Baltimore City sued for allegedly unconstitutional tax sales

Maryland Legal Aid filed a federal lawsuit against Baltimore City on Tuesday in an attempt to reform policy on tax lien certificate sales, which the legal organization claims is unconstitutional.

In mid-May, the city auctions off property lien interests “to the highest online bidder” to recoup unpaid property taxes. The highest bidder pays, at minimum, the amount of the lien in exchange for a tax sale certificate, which provides them the ability to own the property upon filing a tax sale foreclosure lawsuit.

The property occupant can regain ownership if they reimburse the bidder for the lien with interest between late May and July 1.

“Your extractive, tangle-title-creating, long-term-vacancy-spreading, community-destroying tax sale is going to be over with this case,” Johnathan Sacks, the executive director of development for the Edmonson Community Organization, said at a news conference in Midtown Edmonson on Tuesday morning.

In mid-May, the city auctions off property lien interests to recoup unpaid property taxes. The highest bidder pays, at a minimum, the amount of the lien in exchange for a tax sale certificate, which provides them the ability to own the property upon filing a tax sale foreclosure lawsuit.

The property occupant can regain ownership if they reimburse the bidder for the lien with interest between late May and July 1.

These sales disproportionately impact Black and low-income residents. Somil Trivedi, the chief legal and advocacy director for Maryland Legal Aid, said that the depressed equity of the homes that are auctioned off strips residents of generational wealth and intensifies the long-lasting effects of redlining and other discriminatory policies.

“We want to be clear that the city is entitled to collect property taxes, but it’s not entitled to give away its residents’ property when it puts the property in the tax system,” said Lee Ogburn, Maryland Legal Aid’s advocacy director for appellate and impact litigation. “That’s what it did to [the Edmondson Community Organization], and it does it routinely.”

Baltimore auctioned off the $2,543 lien the Edmondson Community Organization had for unpaid property taxes on its building for $5,115 to an investor in California, who then sold the property for $139,500. The city paid out $2,572 to the organization after the auction — well under the actual value of the property.

In 2023, the U.S. Supreme Court ruled that government entities taking and selling property to settle debts violates the Constitution, which bars the government from seizing property without fairly compensating its owner.

The number of people who purchase property through these tax sales is relatively small.

Ogburn said the city penalizes bidders who offer more than 40% of a property’s value by charging them a premium. It also doesn’t require a minimum bid over the price of a lien, allowing the city to sell properties to bidders who offer even $1 over the cost of the unpaid property taxes.

Ogburn said he believes that the low-bid system “drives down” the number of offers, permitting a limited number of investors to “spread their money across the maximum number of liens.”

According to Ogburn, nearly 75% of properties available during the 2024 auction were purchased by 10 bidders.

Ogburn noted that the city doesn’t rake in a substantial amount of revenue from these sales, either. For context, he pointed to 2022, when Baltimore had a $4.3 billion budget and netted $12 million from the auction. Sales that year equated to three-thousandths of 1% of the budget.

“The tax sale is a rounding error,” Ogden said. “But it’s not a rounding error for its residents — principally low-income people, principally people of color who lose their homes, their generational wealth, in the process.”