Vacant Homes Wither Under Flawed Tax Sale System

Outdated tax sale rules and predatory investment practices keep Baltimore homes in a revolving door of vacancy. But that could soon change.

A vacant rowhouse in Baltimore sits boarded up, with a large white 'X' spray painted on the piece of plywood covering the door.

Photo by Eli Pousson via Flickr

Early this year, the deaths of three Baltimore firefighters (and critical injuries to another) while they battled a blaze at a vacant house in the 200 block of South Stricker Street refocused a harsh light on the decades-old problem of vacant houses in that city.

“This is a gut-wrenching tragedy for our city, the Baltimore City Fire Department, and most importantly the families of our firefighters,” said Mayor Brandon Scott in a statement. Scott ordered a citywide review of all vacant housing operations, procedures, and processes in the wake of the tragedy. However, vacant house fires have been a recurring problem in Baltimore for years. In fact, that same house on Stricker Street that collapsed and killed the three firefighters also caught fire in 2015, and three firefighters were injured then; fortunately they all survived. However, in 2014, Lt. James Bethea died of smoke inhalation after falling inside a vacant house where he was battling a fire.

Vacant Properties are Violent. And, They Beget Violence.

As of April 14, of the 85 locations where homicides were reported in 2022, 59 have taken place at or near a property with a Vacant Building Notice, a tax lien, or a demolition. This is a fact, not a coincidence. It’s the result of extractive and exploitative economic policies targeted at Black communities, creating concentrated vacancy, poverty, and trauma.

Just as vacant houses fuel more vacancy, high crime levels, and substandard housing, Baltimore’s decrepit and convoluted tax sale system constantly replenishes the city’s monstrous vacant house inventory. There are currently 14,973 houses in Baltimore with Vacant Building Notices, and 1,232 of them are owned by the city, according to Tammy D. Hawley of the Baltimore City Department of Housing and Community Development.

From the tax sale information page on the Baltimore City website:

“The City of Baltimore holds an annual tax lien certificate sale. The tax sale is used to collect delinquent real property taxes and other unpaid charges owed to the City. It is a public, online auction of City tax debts on properties. The highest bidder in the auction pays the total amount of the property liens to the City and receives a tax sale certificate from the City which gives the bidder the right to obtain ownership of the property by filing a tax sale foreclosure lawsuit.”

“Vacant properties are a huge issue with the tax sale, because there’s about 6,000 properties that cycle through tax sale every three years,” says Dan Ellis, executive director of Neighborhood Housing Services of Baltimore, a city agency created to increase sustainable homeownership. Most of those 6,000 properties wither within the system because of how it is structured, according to Ellis.

Ellis explains that the tax sale certificate issued on a delinquent property is valid for two years, but, if that certificate is not redeemed within that two-year period, it becomes void and the process leading to the next tax sale will take about a year. During that time, the certificate cannot be redeemed and the property can’t be purchased.

Many of the properties are “undervalued,” meaning that years of racist community and economic development policy have slowed appreciation resulting in little incentive for private investors to purchase the liens on vacant properties. They focus instead on purchasing tax sale certificates from owner-occupied units because most owners end up paying off the debt incurred from tax delinquency, but they do this with a very high interest rate of 12 to 18 percent, according to the Baltimore Bureau of Revenue Collections, as well as up to $2,400 in fees. When the owner does not pay and the tax certificate investor does foreclose, they often fail to file a new deed, creating uncertainty about the property title after the former owner leaves or is evicted.

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Sometimes the investor auctions off their interest to a third party who then takes the title, or the investor may even sell the house back to the owner through a non-court-approved payment plan (which still maintains an ambiguity about the title on the property if the investor did not file to reverse the foreclosure). Other times, the investor may simply do nothing with a property. In that scenario, if the investor did not file a new deed after foreclosing on the original owner, the debt reverts back to that owner, who is often long gone and has no knowledge that the debt was reverted to them. Even if they do somehow learn of this, they will face immense difficulty selling the property with high liens and an unclear title. So, invariably the vacant properties cycle through the tax sale system over and over again with high liens, no bidders, and undergoing physical decay year after year. These vacancies multiply in lower-income neighborhoods that already get less public sector investments than wealthier communities, with each new vacancy driving down ‘desirability’ even more.

“Often these are owned by people who are deceased; many of them have been vacant for generations,” Ellis added. He argues the properties in Baltimore with the worst impacts on the community are also currently the most difficult to obtain, claim title to, and fix up because the tax sale system is not designed to do that.

This year’s tax sale list grew by almost 700 properties, going from 3,823 owner-occupied units in 2021 to 4,513 in 2022. The increase could be attributed to multiple factors, with perhaps the pandemic at the top of the list. Other causes of the increase can be debated, but Ellis and others with expansive knowledge of how Baltimore’s extremely complicated, antiquated tax sale system operates, agree on two things: the system is racist and it must be abolished.

A Tool for Displacement

“I’ve been working on this tax sale issue since 2012. As advocates, we’ve been chipping away at what is just a racist theft-of-property racket,” says Claudia Wilson-Randall, executive director of the Community Development Network of Maryland, an advocacy organization. The vast majority of homes on the tax sale list are in predominantly Black neighborhoods. “That’s how the system is built and that’s what it’s supposed to do. Also, it’s a very expedient way for the city to get cash,” adds Wilson-Randall.

