Fulton County Tax Commissioner Arthur Ferdinand offers a sweet investment opportunity — but one that since 2002 has cost county taxpayers up to $20 million.
He sells property tax liens that entitle the investor to earn a potential 10 percent return in as little as one day – on top of a potential annual return of 12 percent.
If Ferdinand would wait a little longer to sell the liens, the county would collect the 10 percent. Over the past 11 years, that could have generated as much as $20 million that might have gone to libraries, health services and funding the courts in Fulton County.
Instead, the opportunity to collect almost all of that money went to one private company: Vesta Holdings.
When taxes are 30 days late, tax commissioners can file liens — a legal claim — on the properties. If taxes are 90 days delinquent, state law allows an extra 10 percent penalty on the total amount owed. But rather than hold on to liens for 90 days so the county can collect the 10 percent, Ferdinand has sold many early – some a day or two before the extra payment would kick in, The Atlanta Journal-Constitution found in an analysis of tax bill data.
The analysis raises other questions about how Ferdinand conducts liens sales and about his relationship with Vesta, the office’s largest purchaser of tax liens. In at least one instance, the AJC found, the tax commissioner sold liens to Vesta shortly before telling other potential buyers none were for sale.
Critics, including legislators, have long raised concerns about the lien sales and about the tax commissioner’s ties with Vesta. Ferdinand — who is responsible for collecting taxes for the county, five Fulton cities and two school districts — has repeatedly dismissed allegations of special treatment and assured the public that the program was benefiting them.
He refused all interview requests, but in response to written questions from the AJC he wrote that the lien sales are legal, and lien buyers reap the benefit of penalties and interest because they take the risk of collecting overdue taxes.
“Vesta receives no favoritism by our office in any manner,” Ferdinand wrote. Companies that buy liens save the taxpayers money by removing the burden of collecting delinquent taxes from the county, he wrote. The lien buyer, he has often noted, pays the tax bill in full.
“The responsibility of the tax commissioner is to optimize the collection of taxes, not to maximize the amount of taxes collected,” he wrote.
But if Ferdinand is allowing potential revenue to slip into the pockets of private collection companies, that’s outrageous, said County Commissioner Liz Hausmann, a Johns Creek Republican.
“And I would think that would warrant some kind of official investigation,” Hausmann said.
State Rep. Lynne Riley, R-Johns Creek, said she was disturbed to hear that the early sale of liens benefits a private vendor instead of county taxpayers. “This is unacceptable in many ways,” she said. “You can understand, now, why we’ve been concerned about many of the practices taking place in that office.”
Vesta, which also declined interviews and responded only in writing, says that the AJC’s calculation is “seriously misleading” because many taxpayers pay their bills before Vesta is legally allowed to impose the 10 percent penalty. But in response to a follow-up question, Robert Proctor, the company’s attorney, said Vesta does not know how many property owners paid their bill before the 90-day penalty because the company “does not maintain those sorts of statistics.”
Ferdinand and Vesta both say that the quick sale of the liens is a financial advantage to the county and cities, even without the 10 percent penalty, because the governments receive the money in their current fiscal year. Ferdinand said that allows the county to pay an annual bond before the due date: Dec. 31.
But that doesn’t explain why Ferdinand sold thousands of 2009 and 2011 tax liens to Vesta within the 90-day window, but after Dec. 31.
Dan Davis, the executive director of the Georgia Association of Tax Officials, said he understands there is value to collecting early, but he said there is also value to the county in collecting the penalty and interest.
“If they don’t collect it until March, that’s a 13 percent return and that’s not too bad,” Davis said. “Where else could you have made 13 percent return on your money?”
Ferdinand became tax collector in 1997 and is now the state’s highest-paid elected official, earning more than $348,000 last year. The sale of liens has boosted his tax collection rate, which he has touted each time he has been challenged at the polls. He easily won re-election last year.
Under state law, Ferdinand has almost complete autonomy over the sale of tax liens that his office files, with little to no oversight of the process.
