Losing a home for $400 in back taxes

The elderly and other vulnerable homeowners are losing

The elderly and other vulnerable homeowners are losing their homes because they owe as little as a few hundred dollars in back taxes, according to a report from a consumer group. (Credit: iStock)

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Homeowners can lose their homes because they owe as little as a few hundred dollars in back taxes, a national study found. But Long Island officials said the practice generally does not happen here.

Outdated laws in some states allow big banks and other investors to reap windfall profits by buying the houses for a pittance and reselling them, the National Consumer Law Center said in a report released Tuesday.

Tax debts as small as $400 can cause people to lose their homes because of arcane laws and misinformation among consumers, NCLC attorney John Rao said.

Here's how it works: The government files a tax lien saying it can seize a property if the taxes remain unpaid. If the taxes aren't paid, the government auctions the lien to investors.

For a limited time, the homeowner may buy back the home by paying to the investors the purchase price of the lien, plus interest. That's possible because investors haven't bought the home itself -- they have purchased the tax lien, which gives them the right to seize the home later. If the owner fails to pay, investors can sell the home.

On Long Island, homeowners with tax liens are unlikely to lose their properties to investors, said Bruce J. Bergman, a real estate attorney in Garden City and author of "Bergman on New York Mortgage Foreclosure."

"My sense is that this has not been a problem," either on Long Island or elsewhere in New York, he said.

Nassau County allows investors to buy tax liens, but before seizing the home the investor must take the homeowner to court in a foreclosure process that can take a full year and gives the homeowner plenty of notice, Bergman said. Nassau imposed the foreclosure requirement in 1986, after Newsday exposed abuses in the lien-sale system. Previously, investors could buy a lien, wait two years, send the homeowner a "notice to redeem," and if the homeowner did not pay within 30 days, the investor could take ownership of the home, Bergman said.

Suffolk County does not sell tax liens to investors.

With AP

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