“These are systems [that] were put in place to move people. When you didn’t want Black people living here, you took property. We see it work…it’s happening in Baltimore…it’s happening in New York; it’s happening in Detroit. This is how the system was made,” Wilson-Randall says.

History corroborates Wilson-Randall’s blunt assessment.

“During the Jim Crow era, local white officials routinely manipulated property tax assessments to overburden and punish Black populations and as a hidden tax break to landowning white gentry,” according to University of Virginia historian Andrew Kahrl, quoted in a 2020 Washington Post article.

And when those overburdened, poorer Black property owners succumbed to a convoluted, inherently racist tax sale system like the one in Baltimore, it typically meant “Big Momma’s House” was gone forever. Working within a broader white supremacist governance model, the property tax system has proven to be incredibly effective at extracting Black wealth and redistributing it into white hands.

“Tax sale is a process that was designed 100 years ago at a time when there were a lot of efforts being made in public policy to keep certain groups, typically people of color, out of financial opportunities,” says Ellis.

“So it was designed to take wealth away from communities of color and put it into the pockets of wealthy, typically white people. And while there are no direct connections within legislation to race, the impact of tax sale has been very much disproportionately absorbed by people of color, typically African Americans in Baltimore,” Ellis adds. “The impacts of that are still being felt today and are going to be felt until we reform this system.”

Promising Developments

Still, Ellis, who has led the Neighborhood Housing Services of Baltimore for a decade, is encouraged by the work the Scott administration is doing to reform the current corrupt tax sale system.

“In my experience and interaction with this administration I haven’t gotten any roadblocks or major pushback for significant reform efforts,” he says. “And I am more confident than I have been with any other administration that comprehensive reform is going to happen before the first term of this mayor is over. We’ve made incremental changes to a corrupt system over the last 10 years and before that, and we’ve made improvements to it,” Ellis adds.

[RELATED SERIES: The Vacancy Issue]

“But we’re at a point that we need to throw the system away and start over,” Ellis says, adding that unfortunately there are few good models anywhere in the country to point to. “Because this corrupt system is a national issue.”

That assertion notwithstanding, just to the north of Maryland, in Pennsylvania, some housing advocates are encouraged by a so-called “split-rate” property tax system that has been implemented in more than a dozen cities for several years. According to Alanna Hartzok, who authored an article in the American Journal of Economics and Sociology:

“Fifteen cities in Pennsylvania are pioneering an innovative approach to local tax reform that harnesses market incentives for urban renewal. Opting for the so-called “two-rate” or “split-rate” property tax, these cities are lowering taxes on buildings, thereby encouraging improvements and renovations, while raising the tax on land values, thus discouraging land speculation. The resulting infill development as indicated by increased building permits means downtown jobs, efficient use of urban infrastructure, an improved housing stock, and less urban sprawl.”

In Baltimore, opponents of the tax sale system got good news in late April. Mayor Scott announced that the tax sale, which was scheduled to be held in May, was postponed until June. And perhaps more importantly, owner-occupied properties were removed from the tax sale. Therefore, those homeowners have the opportunity to redeem those properties without interest and fees. Removing homeowners from this year’s tax sale gives them time to apply for the ARPA-funded Homeowners Assistance Fund, or the CBDG CARE’s funded Emergency Mortgage & Homeowners Assistance Program, which will pay for delinquent property taxes, water bills, ground rent, etc. for homeowners with incomes at or below 120 percent of AMI and who have experienced a COVID-related economic hardship.

“The good news is that the administration is all onboard with completely throwing the system away and doing a new one,” says Ellis. “The mayor appointed a commission, which I co-chair that was tasked with figuring this out. And we’re designing two systems basically to replace the old one; one for vacant properties, to get those properties through the process (more quickly), and the other for occupied properties, because we want to provide help and support to homeowners and not get them through tax sale fast.”

“It’s like you need different answers for different problems. The issue is that it’s incredibly hard to unwind generations of systems that are designed not to bring equity. And the tax sale is one of many examples of that,” added Ellis.

The work to create equitable methods for collecting taxes has been underway for several years. Advocates have been lobbying the state to craft legislation that would enable the city to cancel or delay the tax sale when necessary (currently state statute forces the Baltimore tax sale to be held annually), and to remove homeowners from the sale as they see fit instead of selling the debt, allowing homeowners to get on a payment plan.

Some housing advocates in Baltimore have been pushing for the use of “in rem” foreclosure for vacant properties, which allows the city to move through the foreclosure process more swiftly by linking the tax debt and any other fines or liens to the property, not the owner. It also allows the city to take properties from speculators who just hold them without paying taxes, keeping the properties in poor condition thereby making neighborhoods unsafe. In rem foreclosure gives the city clear title to the property, the lack of which keeps many vacant properties cycling through tax sale year after year. Tragically, for thousands of Black Baltimoreans who lost their homes or loved ones to the violence of vacancy, or the violence that vacancy gives rise to, changes to the tax sale system will come too late.

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