Sabrina Harlan stared at the letter from the city of Woonsocket, her thoughts racing.

After a few challenging financial years and a lengthy hospital stay, she and her husband Jonathan owed over $15,000 in back property taxes. Now, in early 2018, the city said Harlan and her family would have to pay back its debts all at once or the city would auction off the debt at its annual tax sale and they could lose their house.

“It was one of those moments of ‘Holy crap,’” Sabrina said. “We were living off one income making less than probably, in a year, $50,000.”

Sabrina, 47, and Jonathan, 51, had no way of coming up with the money fast enough, so their house went to tax sale. Months later, in May 2019, a company called Airway Leasing, LLC filed a petition to foreclose on the house. And it had tacked on fees and interest. By September 2019, the family would have to pay almost $24,000 to stop the foreclosure.

“We're not ready, they're gonna take my house. That’s what went through my head,” Sabrina said. “One more institution that we just are too poor to fight.”

The Harlans live in Woonsocket. Had they lived in any other Rhode Island city, they may have been protected from the ballooning bills.

Since 2016, dozens of Woonsocket homeowners have faced foreclosure after getting behind on their taxes and utility bills, despite a state law designed to protect them, an investigation by The Public’s Radio found. The year before, the city of Woonsocket had charged Rhode Island Housing, the state housing finance agency, tens of thousands in unexpected tax bills. That led the quasi-state agency to quietly stop allowing Woonsocket homeowners access to protections that prevent private investors from profiting off homeowners who get behind. The Harlans, and others, paid the price.

‘People were losing their property for basically nothing.’

Rather than deal with settling debts directly with homeowners, local governments and utility companies in Rhode Island routinely collect on overdue bills by attaching a lien to property and holding a tax sale. At an auction, investors can buy the lien in exchange for paying the overdue bills. The lien means an investor has a right to the property unless the homeowner pays them back. If homeowners can’t pay off the initial bills plus interest and fees within a year, investors can foreclose on the home.

But in Rhode Island, a 2006 law called the Madeline Walker Act allows Rhode Island Housing to purchase homeowners’ tax debt before investors can scoop it up, giving homeowners more time and leeway to pay off what they owe. Many of the Woonsocket homeowners would have been likely candidates for help under the law. Instead, unable to access those benefits, at least 35 faced foreclosure.

“I didn't know that existed and I looked high and low,” Sabrina Harlan said. “That would have been super helpful if we’d known.”

The Madeline Walker Act takes its name from an 81-year-old woman who lost her house in 2005 over a few hundred dollars in overdue water bills. Madeline Walker didn’t understand the tax sale process and never paid back the investor, Cobble Hill Developments, so she lost the house to foreclosure. The company got the house free and clear for the $836 it spent buying the lien. Cobble Hill sold the house for $85,000.

“It shined a light on the fact that people were actually losing their property for basically nothing compared to the equity that they had,” said former state senator Juan Pichardo, who now sits on the Providence city council.

While in the state Senate, Pichardo co-sponsored the Madeline Walker Act, which allows Rhode Island Housing to step in and pay off the taxes or bills owed before investors enter the picture. The agency then hangs on to the property for five years, giving the homeowner far longer to pay back what they owe than if an investor had purchased the lien. Rhode Island Housing can put together a payment plan and connect homeowners with other resources, which can mean the difference between a family keeping or losing a home.

The state legislature never appropriated funds for Rhode Island Housing to operate the Madeline Walker program when it passed the law. So far, the agency has borrowed $28 million from a private lender to run the program. It makes some of that money back when homeowners pay off their debts and interest, but the program has yet to break even.

Since the program launched in 2007, Rhode Island Housing has bought more than 4,500 liens across the state, helping thousands of people save their homes, according to records obtained by the Public’s Radio.

“It's pretty much important anywhere,” said Leslie McKnight, assistant deputy director of loan servicing at Rhode Island Housing. “It doesn't make a difference where you live. You can come on hard times, you can face financial challenges in your life.”

The Woonsocket exception

For Woonsocket homeowners, where they live makes all the difference. Rhode Island Housing stopped intervening in tax sales in the city in 2016, the result of an ongoing conflict between the city and the agency. In the intervening years, dozens of homeowners facing tax sales have been blocked from accessing protections enshrined in state law.

Tax sales tend to target low-income people, and in some places, disproportionately affect people of color. Nearly 19% of the Woonsocket population lives below the poverty line, compared to 11% statewide. People earn less in the city too — local household incomes trail state averages by more than $25,000 a year.

“At the end of the day the people that are getting hurt the most are those who are most vulnerable,” said Pichardo, who co-sponsored the Madeline Walker Act. “They have lost their homes or they're in the process of losing their homes.”

Trouble between Woonsocket and Rhode Island Housing started in 2015, when the city determined three properties in Woonsocket that Rhode Island Housing held under the Madeline Walker program had become vacant after the agency purchased the lien. Like many other cities in Rhode Island, Woonsocket charges an additional tax when no one is living at or using a property to motivate owners to keep buildings and land in use. The levy is 10% of the assessed value of the property.

