Predatory (yet perfectly legal) tax-lien sales were perfected in the city in the 1970s. The crisis continues today.
The best time to steal someone’s home is at Christmas.
That’s when folks find their budgets stretched the tightest by the gift-giving season. People put off their bills to focus on family. The holidays are distracting: friends and loved ones come and go, there’s all that merriment. Christmas is the perfect cover for taking a family’s home away from them.
Allan Blair took Lillian Ware’s home away from her on December 27, 1971, two days after Christmas. Legally, he purchased her Evanston home. She owed $41.57 on a lien for a special tax assessment, plus some fees. Blair bought that tax lien at an auction held by Cook County, in the hopes that Ware, an elderly black woman, would fail to pay off the lien within a two-year window.
But Blair didn’t leave it to chance. As Andrew W. Kahrl recalls in a new case study on Chicago’s predatory tax buyers, Blair had Ware’s final tax repayment date extended to December 27 to boost the odds that she would forget or fail to make the payment and wind up in default.
“Blair’s treachery knew no bounds, and respected no holidays,” writes Kahrl, a professor of African-American history at the University of Virginia.
There’s a happy ending to Ware’s story, sort of. Losing her home over such a small amount of money (at Christmas no less) won Ware the sympathy of the local press. The public outcry helped the elderly lady to buy back her home—the one she had already paid for—from the man who had scrooged her. It even seemed for a minute that Blair might pay for all that he’d done.
But Ware was only one of hundreds of Chicago residents who fell victim to Blair and a predatory tax-assessment scheme that served to strip black residents of the deeds to their homes. For his part, Blair was just one of many agents using the full force of the law to plunder the wealth of thousands of black homeowners.
And Chicago is only one among scores of cities where this scene has played out over the years—and continues today. For decades, racist property assessments and predatory tax-debt sales went hand-in-hand in Chicago. The system came to be known as the “Black Tax.”
Chicago’s history here is especially egregious, but it isn’t unique at all. The Washington Post launched an extraordinary investigation into predatory tax-debt practices in Washington, D.C., in 2013, leading to a host of reforms the following year. The Baltimore Sun exposed in 2007 how homeowners have even lost their homes to the sales of liens on unpaid utility bills (namely water bills). Tax-debt sales enable powerful, wealthy, corporate actors to use the law to bully and exploit a city’s most vulnerable residents. Fedo Kenon, a mentally disabled man, and his wife, Hattie Mae Kenon, lost their home in Quincy, Florida, to a tax-lien buyer in 1979 after they failed to make a payment of $3.05.
“This is a predatory enterprise that's being conducted by the state,” Kahrl says in an interview. “Quite literally, Cook County is facilitating and helping to manage these predatory tax buyers who are preying on their own citizens. [The government is] not just complicit—they're cogs in this industry, key players.”
The origins of the ‘Black Tax’ in Chicago
Kahrl’s case study, which was released this month by the Journal of Urban History, traces the practice of tax-lien speculation to a 1951 reform in Illinois state law called the Revenue Act. During the same years when “redlining” emerged as a severely racially discriminatory mortgage practice, assessors in cities such as Chicago systemically over-valued homes in black neighborhoods for property-tax purposes.
The Revenue Act (and similar laws in other “harsh-law states”) made it easy for unscrupulous speculators to exploit homeowners who missed these higher payments or simply failed to grasp the law. Kahrl—who is the author of The Land Was Ours: African-American Beaches from Jim Crow to the Sunbelt South—likens the overvaluation of black-owned homes and the targeting of delinquent black taxpayers to the practice of “contract selling.” (Beryl Satter’s 2010 book, Family Properties: How the Struggle Over Race and Real Estate Transformed Chicago and Urban America, provides the exhaustive account of that topic. Ta-Nehisi Coates further explored contract selling in his June 2014 cover story for The Atlantic.)
“In 1960s and 1970s Chicago, tax buyers turned one of the most basic functions of local government—property tax collection and enforcement—into a mechanism of personal enrichment and private investment,” Kahrl writes in the study.
Blair, along with his partner, David Gray, elevated unscrupulousness to an art form. The associates leaned on public officials for insider tips about properties slated for urban renewal. They pushed policymakers to draft laws that suited their interests. According to Kahrl, the two “preyed on those who were least likely to understand redemption procedures and the tax delinquent’s rights under the law (the poor and illiterate, the elderly and senile, widows and shut-ins, the mentally disabled, persons who did not speak English), and thus most susceptible to forms of trickery and deception.”
Tax-lien speculation proved to be one hell of a business. Over the course of six months in 1973, for example, Gray acquired the deeds to 93 homes in Chicago’s Woodlawn neighborhood for a total of $70,000. Each parcel was worth as much as $20,000 at the time—and potentially much, much more to speculators once all the neighborhood’s black residents had been evicted.
