Wall Street Quietly Creates a New Way to Profit From Homeowner Distress

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Wall Street Quietly Creates a New Way to Profit From Homeowner Distress
By Center for Public Integrity
Link: http://www.publicintegrity.org/articles/entry/2752/

When Florida retiree Gladys Walker fell behind in paying taxes on her modest Pompano Beach home, she had no idea one of America’s biggest banks and a major Wall Street hedge fund engaged in frenzied bidding for the right to collect her debt—all $768.25 of it.

...

Barely more than a year after a taxpayer bailout of major financial institutions, Bank of America and the hedge fund, Fortress Investment Group, spotted a fresh money-making opportunity – collecting the tax debts of tens of thousands of people like Walker. The bank and hedge fund can add interest charges and fees, and they bundled the debts as securities for investors.

In late May and early June, proxies for the two institutions quietly bought hundreds of millions of dollars in homeowners’ property tax debts in Florida by bidding at a series of online auctions held by county tax collectors. They didn’t use their names but donned multiple other identities, dominating the auctions and repeatedly bidding on the same parcels – in the case of Walker’s small home, more than 8,000 times.

Then, in September, Bank of America’s securities division packaged $301 million worth of the tax liens it and Fortress had acquired into bonds pitched privately to major investors. The anticipated return – estimated at between 7 to 10 percent – is possible because buyers of tax debts can assess a panoply of interest charges and other fees. When the debt goes unpaid long enough, the liens buyer can seize properties through foreclosure.

[FormerDittoHead]

1. This was going on 15 years ago.

The only 'news' here is that there are more foreclosures, but this general thing has been going on for years.

A couple of friends and I helped put together a mutual fund which invested in tax liens around 1996.

Foreclosures were very rare at the time, something like 1/3,000.

We were priced out of the business, however, because the big corps moved in, esp insurance companies.

[Frustratedlady]

2. I agree. It was going on here at least 20+ years ago.

Reps from investors in Texas and California would attend tax sales and if the former owner didn't pay the back taxes/interest in 3 years...maybe 5, they owned the property.