With just about $13,000 in certified free cash in 2012, Uxbridge Finance Director David Genereux knew he had to get creative to get revenue flowing into the town coffers.
So he decided to sell tax liens the town held to a private company, essentially selling the debt owed on real property. The company, in turn, takes over the responsibility for collecting that debt – the back taxes – from the property owner.
“In some cities and towns this is catching fire. Our budgets are tight, so it’s great to look at receipts as opposed to a receivable you’ll get eventually,” said Mr. Genereux, who is now the town manager of Uxbridge. “It has really made a difference for the town.”
The town sold its first tax liens in 2012, generating $800,000 in revenue that year from the sale, plus the proceeds from people who were prompted to come in and pay.
There have been three sales since, and each year the town has collected consecutively less money. In fact, the third sale following that initial sale resulted in only $100,000. However, that is not a bad thing.
“The collections at the sale have dropped, but the only reason they have dropped is because our current collections have increased,” Mr. Genereux said. “It has stimulated timely collections, which for me, is more important than any interest we may collect.”
The process is not without fallout from residents.
“People are disappointed that we are going to move so quickly,” Mr. Genereux said. “We are sensitive to that.”
Mr. Genereux said the town does try to work with residents in arrears and will set up a payment plan to collect back taxes.
Going forward, Uxbridge will be doing two sales a year. The first will be in May for those properties for which a payment plan has been set up but payments have not been followed through with, and the second in October to collect on any new liens placed since the previous June 30.
Not all communities sell their liens, but some, such as the city of Fitchburg, are exploring the options.
Some towns tend not to do tax-lien sales, not because they want to accumulate interest, but because to do it requires the creation of databases which is an arduous task for personnel-strapped municipalities. In Uxbridge alone it took Mr. Genereux three weeks to create the databases from scratch.
“The process is off the grid for municipal software,” Mr. Genereux said.
Last week Spencer published a list of 54 properties for which taxes are owed, totaling almost $54,000. In a cash-strapped community such as Spencer, every dollar counts. If the back taxes on those properties are not paid in full by 9 a.m. Dec. 4, the town will place a lien on the property.
In the past, tax-title sales have been held but this year, the perfect storm of budget cuts, which translated to personnel cuts and reduced hours at Town Hall, as well as a brand-new treasurer/collector, have just made it too big of an undertaking to pursue.
Previous tax-lien sales were held where private companies came in and bid on the tax liens. The private companies pay the town within 48 hours and commits to keeping up with the taxes on the property. The company, in turn, collects the money owed on the property, as well as accumulated interest and any legal fees that the town might otherwise incur in land court if it chose to foreclose on the property.
“It is a lot of work at this particular stage,” said Treasurer/Collector Susan Lacaire. “It is my first year my staff has been cut . . . But it is certainly definitely worth it.”
“The reason outside companies are so willing to come in and bid is that now they are getting 14 to 16 percent interest,” Ms. Lacaire said. “We’d much rather have the money that is owed rather than collect the interest.”
Fitchburg is among the communities that are considering selling off its tax liens for the first time. Bidding would start at the amount of taxes owed, and often the liens are bundled. The liens are usually sold at face value – the amount owed – and the purchasing companies then pursue the debt, as well as any interest that accrues.
“Basically, the advantage is that the city gets its revenue up front,” said Calvin Brooks, the collector treasurer of Fitchburg. The city has more than 600 properties with tax liens, representing a total of $4 million. Mr. Brooks said he is in the process of determining which property liens he would sell at auction.
“The only way to enforce a lien is to go to land court,” Mr. Brooks said. “The city does not want to be a land owner or a property owner. The whole foreclosure process takes time. By selling the liens, we get our money and we move on to focus on other city business.”