Kahrl is working to compile an estimate for how much tax buyers such as Blair and Gray actually made during the 1970s. The associates often used shell companies (named after family members: “Lois, Inc.,” “Jocelyn, Inc.”) to disguise their activities, complicating the search. Market data for home values in these neighborhoods over this period can be hard to come by. Still, while it’s tough to access tax-sales data, these sales were conducted by the government, meaning there’s a public record for every predatory transaction. These records exist.
“It's a lengthy, meticulous process, but all the numbers are there to see how much they're making, and quite literally, who they're making it from,” he says.
Just a glance at what Blair and Gray accomplished reveals the scale at which they worked for years. Kahrl passed along a list (culled from a 1973 report he discovered at the Chicago Historical Society) of homeowners for whom Blair and Gray acquired tax liens, along with the value of the home and the total figure for the delinquent tax bill. The values diverge by several orders of magnitude:
Catherine Catoor: $50,000 ($896)
Louis Balthazar: $16,000 ($500)
Lillian Ware: $18,750 ($59)
Bob Rosborough: $15,000 ($1,200)
Bertha Rankins: $12,000 ($118)
Mrs. Henry Riedl: $12,500 ($53)
Frank Wiggins: $10,000 ($90)
Carlee Robinson: $12,000 ($26)
Veronica Micetich: $10,000 ($3,000)
Kahrl estimates that Blair and Gray acquired thousands of liens and hundreds of homes in Chicago. (They worked in other cities in harsh-law states as well).
Not every tax-lien sale resulted in a transfer of deed, but they always resulted in a transfer of wealth. Many homeowners managed to pay off their liens at high interest rates—often 18 percent, the legal ceiling—along with a host of fees. Making real money depended on finding the poorest and most vulnerable owners in the poorest but most over-assessed neighborhoods. This practice was perfectly legal. The “Black Tax” was law.
“Judges often bent over backwards trying to find any procedure that the tax buyer failed to complete properly so as to invalidate the deed, because they knew this was a cruel and heartless practice and sympathized with the homeowner,” Kahrl writes in an email. “But Blair and Gray became so skilled at following the letter of the law that they won most of these cases.”
Predatory tax-lien practices today—in Chicago and beyond
Until only very recently in Cook County, collusion at the tax-lien auction was the rule of the day. Tax buyers bid on liens by interest rates. A competitive bidding process would yield a lien sale with a low interest rate for the homeowner. An uncompetitive (corrupt) auction yielded lien sales at the maximum interest rate: 18 percent.
In the 1990s, Cook County Treasurer Maria Pappas took aim at the “gentleman’s agreement” between institutional buyers to divide up the spoils of the auction without bidding against each other on them. In 2000, the Circuit Court of Cook County rules in Pappas’ favor in a suit brought against her by a bevy of these institutional entities, which operate under such anodyne names as “Midwest Real Estate Investment Company.” (While the bidding process is fairer in Chicago now, bid-rigging remains a pressing concern for tax lien auctions in Baltimore.)
The remarkably resilient predatory-tax-lien business continues to thrive, despite efforts at reform. The industry is enormous. Late in 2014, the Abell Foundation published a report on the state of the practice in Baltimore City. In 2013, the city sold tax liens for more than 2,000 owner-occupied homes. Almost one-tenth of these liens were attached to water bills. In 2014, of some 6,690 tax liens sold, 2,236 were for owner-occupied homes.
Given the interest, fees, and court costs, a homeowner’s $500 delinquent tax or water bill can mushroom to $3,000 over a two-year window—the time an owner has to pay down the lien. According to the report, there were 2,805 pending tax-lien foreclosure cases in Baltimore City in 2014. Noting the difficulty in tracking these tax-foreclosure evictions, the Abell Foundation report’s authors warn that in Baltimore, the “tax sale can lead to evictions, homelessness, and property vacancies and abandonment in a city already plagued by all three.”
According to a survey of 82 homeowners in Baltimore facing a tax sale, most were black, most lived below the poverty level, half were elderly, a third were disabled, and one tenth were veterans.
Earlier this year, the Thriving Communities Institute released a report on tax-lien sales in Cuyahoga County. It’s a damning indictment of Woods Cove, the corporation with which the county contracted in 2011 to purchase and service tax liens for the Cleveland area. Woods Cove took Allan Blair’s Chicago playbook and turned it into a nationwide industry.
The story in Cleveland is the same as in Baltimore. A disproportionately high share of tax-delinquent properties are found in majority-minority neighborhoods. Of the 265 properties that Woods Cove came to possess between 2011 and 2013, 84 percent are on Cleveland’s east side or in its east inner-ring suburbs. The report’s authors further note that 93 of those properties are now vacant—and 87 percent of those vacant homes are located in Cuyahoga County’s most vulnerable communities.
