return year
after year for this legalized "easy
money" include a New York company
which, according to reports, makes a
business of buying up such tax certif-
Gates along the Eastern seaboard Some
Of the buyers are representatives of
local banks and building associations
holding mortgages on the delinquent
properties, and they buy them in to
protect investments.
Sometimes the bidding is freely
| competitive, with the result that the
property finally is purchased at a price
above the value of the delinquent taxes.
The District realized $4,000 surplus in
this way last January. But the rate of
interest is so favorable that buyers can
afford to pay even double the delinquent
taxes and still make money.
1t should be pointed out that neither
the tax certificate purchased at the auc-
tion nor even the tax deed which can
be obtained by the buyer If the property
holder does not redeem the tax certifi-
cate within two years Of issuance con-
stitutes actual right Of possession of
property. The tax deed, however, is
recognized by title companies as q cloud
on the title and the property owner
cannot obtain clear title until the buyer
Is paid of. Hence, the buyers are al
most entirely concerned with the profit
on their investment-not the actual
property. The ideal situation, for them
is when the property owner pays his
back taxes and penalties just before the
two years are up. In such cases, the tax
certificate buyers realize about 20 per
cent on their investment. But when the
property owner has not settled after two
years, the tax certificate buyer obtains
tax deed and must settle directly with
the property owner instead of the Dis
trict government. This means counsel
fees and back taxes, which reduce the
tax certificate purchasers profit.
To give the tax auction its proper
place in the real estate picture, however.
1t should be pointed out that of the
$4,000 pieces Of property in the city,
only $1,000 were advertised for sale last
December for delinquent taxes. About
half OF these were paid up before the
auction, leaving only 1892 bought pri-
vately and 1853 taken in by the District.
1t also is significant that very few
property owners fail to redeem within
the two-year period following the auc-
ton. Last January, for instance, there
were only 754 properties approaching
the deadnne unredeemed and $50 of
them were paid up. OF the remaining
172, only 145 went over the deadline
But in all cases the assessors office had
been careful to notify the property own
ers of the impending expiration Of the
term by registered mail Only n could
not be located at all Thus the l45 who
now are having to deal exclusively with
the private tax buyer were fully warned
and their failure was their own fault.
Despite the fact that it inures to the
benefit of few private investors, the
system is not completely without ad-
vantages to the District, which probably
is responsible for its adoption. In the
first place, from the few who fail to pay
within the two-year period, it might be
deduced that the threat of dealing with
the private buyer Is club toward the
payment of the taxes This also is
shown by the large number who settle
up as soon as the delinquencies were
advertised as due for sale. Secondly,
the practice brings to the District In
one lump more than $500, 900 from the
tax buyers which might otherwise trickle
in uncertainty. And finally, since to
obtain a fay deed after tun ware tho