Tax Collections, Lien Transfers, & Foreclosures

Tax Collections, Lien Transfers, & Foreclosures

March 29, 2003

Many self serving articles about Georgia tax laws have been published with the intent of misleading and scaring the public. Taxes are necessary for Governments to provide services such as: police and fire protection, roads, education, and social services.

Fulton County, the largest County in Georgia, billed $1.2 Billion in property taxes in 2003, representing 27% of all property taxes collected in the State. Property taxes contribute 80% of the revenue in the Fulton County budget. Already, the Tax Commissioner's Office has collected 99% of taxes billed in July 2003. If you ever wondered why Fulton County does not suffer the same degree of fiscal woes as the State and other municipalities, locally and nationally, one of the primary reasons is the 99% plus collection rate the Tax Commissioner has achieved for the County, the City of Atlanta, Fulton County Board of Education, and the Atlanta School Board since 1999. Since 1997, revenue collections have far exceeded anticipated revenue, resulting in budget surpluses, fully funded reserves, and the highest bond ratings.

Taxes are billed July 1st every year, with due dates of August 15th and October 15th for the City of Atlanta and Fulton County respectively. Taxes become delinquent after those dates and by law interest accrues at 1% a month on the unpaid balance. A one-time penalty of 10% is assessed on the unpaid balance after 90 days.

Georgia law requires liens orfi fasbe attached to delinquent property taxes and recorded in the Office of the Clerk of the Superior Court. Before liens are placed on properties the law requires the Tax Commissioner give property owners a "30 day notice of intent to fi fa"by mail. This "thirty day letter" must be in writing, must notify the property owner the taxes are unpaid, and unless paid, a lienshallbe issued unto the property and filed with the Clerk of Superior Court. The primary purpose of the lien is to notify the world at large of the defective property title. Secondarily, the lien protects Governments' right to collect delinquent taxes.

Under Georgia law, anyone can purchase liens from the tax office by making a demand on the Tax Commissioner. Tax Commissioners have no discretion in the matter. Refusal to transfer liens on demand will result in a Tax Commissioner being held in contempt of court. Since the mid 1800s Georgia law has allowed the transfer of property tax liens and their foreclosure by third parties. Lien transfer and the threat of foreclosure enable governments all over the United States, Georgia being no exception, to shift the burden and cost of delinquent tax collection from the public sector to the private sector. After lien transfer, interest accrues at the rate of 1% per month on the unpaid balance just as it would have if the liens were held by the county tax office.

Since 1994, when lien purchasers were invited to the County by the Board of Commissioners with a bulk lien purchase contract, only 2 to 3 percent of tax collections have been generated through lien transfers. In other words, 96% to 97% of taxpayers pay taxes directly to the tax office without lien transfers.

Legislation introduced by Rep. Douglas Dean in 2002 struck down the Georgia statute requiring prospective lien purchasers to give 60 days notice to property owners by certified mail before liens could be transferred. Since then, no notice is required prior to transfer, which has hurt property owners.

Lien purchasers do not have property rights. They cannot trespass on the property; they cannot collect rent; they cannot evict a tenant or property owner. Lien holders only have the right to receive payments to satisfy the liens in the same manner as the Tax Commissioner would have done. If a lien holder pays taxes on a property, the property owner can consider it a gift.

Once a lien has been transferred, the Tax Commissioner has no further involvement in the collection process. Ultimately, when liens are not satisfied the law gives the lien purchaser the right to have the Sheriff levy and foreclose on the property. The Sheriff conducts this foreclosure sale on the courthouse steps at 10:00 a.m. on the first Tuesday of the month. Georgia law requires the Sheriff to give a twenty-day statutory notice to the owner of record of the property as well as to the recorded owner of each security deed affecting the property prior to foreclosure. The notice must be by registered or certified mail to the appropriate parties. The law also stipulates that for tax liens, written certified notice be sent the defendant ten days prior to sale, to the "defendant's last known address as listed in the records of the Tax Commissioner."

After sale on the courthouse steps the successful bidder receives a tax deed from the Sheriff. The purchaser at the sale hasnoimmediate right of possession and by law the property owner or any person having the right, title, or interest in or lien upon the property can redeem it from the tax deed holder. This redemption can occur at any time within twelve months of the sale or foreclosure, and at any time after the sale until the right of redemption is barred. The right of redemption can only be barred one year after the sale. After the right of redemption is barred, the deed holder has to file a quiet title action in order to gain full control of the property.

As an illustration of how the redemption process works, take for example a $200,000 property being foreclosed for tax lien and Sheriff costs, totaling $5,000. The opening bid would be $5,000. If the winning bid, for example, is $100,000, then this amount becomes the cost basis for all redemption calculations. Under existing law"the redemption price, shall be the amount paid for the property by the purchaser after the sale for taxes, plus any special assessments on the property, plus a premium of 20 percent of the amount for each year or fraction of a year which has elapsed between the date of the sale and the date on which the redemption payment is made…".After the first year there is an additional 10% per year or part thereof. To redeem the property anytime within the first year anyone having an interest in the property can redeem it for $100,000 plus a premium of 20% of $100,000 - a total of $120,000. The Sheriff would have in her tax account a surplus or overbid amount of ($100,000 -$5,000) $95,000 for"the person entitled to receive",usually the property owner, to use towards the redemption cost of $120,000. The property owner actually has to come up with $25,000 out of pocket in order to redeem the property. I have heard of instances where the property owner claimed the excess funds from the Sheriff and abandoned the property to the tax deed holder.

The issue as to what the County should do about tax lien sales is not one that rests with the Tax Commissioner. It is a policy issue with social, political, and budgetary implications. Governing authorities will get the revenue required for governing. Whether one should be overly protective of 3% of taxpayers who do not pay taxes on time by enacting laws that ultimately require governments to raise taxing rates thereby punishing 97% of public who dutifully pay taxes is a policy and budgetary dilemma, not a collection issue.