Across the Cleveland area, the pattern is plain. The greater the share of minorities in a neighborhood, the more likely it is that tax-lien sales result in foreclosure.
Woods Cove are no angels. The Center for Community Progress has noted that the corporation has forced tax-delinquent homeowners to enter into a “confession of judgment” agreement to establish repayment plans—a form of systematic humiliation conducted in the service of a civic debt.
“It’s worth noting that harsh tactics like this are not employed by the County when it does its own tax collection,” said Frank Ford,* a senior policy advisor for the Thriving Communities Institute, in an interview with Community Progress. “Tax-lien sales transfer what is essentially a public function to a private, return-driven entity that has neither a duty nor an interest in protecting taxpayers and residents of Cuyahoga County.”
According to these 2015 reports, Woods Cove is guilty of the same predatory practices employed by the other big national player, Aeon Financial, which served as the corporate buyer and servicer on tax liens in Cuyahoga County prior to 2011. Aeon Financial came up for special condemnation in The Washington Post report for its practices in D.C. and Maryland.
The Plain Dealer described Woods Cove’s practices in Cleveland as “county-condoned distressed-property flipping." The criticism has yet to spur any real action. And if it ever did, the company would just move on. Aeon, Woods Cove, Heartwood, and other shadowy institutional tax buyers—Heartwood lists its address as a UPS mail drop in Chicago—operate everywhere at once.
Woods Cove made its latest mass purchase in Cecil County, Maryland, earlier this month:
Woods Cove IV LLC bought 195 tax liens for a total of $484,000. Western Asset Management Co. (WAMCo.) bought 112 liens for $268,000 in taxes. Stearns Bank purchased 80 liens for a total of $166,000 in taxes. Purchasers receive the interest accrued on the bill if the original owner fulfills their debt. Otherwise, the purchaser can begin the foreclosure process to ultimately own the property outright.
"They just move on to the next jurisdiction,” Kahrl says.
The long road to breaking up the tax-foreclosure industry
Large corporate tax buyers are extremely skilled at navigating tax codes that are by their nature set at the state and local level. There is no regulatory regime that oversees tax buyers specifically—not the Consumer Financial Protection Bureau, not the Department of Housing and Urban Development, not the Department of Justice, not the IRS.
“Property taxes are the most local form of taxation in America,” Kahrl says. “It's hard to make blanket statements on the state of tax-buying on the whole. It's so localized. That works to the advantage of tax buyers who have mastered the intricacies of the process.”
Absent a regulatory regime, legislative reform is perhaps the only method to curb predatory tax sales. Outrage is enough to force change in some cases: Consider the protections introduced in Washington, D.C., after the release of The Post’s report. Nationwide, these protections (such as videotaped auctions) vary widely from one jurisdiction to another—and the industry appears to adapt to these laws faster than cities can adopt them.
The Center for Community Progress notes “The Michigan Model” as one alternative to tax-lien sales. Instead of selling the notes to debt collectors, cities and counties could instead borrow from banks on the back of “Delinquent Tax Anticipation Notes”—essentially tax-free municipal bonds. Crucially, in this model, the county operates both the tax collection and any subsequent foreclosures, lending a degree of direct accountability and transparency to the process. (This model is the work of U.S. Representative Dan Kildee of Michigan.)
These small steps may one day curb future abuses. Justice is a different question. As it stands, efforts to correct the outrageously disparate treatment of black and white homeowners have only led to more unequal standards for taxation. Kahrl’s report casts the California Tax Revolt of June 6, 1978, as a hostile white reaction to a nondiscriminatory tax state. When municipal leaders tried to correct the balance sheet between white and black homeowners, whites rebelled.
Justice never came to Chicago, of course. In 1979, when Arthur Lyons, a University of Illinois economist, released a report on the disparity between black and white property assessments—a full analysis of the “Black Tax”—it landed with a thud. “Despite (or, perhaps because of) the irrefutable evidence presented in the Lyons report, the issue of discriminatory taxation failed to generate much outrage among white Chicagoans, who were, after all, the main beneficiaries of the county’s assessment practices,” Kahrl writes.
Neither did Lillian Ware’s personal story move the world against Allan Blair, who continued his predatory practice until his death in 1979. Today, corporate buyers such as Woods Cove and Aeon Financial continue his work—and at a scale that Blair could not have fathomed.
“Wealth creation, then and even more so today,” Kahrl says, “is generated by the plundering of the poor and vulnerable in America.”
Correction: This post cites remarks made in an interview by Frank Ford. It originally misattributed the quote to Luke Telander. The post has been corrected.