Revamping Louisiana’s Troubled Property Tax System: What You Need to Know!
This week, Louisianna voters have a chance to reshape the future of property ownership in the state! One of the key items on the ballot is Amendment 4, which proposes a significant transformation of the often convoluted system local governments use to manage tax-delinquent properties.
Proponents of Amendment 4 are rallying behind the idea that it will create a more equitable playing field for property owners. However, critics caution that the amendment could drive investors away from revitalizing struggling neighborhoods and hinder potential growth.
Currently, when a property owner falls behind on their taxes, local sheriffs conduct a tax sale where investors bid on what percentage of ownership they are willing to purchase, starting from 100% down to a mere 1%.
The winning bidder covers all back taxes and receives a tax sale certificate, placing the original owner in a precarious situation. The debt incurred must be repaid to the investor, accruing an initial 5% penalty and 1% interest monthly.
The original owner has a three-year grace period to “redeem” their property by settling this debt and reclaiming full ownership. But if they don’t act within those three years, the investor can take legal steps to assert their ownership.
For those who bid at 100% interest, the property becomes theirs outright, according to industry experts. However, many bids are significantly lower, sometimes starting with just a 1% stake, which allows original owners to negotiate their way back to full ownership.
If an agreement can’t be reached, the property goes to a sheriff’s auction, with proceeds allocated first to the investor’s debt and legal fees, and any remaining amount distributed based on ownership stakes.
Interestingly, many investors tend to place the lowest acceptable bids, often only recovering what they are owed. If no one else competes in the auction, they could walk away with the property at a bargain price.
Support for the New System
The upcoming Dec. 7 election could dramatically alter this process.
Amendment 4 suggests a shift to a tax lien system, where investors will bid on the interest rate of the tax debt, starting at 1% per month but capped at 0.7%. The original debt would still incur that unavoidable 5% penalty.
If three years pass without payment, bidders could head to court to initiate a sale, with bids starting at two-thirds of the property’s market value. The funds will first settle the investor’s debt and other creditors, ensuring the original owner keeps whatever is left.
This amendment would also revise language in the state constitution, paving the way for further adjustments to laws governing tax delinquency.
State Senator Greg Miller, who championed this legislation, argues that the current system is skewed against property owners and often leads to unjust outcomes.
According to Miller, most tax sale certificates are redeemed by original owners. Yet, in unfortunate scenarios, an investor may end up owning a $100,000 property after only paying a few thousand dollars in taxes.
Under the existing framework, investors can request exorbitant sums from original owners to buy back their interest after three years, with some reports of demands ranging from $10,000 to $20,000 for just a 1% stake.
When properties are auctioned under the current system, they often fetch a fraction of their market value. After settling debts and legal fees, original owners frequently find little to no equity remaining.
Miller and his supporters assert that the existing process may violate the U.S. Constitution’s takings clause, which protects property owners from losing their assets without just compensation.
This concern has been amplified by a recent U.S. Supreme Court ruling that favored a woman who had her condominium sold without her receiving any of the proceeds that exceeded her tax debt.
Despite the ongoing debates, not everyone agrees that Louisiana’s current system is unconstitutional, and the issues surrounding it remain untested in court.
Opposition
Critics of the proposed changes argue that they would discourage investors and ultimately harm property owners.
B.J. Barrios, a title abstractor from Marrero, emphasizes that under the existing setup, original owners maintain some stake in their properties if an investor bids under 100%. This allows them to potentially regain some equity post-auction.
However, under the new system, the starting bids at two-thirds of market value might mean that property owners walk away with nothing if the debt is too large, Barrios warns.
Barrios further notes that the change could deter small-scale, local investors who aim to rejuvenate rundown properties. Without the promise of ownership interest, these investors may think twice before engaging in the market.
These local heroes are already facing stiff competition from large investors, who are primarily interested in quick returns rather than community development.
By acquiring multiple properties at the lowest bids, large investors can profit even if only a handful are redeemed, thus leaving small investors in a tough spot.
Miller’s legislation, passed with overwhelming support in the Legislature, faced only one objection from a single senator.
However, dissenting opinions persist. Senator Eddie Lambert fears that the new lien system could potentially scare investors away, leading to a decrease in tax revenue for local governments.
Yet, Miller contends that most investors only seek their redemption payments and aren’t overly concerned with acquiring property itself.
The proposed seven-year timeline is designed to push lien holders to act if properties remain unredeemed, addressing concerns that many investors hesitate to pursue court action due to the associated costs.
