Local investors showed up early Monday morning for their chance to profit off the District's $35 million of unpaid property taxes at the city's annual tax sale.
The city is auctioning off 5,400 property tax liens this week. And one way or the other, buyers are going to get paid. If owners pay off their back taxes and have the lien lifted, buyers will make interest on the lien. And if the homeowner doesn't repay them for the lien, buyers could ask a judge to award them the deed to the property.
"There are some hidden land mines," Richard Cockerill said as he sat in the auction room with about 100 other potential buyers about 8:30 a.m. Monday. He thumbed through an inch-thick list of properties, filled with tax jargon. Some of the numbers represented solid investments; others, a never-ending line of unexpected fees and headaches.
The key to knowing the difference, Cockerill said, is research.
"It takes about 40 minutes a page," he said. "There are 60 pages."
Cockerill said he was the highest bidder on one of these properties in 2009. He paid the District the amount of the back taxes and began the complicated process of giving the homeowner a chance to repay him, plus interest.
Two years and $24,000 in legal fees later, Cockerill said the owner still hasn't paid. When everything is finalized, Cockerill expects a judge to award him the deed to the $200,000 property.
"This is a case where there were a lot of potential heirs [after the homeowner died]," he said. "But the heirs could not agree with themselves who was going to pay the taxes. So that's why it slipped through to me."
But the scenario of being handed the title to the property after simply paying off its back taxes unfolds, on average, less than 5 percent of the time.
More typically, homeowners pay the debt and buyers receive 18 percent interest on the amount on the lien.
James Morgan said this is what he expected when he bought a property tax lien at the auction on Monday.
"It seems like a good introductory way to get in on real estate with a fairly low risk," he said. "Either you're going to get the real estate or you're going to get the 18 percent redemption."
The auctions will continue every weekday until all the property tax liens are sold. They will be held at the Office of Tax and Revenue from 8:30 a.m. to noon and 1 p.m. to 4 p.m.