WASHINGTON — Top District of Columbia leaders said Friday that they will institute broad reforms that would protect property owners from losing their homes over small debts, including canceling dozens of tax liens sold at the annual auction two months ago and creating an ombudsman to work with distressed homeowners.
The move by Mayor Vincent Gray and Chief Financial Officer Natwar Gandhi, which was announced in an evening news release, includes proposals to cap the fees that can be charged to homeowners at $2,200 and to ban sales of liens of less than $2,500 on primary residences.
Gray, a Democrat, said that “from this point forward, no District of Columbia residents whose property has been sold at a tax-lien sale will be at risk of losing their homes through this process if they have extraordinary circumstances that warrant a re-examination of their cases.”
The changes to the century-old program were prompted by a 10-month Washington Post investigation that exposed a system that has allowed poor and elderly residents to lose their homes over debts of only a few hundred dollars.
A total of 142 liens placed on primary residences, including more than 40 owned by seniors, will be canceled, the officials said. The cancellations represent about $490,000 in back taxes on properties worth $60 million scattered across every ward of the city.
Canceling this year’s sales will require the city to pay fees to the debt buyers, said a senior city official familiar with the matter who spoke on the condition of anonymity because he was not authorized to speak on the record. Those costs could amount to several hundred thousand dollars, he said.
Homeowners whose liens are canceled will still be required to pay their tax debts.
Cases from prior years now in the courts will be reviewed by the city’s attorney general and deputy mayor for health and human services to ensure that vulnerable residents do not lose their homes.
A new property tax ombudsman, the mayor’s office said, will assist with tax-sale and other matters — for instance, referring homeowners to legal-aid groups, nonprofit counselors and other government assistance.
One attorney who represents a 76-year-old veteran who lost his home after he failed to pay a $134 tax bill said he welcomed changes that would protect clients like his who have dementia or other disabilities.
“It is absolutely essential to protect these people,” said Robert Bunn, a guardian for Bennie Coleman, a retired Marine Corps sergeant who lost his house in 2010.
The proposed cap on legal fees is designed to stop lien investors from demanding charges that can greatly increase the original tax debt.
As recently as Friday afternoon, the city tax office was seeking to play down The Washington Post’s findings, claiming that the cases highlighted in the series would not happen today. Stephen Cordi, the chief of the Office of Tax and Revenue, appeared on WAMU-FM to address the stories.
“The Post articles read as though the problem were continuing today, and nothing could be further from the truth,” he said. “We no longer sell properties for a few hundred dollars.”
Cordi cited his 2008 decision to impose a threshold level for the amount of delinquent taxes that would be sold at auction, which now stands at $1,000. “You shouldn’t lose your house for a small amount of dollars, and we have taken steps to prevent that from happening,” he said.
The decision to set the threshold, he said Friday, was prompted in part by “unfortunate cases” such as the ones described by The Post.
But the tax office, in response to Post questions for the series, never cited homeowner concerns in explaining the threshold. The agency instead pointed to “a variety of factors, including, among other things, the existing caseload of prior tax sales, the expected number of sales in the current tax sale, the capacity of the Customer Service Administration to handle taxpayer inquiries and a judgment as to the profitability of handling low dollar sales,” an office spokeswoman said in a statement.
Under questioning from host Kojo Nnamdi, Cordi acknowledged that the threshold has fluctuated in recent years, including the sale of a $569 lien in 2011.
The mayor’s proposals will be introduced in a bill next week, including the cap on fees that have made it far more difficult for property owners to save their homes from foreclosure.
The Gray bill would also, for the first time, allow tax collectors to negotiate with homeowners and establish payment plans before sending their debts to auction.
The D.C. Council, meanwhile, is set to take up short-term reform measures on Tuesday.
An emergency bill offered by Jack Evans, D-Ward 2, would cancel the sales of properties owned by senior citizens, veterans or the disabled; cap attorney’s fees on tax-sale cases at $1,500; and provide that no properties owing the city less than $2,000 are auctioned. The measure also allows a property owner to recover his or her equity should a tax sale proceed to foreclosure.
Emergency legislation is effective for 90 days and requires the votes of nine of 13 members. Several members have already expressed support for various provisions included in the bill.
Evans, who first introduced legislation to change the tax sale process last year but has not taken action since, said this week he would move forward with a permanent bill in short order.
Another emergency bill, offered by Mary Cheh, D-Ward 3, orders city financial officials to conduct a “broad review” of tax sales dating back to 2003 “to determine if there is excusable neglect or other equitable circumstances warranting relief.”
Under the bill, the internal watchdog for the Office of the Chief Financial Officer would be required to report to the council by Dec. 1 on, among other things, whether the owners of properties sold over tax bills of $2,500 or less “should be granted relief, and, if relief is recommended, the equitable remedy that would provide substantial justice.”
“We need a sense of how many people were injured, the costs associated with remedying those injuries, and a plan to effect those remedies,” Cheh said in a statement.
Gray spokesman Pedro Ribeiro said relief for homeowners who have already been foreclosed on is “something we’re going to have to look at separately.”
Washington Post database editor Steven Rich contributed to this report.