Ferdinand wrote that the process is transparent and that everyone who wants to acquire liens is provided with the same information at the same time. But some tax lien buyers describe the process as convoluted and subject to change from month to month, stoking suspicions about favoritism.
Even finding out when liens are available for sale can be difficult.
At 9:44 a.m. last Dec. 13, Terry Noble, a tax administrator with the Fulton tax commissioner’s office, announced the availability of thousands of 2012 Atlanta tax liens in an email he sent to Vesta and four other lien buyers. He told the five to hand in a list of liens they wanted to purchase by the end of the business day, and the buyer with the largest dollar value would get their pick.
Ferdinand has said that preference goes to the largest volume lien buyers. All pay the same amount: the total due.
Sending an email to a limited group of insiders to announce liens are available for purchase is not a transparent process, said Rick Thompson, former head of the Georgia State Ethics Commission. The tax commissioner’s office should strive to include everyone who may be interested, not just the largest companies or those it worked with in the past.
“It wasn’t even a public notice?” Thompson asked. “It was just an email? That seems kind of crazy. To send an email out to just five individuals when there’s probably a lot more people interested would be poor policy at best.”
Ferdinand has provided little other information about the sale process, but he has told the AJC in his email that his office has never calculated the number or value of the liens he’s sold. At a county commissioners’ meeting earlier this month, he told the AJC he was “ignoring” questions about lien sales because news accounts about his program are “junk.”
Ferdinand’s inability to answer some questions and his refusal to answer others is ridiculous, said James Honkisz, chairman and president of the Fulton County Taxpayers Association. “It hurts every single Fulton County taxpayer, this kind of arrangement. There are certainly enough question marks your investigation has unearthed that deserve answers not only to the AJC, but the Fulton County taxpayers.”
Getting answers from the tax commissioner is not easy. County Commissioner Robb Pitts said even the commission has trouble getting Ferdinand to appear before them to answer questions.
Ferdinand also waged a two-year battle with the AJC to prevent release of the tax data.
At one point, Ferdinand told the AJC it would have to pay more than $16 million for the information. He lost that battle late last year, after Attorney General Sam Olens sided with the AJC and both threatened to sue Ferdinand and the vendor holding the data.
The data show that after the December email from Noble, a Vesta company ended up buying 94 percent of the 11,100 county and city of Atlanta 2012 tax liens Ferdinand sold.
From 2002 through 2011, Vesta and its sister companies were, by far, the largest buyers of all tax liens, purchasing up to $350 million worth, the analysis shows.
This explains why Vesta is also the largest recipient of liens sold before the 10 percent penalty is added, Ferdinand said in his letter.
“Simply by the numbers, this fact would obviously result in Vesta receiving a larger percentage of those paying the penalty to the third parties,” he wrote. “To infer that this shows favoritism to Vesta by the Tax Commissioner’s Office in any aspect is absolutely untrue and irresponsible.”
But that’s not exactly what the numbers show, and Ferdinand has acknowledged that he doesn’t know how many liens he’s sold to Vesta.
According to the data, Vesta purchased about 89 percent of the approximately 190,000 liens sold by Ferdinand.
But the company purchased more than 99 percent of the liens sold before 90 days — about 58,000 in all. All other lien purchasers combined purchased about 300.
For the 2010 county taxes, Vesta was the only early purchaser, and the early sales meant the county gave up about $5 million in potential revenue.
Of note, one of the few restrictions state lawmakers have put on tax lien sales concerned an incentive that Ferdinand once provided to those who buy tax liens in bulk. He discounted the sale price by 10 percent, providing the buyer with an immediate bonus. The Legislature in 2002 nixed that.
The Legislature may again cut off the 10 percent bump Ferdinand passes along, according to Sen. Vincent Fort, D-Atlanta.
“The question is, should we be selling tax liens before the 10 percent penalty is assessed?” Fort asked. “I would think not.”
Only one other metro county — Gwinnett — sells tax liens. It always collects the 10 percent penalty from the lien purchaser, said Gwinnett County Tax Commissioner Richard Steele.
