Treasurer: Tax lien sales have increased delinquent tax collections nearly 50%

Montgomery County Treasurer John McManus said he has implemented a new tax lien sale process that has contributed to a large increase in delinquent tax collections.

McManus said he plans to hold annual tax lien sales, which allow third parties to take on the debt of unpaid taxes and get the payments directly from property owners while the county is made whole from the sale. He noted that most of the delinquent payments were made ahead of the sales and came from property owners who wanted to avoid having their tax debts transferred to third-party collectors that typically charge additional interest and fees.

“The fact remains that our delinquent balances in this county have been far too high for far too many years,” McManus said.

A big increase

The treasurer’s office collected $63.9 million worth of delinquent taxes between September 2021 and January 2023, said McManus, whose first term in office began on Sept. 6, 2021.

McManus said delinquent collections were up last year about 48% from the previous tax cycle. He credited the increase largely to two tax lien sales that were held in 2021 and 2022.

The tax lien sales led to about $52 million in collections, but McManus said about three-fourths of that haul ($38.8 million) came from property owners making voluntary payments ahead of the tax lien sale deadlines.

The rest of the money ($13.2 million) came from selling the tax debts to third parties.

The process

When tax liens are sold, the treasurer’s office receives full payment of the unpaid taxes, and at that point the properties are no longer delinquent.

Tax lien sales do not involve the sale of the properties. Only the tax debt is sold, and property owners have a year to repay the delinquent taxes in full, along with interest and fees.

If the liens are not paid off, the lien-holding company can start foreclosure proceedings to try to take the properties to sale at auction.

Property owners can avoid tax lien sales by paying all of the taxes owed or by getting on payment plans.

The Montgomery County Prosecutor’s office works with the treasurer to identify delinquent property owners and notify them of their unpaid taxes and their payment options, such as getting on a payment plan, said Prosecutor Mat Heck Jr.

Unpaid delinquent taxes can lead to tax foreclosures, but it’s much preferable to work property owners to get them current on their taxes, he said.

Process changes

McManus said tax lien sales have helped shrink the delinquent property rolls.

Montgomery County had 19,225 delinquent properties in January, which down about 11.5% from September 2021.

Credit: Lisa Powell

Credit: Lisa Powell

McManus said a big change he made was allowing four companies to compete to purchase the tax liens in bundles.

He said the treasurer’s office used to only work with one buyer, Tax Ease LLC. Now his office accepts and considers purchase offers from Tax Ease, Adair Asset Management, NAR Solutions and FIG Taxes.

Companies’ offers are evaluated based on the interest rates they charge, and the goal is to get them as low as possible, McManus said.

The four companies have purchased tax liens in bundles with a promise to charge interest rates between 0% to 18%, McManus said, adding that in the past the interest rate delinquent owners had to pay was 18%.

“This new reformed process is important because it encourages competition, it encourages excellent customer service ... that in turn really helps this office collect delinquent taxes at an unprecedented rate,” he said.

Important revenues

Almost 60 cents of every dollar in property taxes go to support local schools, with the Centerville, Dayton and Kettering school districts being the largest recipients of these dollars in Montgomery County, said Montgomery County Auditor Karl Keith.

Voters in Montgomery County have approved 33 tax levies requesting new money that went into effect between 2019 and 2022, Keith said.

Every property owner has a responsibility to pay property taxes on the properties they own, and failing to do that means schools, libraries, local governments and human services agencies won’t get the revenues they depend on, said Kevin Futryk, executive director of the County Treasurers Association of Ohio.

Many people say this is a matter of fairness. Sometimes schools, park systems and local governments have seek new property tax levies if the revenues fall short of projections because of tax delinquencies.

McManus also said his office has tried increased communication with property owners who owe delinquent taxes and he has “tightened” internal controls on delinquent payment plans.

He said in the past some property owners were able to get on multiple payment plans, voiding one to start another without accountability or consequence. He said he’s trying to put a stop to that.

The tax lien certificate sale process was started in Montgomery County back in 2005 by then-Treasurer Hugh Quill. The lien sales, and the threat of tax debts being sold, helped the treasurer collect millions of dollars in unpaid taxes, sometimes in just one day.

Tax lien sales were paused in 2020 during COVID. In 2019, then-Treasurer Russ Joseph brought in more than $10 million from a tax lien sale. Joseph sold about 940 liens for $4 million, and the rest of the money came from property owners who paid their delinquent taxes in full or who got on payment plans.

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