No more Mr. Nice Guy
With the bottomed-out real estate market still stagnant, some property owners are having trouble seeing the point of paying property taxes.
The value of property has plummeted so much — especially on lots billed for vacation and retirement homes — buyers lured by mountain property during the real estate boom have discovered their investment is now worth pennies on the dollar compared to what they paid, with no hope of a rebound anytime soon.
Why not cut losses and walk away, instead of pouring more money into it year after year in the form of property taxes? That’s a reality that’s causing Macon County to take a second look at its policies for collecting on delinquent property taxes.
Threatening letters just aren’t working like they used to, because these days, some people simply have no intention of paying. Mounting unpaid property taxes are draining county coffers.
“We have to move forward on that. We don’t have the revenues coming in that we can afford to be Mr. Nice Guy,” Richard Lightner, Macon County’s tax administrator, told commissioners.
If somebody doesn’t pay after a couple of warning letters, he has a few routes to try. He has the power to garnish wages or even tap the person’s bank account.
But those measures don’t always work. They have various limitations. They can’t be used for out-of-state property owners, for example, or if you can’t figure out someone’s bank account number, or if their wages are too low.
“You have to use all the tools,” Lightner said.
Until now, that toolbox hasn’t included foreclosure, at least not in Lightner’s 29 years at the county’s tax office. Foreclosure is the final step: the county can auction off property to the highest bidder to cover the back taxes on it.
In 2004, Macon County commissioners passed a resolution directing the tax office to ramp up tactics for collecting unpaid property taxes. But not much had changed until this year.
“Realistically, there’s no forced collection,” Lightner said of year’s passed.
The turnover of three county attorneys in those years and the time involved in processing a foreclosure kept that from happening, Lightner said. At the beginning of January, the county was missing $4.75 million in delinquent property taxes.
So last month, the county hired Ridenhour & Goss to start collecting that money through property foreclosures. Attorneys fees, to the tune of $200 an hour, are tacked on to the back taxes owed.
The county’s new policy, though, doesn’t necessarily mean that there will be mass foreclosures throughout Macon County.
In Jackson County, which just began using foreclosures against delinquent taxpayers in 2011, the threat alone was usually enough to make people pay up.
“Ever since June of 2011, we’ve collected over $2.5 million,” said Beverly Buchanan, Jackson County tax collector. Often, receiving a demand letter from an attorney is enough to spur the owner into paying what’s required.
But not every time. Of the more than 300 accounts the county has submitted for foreclosure proceedings since 2011, 23 have been sold. When that happens, the county prices the starting bid to equal the amount owed plus attorney fees and administrative costs. If the property auctions for anything more than that, the money goes back to the property’s former owner — or to the bank if there’s an outstanding mortgage, or to pay any other liens on the property.
“The county’s not interested in making money,” Buchanan said. “It’s just interested in getting the taxes and attorney fees.”
In this economic climate, foreclosure is often the only way to do so.
“We have a lot of properties that were purchased by people four or five years ago from out of state, and we can’t attach [to their bank accounts] or garnish their wages,” Buchanan said.
Often, these out-of-state buyers simply chose to stiff the county on their tax bill and wash their hands of an investment gone wrong, even if it means losing the property they’d bought.
“We have a big development like that right now that we’re working on that people haven’t paid in four of five years,” Buchanan said. “They bought it as a second home or investment. We have people say, ‘We don’t want to pay the taxes until we can sell this property.’”
So far, Jackson County, which uses the same legal firm as Macon to process its foreclosures, has sent 68 letters to taxpayers with homes at Waterdance and Bear Pen at River Rock — part of the controversial mega-development known as Legasus.
Jackson’s property tax collection rate has climbed 1.5 percent since it started using foreclosures, but overall, Macon, Swain, Jackson and Haywood counties have seen a drop in property tax collections since 2007.
“I think it happens more, probably, in Western North Carolina, when so many people are tied to the real estate development market and the economies aren’t production-based,” Lightner said.
•Swain took the biggest hit in its property tax collection rate, falling from 94.7 percent in 2007 to 91.6 percent in 2011.
•Macon’s collection rate fell from 97.4 percent in 2007 to 96.4 in 2011-12.
•Jackson’s collection rate plummeted from 96.3 percent in 2007 to 94.6 in 2009, but after hiring a law firm to process foreclosures, the rate has risen back up to 96 percent.
•Haywood’s collection rate went from 97 percent in 2007, then dropped to 95.7, but is now back up to 96.2 percent.
“It’s like anything,” Lightner said. “If people know the parameters and know that enforcement is going to take place, they’ll maybe pay a little more attention to make sure their obligations are taken care of.”
Haywood County has never been shy about using foreclosures to collect unpaid taxes.
“With a third of our tax bills going out of state, that is usually the only remedy we have,” said David Francis, Haywood County Tax Administrator.
Unpaid taxes dating back more than 10 years must be written off, so the goal is to get it done before that collection window closes.
Haywood County faced an unusual conundrum last year when auctioning off one property in a tax foreclosure.
“Nobody showed up to bid on them,” Francis said.
Foreclosure auctions are conducted on the courthouse steps. Since today’s modern justice centers don’t necessarily have “steps,” the auctioneer stands on the entrance sidewalk at a pre-appointed time.
Real estate investors follow foreclosures, looking to snatch up good deals and cheap property they can flip. Sometimes, neighboring property owners will show up to bid. But sometimes, no one wants the property, as Haywood witnessed last year. The county ended up assuming title to a couple of properties with hopes of selling them down the road to recoup those back taxes.
Other times, the county fetches less than what’s actually owed in taxes and interest and attorney fees.
But Haywood doesn’t have to foreclose as often as some neighboring counties with upscale retirement homes. Haywood only took seven properties to foreclosure last year.
“In some other counties, you saw whole subdivisions were going down,” Francis said.