THE REPERCUSSIONS OF THE COVID-19 PANDEMIC reach far beyond the public health arena. Among other things, the pandemic exacted a significant toll on the global economy, causing an economic downturn the likes of which have not been seen since the Great Depression. This decline, in turn, has decreased access to justice for many people in Maryland and across the country. While systemic barriers made it difficult for low-income individuals and people of color to access the courts and obtain legal assistance well before anyone heard of COVID-19, the pandemic had a devastating impact on the rights of these communities.
The Access to Justice Commission wanted to look closely at how the recent economic decline impacted Maryland’s most vulnerable citizens, so we spoke with Maryland Legal Aid attorneys Donna Bernstein and Louise Carwell to learn more about problems consumers are currently facing. Much of the focus of recent access to justice discussions has been on eviction and foreclosure, but Bernstein and Carwell indicated that many Maryland homeowners also struggle to pay their property taxes and must grapple with the possibility of losing their homes through tax sales. Although the Maryland Homeowner Assistance Fund (HAF) should offer relief to people at risk of losing their homes in tax sales, HAF is complicated; it can be onerous for people to access funds, and legal aid programs are overwhelmed with the administrative burdens associated with helping people complete applications. Similarly, while people can apply for tax credits, obtaining them can be challenging. Additionally, neither HAF nor tax credits address the issues that ultimately lead to tax sales, namely, property assessments.
Many people take for granted that local governments assess properties in an unbiased manner, but studies indicate the opposite is true. In Reassessing the Property Tax, Christopher Berry, professor at the Harris School of Public Policy and The College at The University of Chicago, explained how tax burdens disproportionately impact the lowest-income homeowners. He notes that property tax is the greatest source of revenue for local governments in the United States. It should be based on the actual value of the property in question, but the accuracy and fairness of property taxes depend on the assessments conducted by local assessors. Using data from millions of residential real estate transactions, Berry showed that assessments are generally regressive, with low-priced homes being assessed at a higher value relative to their actual sale price than high-priced properties. Within cities, homes in the bottom 10% of sale price face an assessment level, as a proportion of price, that is twice as high as that faced by homes in the top 10%, on average. As a result, the property tax disproportionately burdens owners of less valuable homes. This regressivity is pervasive throughout the United States, and Berry stated that it is not the result of measurement errors in sale prices or explicit policy choices, like assessment limits. Instead, regressivity appears to be caused by limitations in the data and assessment methods. This problem disproportionately affects people of color, as they tend to own lower-valued homes.1
Regressive assessments increase the tax burden on people who already struggle financially, and many people living on a financial knife edge were pushed over the precipice by the pandemic and found themselves unable to pay their tax bills. In Maryland, about a year and a half passes from the time a tax bill becomes delinquent until the homeowner loses the right to redeem their property. The average homeowner lacks the ability to understand the complexities of the tax sale procedure, though, and does not fully comprehend their rights to redeem their property. Even if they could navigate the byzantine process, it may be difficult for them to garner the funds to meet the costs associated with redemption. If the debt isn’t paid and the court issues a judgment, the certificate holder can evict the previous owner, charge them rent to live in the home they previously owned, or sell the property to another party. The net outcome is that millions of dollars in home equity are lost each year by Maryland’s most vulnerable populations, sometimes due to tax debts that only amount to a few hundred dollars.
Fortunately, Maryland Volunteer Lawyer Service (MVLS) and Maryland Legal Aid (MLA) offer services to people contending with unpaid tax debts, and their recent successes highlight the impact attorneys can have on the outcome of tax sale cases. MVLS recently helped a homeowner obtain tax credits, which ultimately reduced her tax bill, helping her keep her home,2 while MLA obtained a ruling that trial courts have the discretion to deny or limit attorneys’ fees in tax sale cases in a matter in which the tax sale purchase engaged in unfair tactics to delay redemption, thereby increasing homeowner protections against unscrupulous practices.3
The federal government attempted to help homeowners struggling to pay their taxes during the pandemic by enacting the American Rescue Plan (ARP) Act in March 2021. Among other things, the ARP Act established and provided funding for the HAF. Through HAF, the federal government provided grants to states to prevent displacements of homeowners experiencing financial hardship after January 21, 2020. Over the next three years, the Maryland Department of Housing and Community Development will receive $248 million through the Maryland HAF to assist homeowners struggling with housing costs because of the pandemic. Although most of Maryland’s HAF funds are allocated to provide loans to mortgage holders, approximately $34 million will provide grants to assist with property tax and other delinquencies.
The HAF fund, in theory, provides critical relief for people at risk of losing their homes due to pandemic-related financial issues, but the funds are difficult to access. Bernstein and Carwell noted that because HAF is a new program, there is not a lot of information available about the application process. There are housing counselors that can help applicants, but the counselors cannot access much of the information needed to complete the application, and many lack the training required to fully assist applicants, which causes delays and confusion. Ultimately, many applications get bounced back to attorneys who end up completing much of the paperwork needed to obtain HAF funds. Bernstein and Carwell believe that there should be a better way to implement the program, such as using paralegals or other paraprofessionals who can bridge the gap between housing counselors and lawyers and help people complete applications efficiently and effectively, so that vulnerable Marylanders can access the aid to preserve their homes.
In addition to applying for HAF grants, there are other measures homeowners can employ to reduce their tax debts, but they, too, are often unknown to most people. Maryland’s Homeowners Property Tax Credit program allows credits against the homeowner’s property tax bill if the property taxes exceed a fixed percentage of their gross income. In other words, it limits the property taxes homeowners must pay based on their income. Maryland’s Property Tax Homestead Credit can provide relief as well, as it limits the increase in taxable assessments each year to 10% or less each year. People can apply for credits under either program, but many lack the resources to complete applications. Additionally, it seems counterintuitive to assess a high property tax only to have people go through the process of applying for tax credits to reduce the amount.
In 2022, 4,500 owner-occupied homes in Maryland are at risk of tax sale. While steps have been taken to help prevent people of color and low-income property owners from losing their houses, it is clear that much more work is needed. Bernstein and Carwell and other attorneys who work in other civil legal aid organizations like the MVLS and the Pro Bono Resource Center of Maryland have insight into the needs of low-income people and the policy reforms that need to take place to increase access to justice. They have been part of reform efforts4 to make the tax sale process more fair towards low-income Marylanders. A legislative change that was recently pushed to help Marylanders passed during the 2022 Maryland Legislative Session and went into effect in June; it authorizes an application for the property tax relief program for renters within three years after the calendar year for which property tax relief is sought under certain circumstances, and applies retroactively to affect all taxable years beginning after June 30, 2019.
For more information and resources on tax sales, go to: https://www.peoples-law.org/keeping-your-house-out-tax-sale.
4 Maryland Legal Aid is restricted by virtue of receiving Legal Services Funding to only participate in legislative advocacy if invited to do so by a legislator.