Yale University Study Examines the Racially Disparate Impact of Tax Deed Foreclosures

A new working paper by Cameron LaPoint, an assistant professor of finance at Yale School of Management, examines the racially disparate impact of tax deed foreclosures, a practice that allows local governments to sell tax-delinquent properties at auction.

In 2013, the Washington Post ran a series of articles about D.C. residents—many of them elderly, low-income, and Black — who had lost their homes over tax debts as low as $134. Dr. LaPoint’s research looks at how widespread tax deed foreclosures are and what effect they have on communities. He found that property tax foreclosure accelerates gentrification and contributes to the racial wealth gap by forcing out nonwhite homeowners and clearing the way for high-end property development.

“In terms of who gets severely delinquent and who eventually gets foreclosed on, they are disproportionately nonwhite homeowners,” Dr. LaPoint says. Their homes, he discovered, often end up in the hands of developers: “You might see, several years down the line, that the single-family home that was foreclosed on ends up being converted to a more luxury residential unit.”

One of the most striking findings in the studyt is that 70 percent of homeowners whose properties ended up in a tax lien auction had already paid off their mortgages and owned their homes outright. “That makes it even more sad,” Dr. LaPoint says, “because there’s more equity being stolen.”

Dr. LaPoint is currently working to expand his research to produce the first nationwide database of such tax foreclosures.

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