Most states authorize the sale of tax liens (a legal claim against a tax-delinquent property) or deeds to tax delinquent properties by local governments to third parties. As federal and state funding for local governments declined and property tax delinquency rose in the 1970s, cities increasingly auctioned tax liens to generate revenue. Beginning in the 1990s fiscally distressed cities negotiated bulk sales of tax liens to private investors or used tax liens as collateral for securitized bonds. Tax lien privatization unleashed a wave of predatory activities chiefly targeting low-income homeowners, exacerbated racial inequities in the property tax system, accelerated the decline of urban minority neighborhoods, and stymied efforts at neighborhood recovery and revitalization. This article examines the racially disparate impact of market-based approaches to generating tax revenues and enforcing taxpayer compliance and its implications for understanding the historical and contemporary causes of the racial wealth gap in the US.
Local governments across the United States annually hold tax auctions, in which unpaid property tax bills are sold to investors, who in turn obtain the right to charge interest on those debts or acquire title to tax delinquent property. In Chicago, reforms to Illinois's tax sales law in 1951 gave rise to a class of investors who reaped millions through fees, interest payments, and, in some cases, acquisition of real estate for the price of a single property tax bill. Tax buying thrived as rates of property tax delinquency rose sharply in the 1970s, especially in the city's African American neighborhoods, which suffered from discriminatory overassessment. As the city's fiscal situation worsened, tax buyers wielded greater influence over tax policy and administration. Tax sales shed new light on the making of contemporary municipal fiscal policies and administrative practices, and highlight broader features of capitalism and the state in modern America.The discriminatory overassessment of properties in heavily black and minority neighborhoods was a pervasive, if often hidden, feature of urban governance in post-World War II America. 1 Comparatively high property taxes in minority neighborhoods became a powerful force in shaping the racial geography of cities and suburbs and an important, if previously unrecognized, factor in the deterioration of urban minority neighborhoods. During the same decades when standardized property appraisal guidelines used by the federal government and real estate industry systematically lowered the market value of properties in heavily black, racially transitional, or integrated neighborhoods (and made them ineligible for federally backed mortgages in what came to be known as "redlining"), in cities such as Chicago, Illinois, tax assessors consistently overvalued property in African American neighborhoods relative to white neighborhoods. 2 Higher property taxes inflicted a double, mutually reinforcing penalty on black homeowners, forcing them to shoulder a heavier tax burden (for inferior public services) than whites and,
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