Big banks and hedge funds: New surrogate tax collectors

By Fred Schulte and Ben Protess / Huffington Post Investigative Fund

Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.


The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found.

In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.

In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.



Some states allow the investors to tack on as much as 18 percent interest and a passel of legal fees and other charges. When property owners fail to make full payment, the investors can sue to foreclose – in some states within as little as six months.

In June, Bank of America snatched up liens on properties in Florida owned by low-income residents and nonprofit public interest groups, including a Salvation Army shelter, a preschool and a wildlife rescue group involved in the Gulf of Mexico oil spill cleanup, the Investigative Fund found in its examination. Bank of America also bought liens on properties of the wealthy, including a professional basketball star with the Los Angeles Lakers, Lamar Odom.

Some observers of the financial services industry said they were surprised to learn that banks, some of which received billions of dollars in taxpayer-funded bailouts in recent years, were rushing to profit from homeowners having trouble paying their tax bills.

"This is not how I'd like to be making my money,” said James Cox, a Duke University School of Law professor who specializes in corporate and securities law. “I would find it personally distasteful to foreclose or press a claim against individuals, many of whom have lost their jobs and are in tight economic straits.”

The giant Bank of America, for instance, has bid in Florida tax lien sales using colorful names such as Bennu, LLC, named after a mythical bird said to be the soul of the ancient Egyptian sun god.