The additional tax added as much as $58,400 to the annual cost of holding the properties for Rhode Island Housing. McKnight and her colleagues balked at the new charges, which affected just three of the 83 properties the agency had purchased by 2015. They worried additional tax bills could add up quickly, increasing the amount homeowners would have to pay the agency to avoid foreclosure. It would also run up the cost of the program and potentially limit the number of homeowners Rhode Island Housing could help.

“Even though this is a program in which we do not make money, the goal isn't to lose money either,” Rhode Island Housing’s McKnight said.

The agency worried the additional taxes would make it much more difficult for homeowners to pay Rhode Island Housing back within five years. For someone who has several thousand dollars in back taxes, adding an additional $15,000 or $20,000 a year in vacancy tax bills could make it impossible for them to keep their houses, McKnight said. In turn, that would mean the agency would fall further into debt.

“We were concerned that that would make it unrealistic for a homeowner to redeem,” McKnight said. “And if the homeowner can't redeem, then of course we want to be able to recover what our investment is.”

Moreover, McKnight and other agency leaders felt that the city’s choice to charge vacancy taxes ignored the legal reality the agency faces when it buys tax liens. Rhode Island Housing doesn’t become the owner of the property when it buys a lien, leaving the agency with limited tools to address a vacancy.

“We want to take that property back to productive use,” McKnight said. “[But] we can't step up and do exactly what the city is looking for us to do. We don't have legal possession of the property.”

The agency can foreclose on a Madeline Walker property, and then sell it, if the home becomes vacant before five years have passed, but that’s a long process during which vacancy taxes could continue to stack up, increasing the costs of running the program. The financial risk, Rhode Island Housing says, was far too high.

“​​I don't think you can just look at the $60,000,” McKnight said. “You have to look at the much larger picture and the potential for a much larger financial risk.”

In late 2015, McKnight and her colleagues asked city officials to waive future vacancy taxes for Madeline Walker properties, according to documents obtained by the Public’s Radio. Over a few weeks of emails and phone calls, Rhode Island Housing explained it may well stop buying tax liens in Woonsocket as a result. Still, the agency says, the city refused to waive the tax.

Since then, Rhode Island Housing has not invoked the Madeleine Walker Act’s protections for homeowners in Woonsocket, leaving them to negotiate the tax sale process alone. And both the city and the agency bear responsibility for the problem, advocates say.

“It's incredibly unfair,” said Joe Garlick, executive director of Neighborworks Blackstone River Valley, a Woonsocket community development group that works on affordable housing. “It's an incredibly rare situation where the house becomes vacant and you're denying everyone else the opportunity to get these resources to pay back taxes, sewer, and water bills.”

No other city in Rhode Island has ever charged Rhode Island Housing a vacancy tax, the agency says. When Providence established such a tax in 2018, for instance, the city included an exemption for the agency. McKnight says Rhode Island Housing would like to start operating the Madeline Walker program in Woonsocket again, but first the city would have to adopt a similar policy.

Woonsocket Mayor Lisa Baldelli-Hunt says the city treats Rhode Island Housing as it would any other tax lien purchaser.

“You're asking that a community give preferential treatment to an agency over any other resident or homeowner,” Baldelli-Hunt said. “I don't feel [that] is something that should happen and am not even sure it should be even legal to give preferential treatment.”

Baldelli-Hunt said Rhode Island Housing should more thoroughly vet homeowners before buying their tax debt to avoid vacancies down the road. That could prevent vacancy taxes altogether.

“Don't pick up the property,” Baldelli-Hunt said. “It's very simple. Don't pay for it at tax sale. Do your homework ahead of time to determine if the family or the individual has the ability to keep the house.”

For both Rhode Island Housing and Woonsocket, vacancy taxes represent a small portion of their overall financial picture. The $58,470 Rhode Island Housing had to pay in 2015 pales in comparison to the $2.8 million the agency spent running the program that year. Only three of the 83 liens it had purchased in Woonsocket by 2016 became vacant. For Woonsocket, since 2015, vacancy taxes have never made up more than 2% of its annual property tax revenue. Still, both the city and the agency remain firm — even if it means excluding all city residents from a critical foreclosure-prevention program.

“One would think that Rhode Island Housing would want to protect property owners whether they're in Woonsocket or Wakefield or anywhere in between,” said Christopher Lefebvre, a Pawtucket attorney who defends homeowners in tax sale cases. “It's the abandonment of their duty, which is alarming.”

A closed-door decision

For years, Rhode Island Housing’s policy not to run the Madeline Walker program in Woonsocket remained out of public view. The agency made the decision internally and never publicly announced what they were doing.

The Madeline Walker Act did create an advisory committee to oversee the agency as it ran the new program. But by the time the agency made the decision to stop buying liens in Woonsocket, the committee had dissolved, according to documents obtained by the Public’s Radio. It had held its last meeting in October 2014, a year and a half before the Woonsocket decision.

