Rethinking Hattiesburg’s Lien Policy
The taxes on my house on 34th Avenue seem high, but I pay nonetheless. And so do my neighbors, almost universally. Not all neighborhoods are so lucky. In the North Main Street Historic District where Trace Rising focuses its efforts, many blocks have more than 25% of the property owners NOT paying their taxes. To the extent a property owner doesn’t pay taxes, a tax lien is created that entitles the owner of the lien to be paid the back taxes as well as interest on the unpaid amounts. Once a year the state of Mississippi sells these tax liens at an auction. Buyers get the rights to those back taxes and interest (at 18% per year!), and if the owner doesn’t pay off their tax lien for two years, then the tax lien buyer can potentially acquire the property itself. If no one purchases the tax lien for two years, the property reverts to State ownership which clears off any old liens and cleans up the title. The clearing function of reverting to State ownership is a vital step in reseting the most problematic properties.
Most tax lien buyers are not local and bid on hundreds if not thousands of these liens. Well in excess of 90% of the liens in Forrest County are repaid, and because of the amounts involved (frequently less than $1,000 owed on a property worth less than $30,000) and the vast number many bid on, tax lien buyers may not conduct much due diligence on the properties. They instead rely on the assessed value from the tax assessor and assume that the owner will eventually pay their late real estate taxes. Even if the owner does not pay, the tax lien investor assumes that will be a windfall for them as they can move to take ownership of a property worth well in excess of their investment.
But what happens when the tax assessor is wildly off, and the properties are worth a fraction of their accessed value? My personal experience indicates tax assessments in poor blighted neighborhoods can be inaccurate. I have dozens of examples now of properties I have purchased for less than 20% of their assessed value.
Tax lien investors may also not know about all the possible liens outstanding on a property. The City of Hattiesburg will sometimes use Unsafe and Menace blight laws to mow the weeds and to secure the doors/windows every few years of abandoned properties. It has the legal ability to collect its costs for these enforcement actions plus a penalty by either suing the owner or attaching a lien to the property. The City usually seems to attach a lien to the property which is then collected the same way real estate taxes are collected. Filling out the paperwork can take a year or more sometimes, and the City’s record doesn’t seem to be great in collecting on these liens for obvious reasons.
Let’s look at a real example to see how these issues can compound upon each other. 451 West 4th Street is pictured below. This house has had EIGHT different tax lien investors owners over the past decade. None of those “owners” paid taxes on time, maintained the property, mowed the grass, or even kept homeless people from squatting there. A year or so ago the property partially burned. Despite its dilapidated state, the Tax Assessor said it was worth close to $30,000 and so investors kept buying the liens. Many of them were likely unaware that there are multiple uncollected liens associated with blight enforcement when they bid. Would you want to live or own property on this block?
Out of state investors keep bidding on the tax lien for a worthless property, the state of Mississippi never takes ownership of the problem property, and the title is never “cleaned” - the same problem property just keeps trading hands among investors with no interest in fixing the situation. Hattiesburg should 1) push the Forrest County Tax Assessor to make sure blighted neighborhoods do not have inflated assessed values, 2) publish a list online of all properties in the process of blight enforcement, 3) move quickly to post enforcement costs, and 4) strategically consider whether to attach the lien to the property or to go after owners in court.