That’s because even though state law allows tax commissioners to place liens once a bill is 30 days past due, Steele doesn’t do so within 90 days, much less sell the lien that quickly. Instead, bills are usually 10 to 12 months overdue before liens are put up for sale, he said.
There are good reasons to wait, he said. Sometimes, deed records don’t catch up with tax records in time, and Steele said he doesn’t want to put a mark against someone’s credit unnecessarily. By law, residents who receive tax bills have three months to prove that they don’t own the properties anymore to avoid having a lien placed against them.
He also acknowledged that transferring liens before penalties are added would be a loss to taxpayers.
“Technically, you’d be allowing the private entity to collect it rather than the county,” he said.
Overall in Georgia, 99 percent of overdue taxes are almost always paid before the next year’s taxes are due, according to Davis, with the state tax officials association.
State law stipulates that lien buyers are entitled to the same fees and penalties that tax commissioners are allowed to assess. That’s 1 percent interest each month the bill is overdue, a few additional fees and, for almost all properties, the one-time 10 percent penalty after the bill is 90 days overdue.
Some years, Ferdinand sold liens within days of the deadline for imposing the penalty. One year, he sold a batch of liens to Vesta just one day before he could have added the extra charge.
Frank S. Alexander, a law professor at Emory University who specializes in Georgia real estate finance and foreclosure law, opposes the sale of any tax liens as an abdication of the tax commissioner’s duty to collect overdue taxes. Further, he said failing to collect the 10 percent penalty raises “troubling questions.”
Alexander wants to know if there are there any criteria Ferdinand uses to decide who gets to buy liens before the county assesses the 10 percent penalty and if this is part of a standard written policy the public and elected officials can examine.
“I am puzzled by the timing and pricing of this because if you’re going to sell the liens and if your goal is to maximize the rate of return, why not wait an additional week and add the 10 percent penalty?” Alexander asked. “This shows one of the reasons why permitting the sale of tax liens is fraught with dangers for the operating of local governments.”
The 10 percent penalty is a nice sweetener for Vesta, but it’s not the only benefit the tax commissioner’s office has provided.
Last fall Ferdinand sold liens to Vesta days before his office told another potential lien buyer that no liens were being sold.
In early November, a lien buyer sent an email to the tax commissioner’s office asking to buy tax liens.
Initially, Shola Olorunsola, the financial systems supervisor of the delinquent tax division, replied back that it would not be a problem. Minutes later, however, Olorunsola sent another email to the lien buyer, saying: “Please disregard my previous email, we are not transferring liens now until further notice.”
When the tax commissioner suspends the lien sales program, it applies to all buyers, Ferdinand said in his letter.
But the timing of the suspensions is troubling to some lien buyers.
Just days before the Olorunsola email, the lien transfer data show that the tax commissioner’s office transferred 6,400 tax liens worth $3.7 million to Vesta Holdings. The bulk purchase included 4,800 liens for 2012 Atlanta trash bills worth $2.5 million.
Other lien investors said they never even knew the tax commissioner was planning to sell the liens on the 2012 trash bills. If they knew, they said they would have liked an opportunity to buy the sanitation liens, too. These lien buyers did not want to be identified for fear that Ferdinand would stop selling them liens.
For lien purchasers like Tariq Hafeez, the treatment Vesta receives is just how things work at the tax commissioner’s office.
“When a common person like myself or my partner would come to them they would say, ‘We are not selling liens, come back in March or April.’ However, I noticed several times they would transfer the [liens] days before the 10 percent penalty kicks in for Vesta,” Hafeez said. “I don’t know how or why, but they get away with murder.”
Penalties, fees boost tax bills
Property owners face substantial penalties and interest charges when their property taxes are delinquent. If a tax lien is sold, those penalties and interest accrue to the benefit of whoever buys the tax lien. Here’s what Georgia law allows:
Interest rate on any late taxes of 1 percent per month, or 12 percent a year
A 10 percent penalty on taxes that are 90 days delinquent
If a tax lien is executed, an additional administrative fee equal to 5 percent of the tax, with a $50 minimum and $250 maximum. The property owner can also be charged for recording, advertising and title research costs.