In theory, the advisory committee could have weighed in on how to deal with the vacancy taxes in Woonsocket. Instead, a small group of senior leadership at Rhode Island Housing made the decision in a process McKnight called “thoughtful.” She said they kept it internal because of the direct financial liability the agency faced and didn’t see how “other stakeholders” could help mitigate those risks.

“I don't understand why something wasn't done to bring it to the attention of the legislature rather than simply abandon the program in secrecy,” Christopher Lefebvre, the attorney, said. “To me, that's the real rub of their explanation — that they just did it themselves.”

The Madeline Walker Act does not oblige the agency to buy tax liens, it simply gives them the authority to do so. Given the voluntary nature of the statute, the agency maintains it is within its rights to exclude Woonsocket residents from the program based on the perceived financial risk. Others disagree.

“If it's a state law that says it applies to all communities, it applies to all communities,” Lefebvre said. “I don't think you have the right to simply ignore or disregard the law for individual financial motivations.”

Woonsocket homeowners have reached out to Rhode Island Housing over the years looking for the kind of help the Madeline Walker Act provides. The Public’s Radio obtained a 2019 letter Rhode Island Housing sent to the city explaining that an attorney had reached out on behalf of a client living in Woonsocket who faced losing their home in a tax sale, hoping the agency could intervene. According to Rhode Island Housing, the city never replied. With Woonsocket still unwilling to budge on its vacancy tax policy, the agency declined to work with that homeowner.

“It just makes no sense,” said John Rao, an attorney with the National Consumer Law Center who focuses on tax sales. “This is harmful to their own residents for Woonsocket to be doing this.”

Facing foreclosure

Today, homeowners remain caught in the middle.

Sherry Beauchamp, 48, and Michel Beauchamp, 59, never realized they missed property tax bills until a letter arrived from the Woonsocket tax collector’s office in 2019. They had fallen $2,606 behind, and the city would sell a lien on the house at its upcoming tax sale unless the Beauchamps paid off their debts. Confused, Sherry called the city, but she was too late — a private investor had already bought the lien.

In April 2020, the Beauchamps got a letter in the mail: Airway Leasing, LLC, had filed to foreclose on the house, unless the Beauchamps paid them $8,437, more than three times what they originally owed the city.

“It was horrible,” Sherry said. “Seeing the price just made it that much harder to figure out what we were going to do.”

For companies like Airway Leasing that purchase liens, tax sales present an attractive investment opportunity. Right after they buy a lien, it starts accruing 16% annual interest for the first year, and 12% every year thereafter. On top of that, investors tack on other expenses, ranging from attorney’s fees to court and other document-filing costs. The homeowner has a year and day to pay it all off, or face foreclosure. Once the foreclosure is approved by the court, the investors own the house, at which point they can evict the prior owners and sell the house. The risk to investors is minimal: they either get a house for a fraction of its value, or make a significant return on their investment.

“Either way they're going to come out ahead,” said Rao, the National Consumer Law Center attorney. “It's quite profitable for them.”

The Beauchamps house has been in the family for 30 years. In 2016, Sherry and Michel took out a new mortgage on the house for $113,700. Today, the house is assessed at $216,300. The Beauchamps faced losing it all over $2,606 in missed property taxes.

“I cried, I was so upset,” Sherry said. “I thought we were going to lose the house and not have anywhere to live.”

Luckily, the Beauchamps’ mortgage company agreed to pay Airway Leasing the more than $8,000 to save the house. That prevented foreclosure, but the Beauchamps still have to pay off the debt, which continues to accrue interest like the rest of their mortgage. They say their monthly payments went up by about $200, a significant amount for the family.

The Madeline Walker program, Sherry said, would have been “tremendously helpful.” She’d never heard of the program before speaking to The Public’s Radio for this story.

“I don't understand why something like that wouldn't help Woonsocket people when it helps everybody else in Rhode Island,” she said.

Sabrina and Jonathan Harlan had the same question.

“It really would help if there was just something accessible to citizens to say ‘Hey, this is something that you can do. This is what provisions we have available to you if you find yourself in this situation,’” Sabrina said.

Like the Beauchamps, they didn’t know about the Madeline Walker Act before speaking with The Public’s Radio.

Instead, unable to pay back the company that purchased their tax debt, and unable to access the protections in the Madeline Walker Act, the Harlans declared bankruptcy. Their attorney said it was their best option to stop imminent foreclosure and avoid losing the equity they’d built up in their home.

Even after the Harlan family declared bankruptcy, the amount they owe Airway Leasing continues to grow — the lien keeps accruing interest until they’ve paid it all off. What began as a $15,284 debt to the city had ballooned into a $29,564 debt to the company as of last year. The Harlans are also paying off nearly $18,000 in other liens on their house as part of the bankruptcy case. Every month, they write a check for $1,243 to come closer to settling their debts.

It’s money the couple would rather spend on much-needed repairs to their bathroom, or on building up their savings. Date nights, Sabrina says, are out of the question. As often as twice a week, she donates plasma to bring in extra money. And every month, she visits the food pantry to stock up on canned goods and frozen meat to fill the chest freezer in her basement.

“We are still kind of living that week-to-week,” Sabrina said. “For us, it’s literally down to the dime.”