City's aggressive crackdown on tax delinquents questioned

For a city and nation in the grip of the home-foreclosure crisis, Barbara Pearsall's situation seems like a familiar one: She is hopelessly behind on her bills, and barring some sudden financial windfall, the recovering stroke victim will lose her small South Philadelphia rowhouse in a matter of months.

But it's not a big mortgage lender that would turn the 67-year-old Pearsall out of her house. It's the City of Philadelphia.

City Hall is in the midst of an aggressive crackdown on tens of thousands of real estate tax delinquents. Those who won't or can't pay - like Pearsall - are losing their properties, to the tune of more than 100 tax-foreclosure filings a month.

The city has every legal right to seize the land of those who haven't met the most basic of civic responsibilities. And the collective debt the delinquents owe is massive: about $290 million, money the city and school district badly need.

Yet by getting tough at a time when mortgage foreclosures are hitting Philadelphia hard, the city runs the risk of putting further stress on already shaky neighborhoods.

"What the city is doing doesn't make sense. Market values are tumbling, homes are being boarded up, neighborhoods are being disrupted," said Irwin Trauss, an attorney with Philadelphia Legal Assistance who runs the city's mortgage-foreclosure hotline.

"The city ought not be adding fuel to this fire. The city ought not be taking this opportunity to collect its debt, certainly not from low-income folks, by selling people's houses and making them homeless."

The downside of the city's aggressive new posture - announced by Mayor John F. Street in September - isn't lost on the Nutter administration.

"It's a complicated issue," said Wendell Pritchett, a senior policy adviser to Mayor Nutter. "People do need to pay their taxes, but these are difficult times and we may have be to more sensitive to this issue now than we were a year ago."

The city promised an extensive safety net for low-income homeowners when the stepped-up collection program was introduced. There was to be a $1 million loan fund, and $500,000 more for tax-foreclosure housing counseling. Neither materialized.

"The safety net doesn't exist," said Monty Wilson, an attorney for Community Legal Services who has specialized in tax-foreclosure cases.

The Nutter administration disputes that, but Pritchett acknowledged the city had not done everything Street promised. The difficulty, he said, is that the prior administration did not set aside enough money to meet the promises.

The city does offer payment plans to delinquent low-income taxpayers, which Pritchett said was perhaps the most important part of any safety net.

But attorneys such as Wilson say the agreements are part of the problem. Those who sign up, Wilson said, waive their due-process rights, in essence giving the city permission to take their homes without notice or the right to a court hearing if the homeowner misses so much as a single payment.

"It would be a national scandal if the mortgage companies tried to do what the city is doing," Wilson said.

City officials dismissed Wilson's concerns, suggesting he was misinterpreting the agreement's language.

"Community Legal Services is wrong," said Cynthia White, chief deputy city solicitor. "This is an agreement we've been using for 25 years."

In practice, White said, the city is highly accommodating to low-income homeowners who have signed payment agreements. Fine, Wilson and CLS respond, then change the agreement language to better reflect that.

What really worries community lawyers, however, are homeowners like Pearsall, who sought help just a little too late.

Pearsall inherited her modest brick rowhouse from a sister around 1980. Undereducated and unemployed, Pearsall said her average monthly income was $500, all of it public-assistance money. On that she raised three children and three grandchildren.

"I didn't have the money," Pearsall said. "I didn't have the money for the taxes. And I didn't pay them."

By last year, she owed the city $27,000, and the foreclosure warnings were arriving in the mail at a furious pace. She sought help in November, but it was too late. Her home was sold at sheriff's auction days later.

Pearsall still lives there, but her time is running out. The redemption period, in which she can get her home back (by making good on her debts, plus interest, rent and attorneys' fees), ends in December.

Monty Wilson, who now represents Pearsall, says it all could have been avoided. If the city did for her and other tax delinquents what it does for those with mortgage trouble, Pearsall would still have the title to her home, Wilson said.

The city's new and innovative mortgage program, which was featured in a Wall Street Journal front-page story earlier this month, mandates that no home can be auctioned without a court-mediated conciliation session between the homeowner and the lender. Had Pearsall had access to the same program, Wilson said, she could have signed on to a payment plan, or gotten a reverse mortgage to make good on her debts.

Pritchett, the mayor's policy adviser, says it's an idea worth considering.

"But let's remember the big picture, which is that there are many people in the city who can pay their taxes who aren't," Pritchett said.

He is no doubt right about that. Many of the deadbeats are thought to be absentee landlords or speculators. Others are regular folks who haven't paid because, until now, there were no consequences. And these aren't property owners who are past due by a few months. Most haven't paid their taxes in years, or even decades.

But it is also true that there are low-income homeowners, largely elderly and on fixed incomes, who are now squarely in the city's tax-collection sights. Exactly how many is impossible to say, however. White said the city didn't even keep track of which delinquent homes were occupied by their owners, much less their household incomes.

In a few months, the city's contract with the Texas-based tax-collection firm Lineberger, Groggan, Blair & Sampson will expire. The city is using the opportunity to think about changing its approach, Pritchett said.

"We are going to do an evaluation of exactly what the new contract will look like, who they'll go after, what kind of people should we be targeting," Pritchett said. "We'll ask if in light of the change in the economy should we maybe have a different approach."