Here They Go Again: Wall Street Finds a New Way To Profit From Distressed Homeowners

December 10, 2010  |  

By Brittany Hutson

It looks like Wall Street’s up to their dirty tricks again. This time, they are devising new ways to prey on distressed homeowners. According to the Center for Public Integrity, financial institutions, including those who received federal bailout money, are bundling small tax debts into private investments, leaving homeowners in debt and, for some, in foreclosure.

In a most recent example, the Center reports that Bank of America and hedge fund Fortress Investment Group joined forces to collect tax debts of tens of thousands of people. The duo added interest charges and fees, then proceeded to bundle the debts as securities for investors. In early May and June, proxies for the institutions quietly bought hundreds of homeowners’ property tax debts worth millions of dollars in Florida by bidding at online auctions held by county tax collectors. The proxies assumed multiple identities and repeatedly bid on the same parcels, in one case, more than 8,000 times.

Then in September, Bank of America’s securities division packaged $301 million worth of acquired tax liens into bonds and pitched them privately to major investors for an anticipated and estimated return between 7 and 10 percent.

The Huffington Post Investigative Fund found that unfortunately, there is no current regulation of the $5 billion tax lien market and no protection for property owners. University of Michigan’s commercial law expert John Pottow told the Center that the growth of private sales of tax liens will result in more foreclosures.

But veterans of the tax-lien trade say that lien sales help cash-strapped cities and counties efficiently collect millions in overdue taxes and other municipal bills. Homeowners can avoid trouble by paying their taxes on time and for those who can’t, they are offered a loan, which can accumulate high interest charges and fees.

The “tax sale” auctions are a great vehicle for private investors because in cyberspace, buyers are anonymous and in a matter of minutes, millions of dollars are transferred. These transactions may leave homeowners with the prospect of losing their property over debts that could actually be as small as a few hundred dollars. In the past,  local real estate investors had to bid at auctions in person, which would take days.

So this is the return on American taxpayer dollars—Wall Street getting a slap on the wrist and leeway to go back to doing underhanded schemes, which were largely responsible for the position this country was placed in nearly three years ago.  They obviously haven’t learned their lesson from the subprime mortgage fiasco. It’s this type of greed that slows the economic recovery and keeps people susceptible to overwhelming amounts of debt. So, who’s going to stop Wall Street now, if at all?

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