Wednesday, September 23, 2015

DC's Past Abusive Use Of Tax Foreclosures To Snatch Poor Homeowners' Home Equity, Pocketing Surplus Proceeds From Sale, Failing To Pay Just Compensation In Apparent Violation Of Fifth Amendment At Issue In Current Litigation

From an opinion piece in The Blaze by members of the Pacific Legal Foundation, a donor-supported legal watchdog organization that litigates for limited government, property rights, and free enterprise in courts nationwide, representing all of its clients without charge:
  • Can the government take a person’s home to pay a $134 tax, sell it, and pocket tens of thousands of dollars in net proceeds without paying the homeowner a penny?

    Washington, D.C. officials think so.

    Until 2013, the District sold thousands of liens that led to hundreds of properties being seized to pay back taxes, including small tax debts, and the sellers kept the windfall proceeds. As The Washington Post’s moving and consequential investigation two years ago showed,(1) the foreclosure process was unconscionable in many ways, including that private collectors were allowed to tack on high legal and other fees that were many times the original debt.

    Quite predictably, the residents most often victimized by District’s unjust rules were the elderly, impoverished, and sick, which included a disproportionate number of minority residents in poorer neighborhoods. District officials usually claim to have special affinity for the downtrodden—but apparently not when it’s convenient to seize their homes.

    When the Post exposed this abusive system, Mayor Vincent Grey suspended some sales and the D.C. Council amended the tax foreclosure law in 2014 to better protect property owners, with councilmembers conceding that the prior procedures were outrageous. Among other changes, the current law provides that the excess proceeds from the sale of any property will go to the dispossessed. Yet instead of admitting that the former law unconstitutionally took property without compensation, the District is still fighting homeowners who lost everything.

    One former homeowner, Benjamin Coleman, a retired Marine sergeant who suffered from dementia, lost his Northeast Washington home that he’d bought with cash two decades earlier.

    He neglected to pay $133.88 in property taxes during a time when neighbors said he forgot to buy food. The District placed a lien on his home, adding another $183.47 in penalties and then sold the lien to a private investment company in 2007. The company added $4,999 in fees, costs, and interest onto Coleman’s debt. Under District law at the time, Coleman had to pay the overdue taxes, penalties, fees, costs, and interest within six months. His son tried to make payments but couldn’t pay the higher amount, so the company evicted Coleman, foreclosed on his house and sold it for $71,000 (its assessed value was about $200,000). Because the law allowed it, the company kept all the profits, a windfall of nearly $65,000 (over $70,000 if the $4,999 in fees is excluded) that the Fifth Amendment provides Coleman should receive.

    Coleman wasn’t alone. Of the hundreds of properties taken by the District since 2005 through the tax-sale foreclosure process, about one third were for debts of less than $1,000, according to the Post’s investigation. Coleman and other foreclosed homeowners sued the District, claiming that the government’s tax-sale act violated the Takings Clause of the Fifth Amendment, which provides that government may not take property unless it is for a public purpose and it pays just compensation.

    For purposes of this suit, Coleman and the other plaintiffs concede that the District could legally take their property to settle overdue tax debts. The suit seeks the return of their equity—the value of their home that exceeded the cost of the lien, and any reasonable costs, fees, penalties, and interest.

    There is no doubt that the Takings Clause applies to a person’s home. The District even admits that Coleman had a protected property interest in his home. But the District claims that government may define the terms under which a homeowner forfeits both his property and his constitutional rights to just compensation. Because Coleman failed to pay the overdue taxes, penalties, costs, and interest in the time provided by District law, officials claim that they had a right to take much more than was owed and keep the difference. According to them, the Constitution does not require that any compensation be paid for the excess equity that they seized along with the debt. The District is wrong, and our Foundation filed an amicus brief in U.S. District Court(2) explaining why that is so.

    The Supreme Court has repeatedly rejected government attempts to “shape and define property rights” in a manner that would effectively “put an expiration date on the Takings Clause” or extinguish well-established property rights.

    If state and federal governments were allowed the final say on what constitutes a valid forfeiture of constitutional rights, then they would find it all too easy to take property without paying compensation.

    Indeed, they could “redefine” when almost any other constitutional right is forfeited as well. No time limit would be too short, no ground for forfeiture too trivial, and no one’s home or other rights would be safe. For the sake of everyone’s rights, the District should concede its error and compensate Coleman and the others for what it took in excess of what they owed.(3)
Source: DC’s Reverse Robin Hood Scam: Steal from the Poor, Pocket the Loot.

See also, D.C. doubles down on the dispossessed.
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(1) See The Washington Post: Homes for the Taking (Liens, losses and profiteers).

(2) Pacific Legal Foundation Amicus Brief, arguing that the Fifth Amendment of the U.S. Constitution applies to a property owner's home equity.

(3) For some of the court rulings that provide additional background information on this litigation, see: