Fraud in Government Auction of Poor Owners’ Debt for Real Estate Tax
|December 4, 2013||Posted by Staff under Rent recovery or avoidance|
This 2013 excerpt of the Washington Post, Spt 9, is by Debbie Cenziper, Michael Sallah, and Steven Rich.
Steven Berman, son of a Baltimore banker, swept into the District during the height of the housing boom, flush with money and ready to take on hundreds of bidders at the city’s high-stakes tax lien auction.
From 2005 to 2007, Berman’s companies dominated the bidding room, spending millions to buy the liens placed on properties when owners fall behind on their taxes.
He was a big player at tax lien auctions in Maryland, too, where he was caught in 2007 rigging bids at sales across the state, leading to the largest criminal conspiracy case of its kind at the time.
A Washington Post investigation found that during Berman’s spectacular spending spree in the city, his companies engaged in dozens of rounds of irregular bidding similar to what federal agents had discovered in Maryland.
All told, six companies, three owned by Berman, took turns winning hundreds of liens on real estate worth $540 million through unusual back-and-forth patterns of bidding never detected by city government.
Of hundreds of participants, only those six companies stood out for bidding that was so irregular that the odds of it happening by chance were less than 1 in 1,000, according to The Post’s analysis, which was conducted with a team of economists and antitrust experts from Boston.
Once the liens were won, the companies charted an aggressive course through the District that would shake families for years to come, pressing to foreclose on homes in every ward — often over tax debts of $500 or less.
Ed. Notes: Why does real estate and fraud go hand in hand? And what’s the government doing, selling people’s tax-debt to private collectors? How slimy is that? What government should auction off, and do so with its eyes open, are vacant lots and abandoned buildings. How much money the government gets at the auction won’t matter so much as long as later the government recovers the ongoing annual rental value of the locations, which will rise as the new owners develop their latest acquisitions.
Further, people could afford to pay a tax on property if the tax did not also fall on the value of the building — a stupid tax that merely induces owners to forgo maintenance and improvements — and if the residents were to receive a share of the recovered revenue. It’s a recipe that works elsewhere. In British Columbia, to make the tax on carbon more affordable to lower-income people, the BC government shares out some of the collected revenue as a dividend to residents.
In Maryland, Washington DC, everywhere, the government could use the same scheme: recover all the socially-generated value of all the locations but then pay out the lion’s share as a dividend to residents. Doing so is somewhat similar to what Aspen Colorado does and what Singapore does. Singapore prospers so notably because it keeps taxes on people’s efforts low and taxes on the rising value of locations high, then disburses some of its revenue surplus back to its citizens. It’s a policy that would solve the problem of tax delinquency in Maryland and Washington DC.