If a tax deed is sold at auction, a flat penalty of 20 percent is immediately applied.
If the property owner doesn’t pay all delinquent taxes, interest, penalties and fees after 12 months from the date of sale of the tax deed, the buyer may begin the process to foreclose. That process may result in additional fees for sheriff’s service and advertising, as well as charges for attorney fees.
If the tax deed buyer chooses not to foreclose on the tax deed, for each year or fraction of a year after that, another 10 percent penalty is applied to the tax bill.
This story has been two years in the making.
It started with a question to Fulton County Tax Commissioner Arthur Ferdinand in November 2010: How many tax liens have you sold?
At first, officials in the tax commissioner’s office said they didn’t know. Then employees said they knew, but wouldn’t say. Further, they said the number of liens and the value of the liens wasn’t written down anywhere and therefore was not subject to the Open Records law.
So the AJC filed an Open Records Request for the county’s entire tax data system. Ferdinand said the AJC could have the records – for $16.2 million.
The database couldn’t be turned over, county attorneys claimed, unless it was first printed out and then scoured of the names and addresses of public employees like judges and teachers. The data didn’t identify the occupation of property owners, but the Open Records law allowed government agencies to withhold home addresses of public employees, and some agencies used this as a loophole to avoid releasing embarrassing documents.
But the Open Records Act was amended in 2011 to stipulate that the exception did not apply to public records that do not specifically identify public employees or their jobs, titles or offices.
The AJC filed another Open Records request for the database under the amended Open Records Act.
This time Ferdinand said he would not turn over the data because it would disclose the trade secrets of Tyler Technology, the company that sold Fulton the software to maintain the tax data.
The AJC filed an Open Records Act violation complaint with Attorney General Sam Olens. County attorneys claimed Ferdinand was not fighting to hide the data, but that’s not how Olens saw it.
Ferdinand “absolutely” fought to hide the data and only agreed to release it after the AJC and the Attorney General’s Office threatened a joint lawsuit, he said.
“It’s very unfortunate that it took so much time to do what was right and it’s very unfortunate that it took a letter saying that suit would come within 10 days,” Olens said. “That’s not the way the Open Records Act is supposed to work.”
Even after the county agreed to turn over the data last September, there were problems.
The tax commissioner released an incomplete copy of the data in a jumbled mess. Instead of a standard format with each individual table in its own file, the data was turned over as one huge text file with each of the thousands of tables, regardless of its structure, dumped one on top of the other. There was no indication of where one table ended and the next began.
After the AJC and the Attorney General’s Office reiterated the threat to sue, the county agreed to turn over the data in a standard format.
There still were problems.
The county never turned over a complete data dictionary that included all of the definitions for the codes used in the data. The tax commissioner’s office refused to discuss the data.
For example, an analysis of one table showed the tax commissioner sold 192,000 liens worth more than $380 million from 2002 through 2011. Ferdinand said in a written reply to AJC questions that his office did not know how many liens were sold or the total value, but if the AJC’s figures came only from one table, they were incorrect.
He did not say why or what other tables need to be consulted to develop a more accurate number.
To look for any adjustments to the data, the AJC sorted through other tables to seek information on tax bills that were sold and retroactively lowered by the tax assessor’s office. After a bill is adjusted, the county gives a refund to the taxpayer and is supposed to seek reimbursement from the lien buyer.
If that was the case, it could result in as much as a 10 percent decrease in the value of the liens sold, though the number is probably much lower.
The tax commissioner’s office could also have required lien purchasers to return some of the liens they bought and given the buyers full reimbursement.
But the tax commissioner would not say how or if they track lien purchase refunds.
In addition, there were problems with the data. For example, more than 8,000 records indicated that liens were sold for $0.
All liens are transferred for the total amount owed, never $0, Ferdinand told the AJC in an email. Ferdinand did not explain why the sale amount was incorrect in the database.