Investing in Distress: Tax Delinquency and Predatory Tax Buying in Urban America

Abstract

Most states authorize the sale of tax liens (a legal claim against a tax-delinquent property) or deeds to tax delinquent properties by local governments to third parties. As federal and state funding for local governments declined and property tax delinquency rose in the 1970s, cities increasingly auctioned tax liens to generate revenue. Beginning in the 1990s fiscally distressed cities negotiated bulk sales of tax liens to private investors or used tax liens as collateral for securitized bonds. Tax lien privatization unleashed a wave of predatory activities chiefly targeting low-income homeowners, exacerbated racial inequities in the property tax system, accelerated the decline of urban minority neighborhoods, and stymied efforts at neighborhood recovery and revitalization. This article examines the racially disparate impact of market-based approaches to generating tax revenues and enforcing taxpayer compliance and its implications for understanding the historical and contemporary causes of the racial wealth gap in the US.