The Next Scandal

The Huffington Post Investigation Fund (dot org) is reporting that major Wall Street Banksters and Hedge Funds are getting into the kind of get rich quick real estate scams you normally find in a late night infomercial.

This particular confidence game is to purchase the right to collect back taxes, fees, and liens from cash strapped local governments at discounts on the dollar and then sick their high retainer, temporarily idle, forclosure departments on the homeowners to run up fees, fines, and forclosures.

I’ll quote it as I would any article of similar length, they allow crossposting but the embed code violates too many rules.

The New Tax Man: Big Banks And Hedge Funds

By Fred Schulte and Ben Protess, Huffington Post Investigative Fund

First Posted: 10-18-10 08:28 AM Updated: 10-18-10 09:40 AM

Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.

…

In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

…

Years ago, the big banks left the buying of tax liens largely to local real estate specialists and small-time investors. These days, banks and hedge funds, stung by the failure of many speculative investments, see tax liens as a relatively safe option that can yield returns of around 7 percent.

Some banks also are packaging tax liens as securities – in a similar way to how unpaid home loans are securitized – and selling them to investors.

If mortgage holders fail to pay overdue taxes, an investor could waltz off with a home worth hundreds of thousands of dollars for the price of paying the owner’s tax bill. Most homeowners eventually pay their debt.

…

Some two dozen states and the District of Columbia allow tax sales, which spare the governments from added expenses of hiring their own debt collector, or foreclosing and becoming a landlord. Local governments generally require minimal identification – for instance, a Social Security number. They allow bidders to choose whatever names they wish, and don’t check to see if bidders are using multiple identities.

In the Middle Ages this was called Tax Farming.