Originally Published on forbes.com on October 19th,2011
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Losing your home to foreclosure can be a heart rending event. Still, despite all the scandal going on that area, I think that if you borrowed $300,000 at the peak of the market and the foreclosed home is now worth $120,000, you have not necessarily been the victim of gross injustice. The entity that foreclosed on you may have in fact put out $300,000 and is not getting it all back. If you want to see what gross injustice looks like, consider what almost happened to Max M. Powell as described in a recent decision by the Court of Appeals of Indiana.
The Story
Mr. Powell might have been a bit careless. He accumulated a property tax obligation on his home in Marion, Indiana in the amount of $1,631.17. The Grant County Auditor sent him a notice on August 12, 2009 that the county would auction his home at a tax sale unless he filed a “defense for theapplication of judgement” prior to August 31. Mr. Powell took no action.
The next thing Mr. Powell heard about the matter was a notice from M Jewell LLC on March 23, 2010. The notice informed him that Jewell had purchased the tax lien on his property and that Mr. Powell had redemption rights. That caught his attention:
On April 28, 2010, with the intention of redeeming his property and settling his tax obligations, Powell went to the Grant County Treasurer’s Office, but he should have gone to the Auditor’s Office for that purpose. The Treasurer’s Office assured Powell he needed to pay only approximately $280 to redeem his property, and Powell wrote a check for that amount.
That did not get it done, though. Here is what happened next:
In August 2010, Jewell posted notice on Powell’s property indicating it had been sold at a tax sale, Jewell intended to take possession of the property, and Powell still could exercise his right to redeem, but did not indicate where Powell may do so. On September 14, 2010, Powell again went to the Treasurer’s Office and attempted to redeem his property, but an employee informed him that he would have to wait until after a “hearing.” Powell did not visit the Auditor’s Office, and the redemption period expired September 17, 2010.
On September 25, 2010, Powell received notice that Jewell had petitioned to obtain a tax deed for Powell’s property. Powell filed his objection to Jewell’s petition on October 6, 2010. The trial court held a hearing on December 14, 2010, and denied Jewell’s petition on December 28, 2010. The court’s order provided Powell thirty days in which to redeem his property by paying the outstanding balance to the Auditor’s Office.
That was a close call. It was not over though. M Jewell LLC, as part of this process, would have gotten its money back along with a decent amount of interest. The decision does not mention the interest, but according to this site it might have been as much as 25%. That did not satisfy M Jewell LLC, though. M Jewell LLC wanted the property. Mr. Powell had let the redemption period expire. By the lights of M Jewell LLC, the court had no right to give Mr. Powell an extra thirty days to clean things up. Hence the appeal.
The court sided with the homeowner:
Powell comes to the Court of equity with clean hands. On at least two occasions he personally appeared at the Grant County Treasurer’s Office, with his checkbook in hand, to redeem the home he has lived in for twenty (20) years. On one occasion he was told by an employee of the Treasurer’s Office, incorrectly, that he did not owe any past due taxes, interest, or penalties. On the second occasion, he was told, incorrectly, that he could not redeem the property even though the period of redemption had yet to expire. At no time did any employee of the Grant County Treasurer’s Office send Powell to the Auditor’s Office to investigate further.
The court then explained it would be unjust, in light of Powell’s repeated good faith efforts to redeem his property, to award his house to a company that paid $5,000 toward its purchase.
That’s right. If the case had gone the other way, M Jewell LLC would have had Mr. Powell’s house for $5,000.
That’s right. If the case had gone the other way, M Jewell LLC would have had Mr. Powell’s house for $5,000.
How Does M Jewell LLC Manage This ?
It seems that M Jewell LLC had made it its business to know the rules in this area better than most people. According to the Indiana Attorney Generalits registered agent is Tom Terry of Muncie, IN. Mr. Terry, it appears has been at this for a while. He shows up in a 2004 case concerning a tax deed he purchased in 1995. In July 2009 he filed a formal complaint against Delaware County for access to its records. Part of the county’s response is a little disturbing:
Regarding your request for a copy of the tax appeal policies and procedures, the PTABOA contends the request is vague and that the Assessor does not maintain any records responsive to the request.
Does the assessor not have “policies and procedures” ? Is this the way things are in Indiana, which might account for why over in Grant County you can show up at the treasurer’s office, pay them what they say you owe and still almost lose your house to somebody who paid five grand and knows the rules better than you.
Much as I admire someone who takes the trouble to learn the rules and then play by them with skill, I am still disturbed by M Jewell LLC and Mr. Terry. So I thought I would consult with an expert in the area on the ethical issues of this particular business.
The Ethical Question
I took the ethical question to my friend Maury Carter. Mr. Carter has spent his career focused on commercial real estate in Orlando, Florida. In 2008 he was honored by the Central Florida Commercial Association of Realtors with a lifetime achievement award. I attended the presentation and recall what one of the speakers said about him “Maury still knows what a handshake means.” Mr. Carter has handled sales of over 200,000 acres of land worth over a billion dollars. He has also invests in real estate tax liens in Florida, which has a similar system to Indiana. I told him the story of Mr. Powell and M Jewell LLC and asked him for his thoughts:
I’ve bought thousands of tax liens and I would never do something like that. If it is somebody’s home, I don’t want it.
Should Something be Done About This ?
I find that when I talk to a lot of people about different issues, many of them will reflexively indicate that either government or greedy business is the problem, depending on their ideological perspective. Other times people will trumpet the virtues of public/private partnerships. The collection of real estate taxes by auctioning off liens and tax deeds appears to have the potential of being a toxic mixture of the worst aspects of government and business. Clearly it helps local governments keep overhead down, which is a good thing, but at least in Indiana, it appears that there needs to be some greater protection for hapless homeowners.
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