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Small bill leads to big tax problems

One East-Coast man is facing foreclosure after a $140 bill has turned into a $50,000 catastrophe. The man, like many in Washington, D.C., and elsewhere, was unaware that foreclosure proceedings had started against his property until it was too late.

The man and his family had apparently overlooked a $140 sewer bill four years ago. The bill remained unpaid until the man received papers saying that his home was under foreclosure, thanks to a lien on his property. The city had sold the lien to a private investor, who then decided to collect on the overdue bill.

The 60-year-old plumber was unaware that the bill was outstanding. As a result, the man has been forced to take out additional funds to pay attorney's fees in connection with the mistake. His mortgage company lent him more than $30,000 to settle the dispute with the city, but the man will end up owing more than $50,000 in connection with the misunderstanding. It is speculated that better communication from the city could have prevented the entire debacle.

As more townships and municipalities face lower cash flow in the down economy, attorneys report that an increasing number are selling property liens to private investors. National statistics show that municipal governments raised about $15 billion in 2010 by selling tax liens.

Also, tax liens had previously been reserved for developers who were failing to pay their tax burdens. That could occur because of dried-up development money or unexpected delays. Now, more single-family homes are showing up on lien lists, largely because people are unable to pay for their mortgage and their property taxes. Fewer people are unable to pay the liens within a specified grace period, which is causing an increasing number of foreclosures.

Attorneys throughout the nation say that property tax collection should focus on getting residents to repay what they owe, instead of attempting to quickly reclaim property.

Source: NBC News, "How a $140 bill snowballed into foreclosure," John W. Schoen, July 24, 2012.

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