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Research Notes From Communication With Robert Lawless, Law Professor at the University ofIllinois and Expert on Consumer Credit Issues.

December 12, 2010

A. Barely more than a year after a taxpayer bailout of major financial institutions, Bank of

America and the hedge fund, Fortress Investment Group, spotted a fresh money-making opportunity -

collecting the tax debts of tens of thousands of people. The bank and hedge fund can add interest charges

and fees, and they bundled the debts as securities for investors.

B. In late May and early June, proxies for the two institutions quietly bought hundreds of

millions of dollars in homeowners' property tax debts by bidding at a series of online auctions held by

county tax collectors. They didn't use their names but donned multiple other identities, dominating the

auctions and repeatedly bid on the same parcels, some more than 8,000 times.

C. Then, in September, Bank of America's securities division packaged $301 million worth of

the tax liens it and Fortress had acquired into bonds pitched privately to major investors. The anticipated

return - estimated at between 7 to 10 percent - is possible because buyers of tax debts can assess a

panoply of interest charges and other fees. When the debt goes unpaid long enough, the liens buyer can

seize properties through foreclosure.

D. Because the bonds were sold privately, there's no public record indicating who purchased

them, the prices paid, or the anticipated return. Moody Investment Services spokesman Tom Lemmon

said the type of offering, known as a tax lien securitization trust, is fairly uncommon. Bank of America,

he added, may make additional offerings in future years.

E. Fortress is headed by former Fannie Mae chief Daniel Mudd.

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F. The securities deal illustrates how financial institutions, including some beneficiaries of

federal bailout dollars, are actively creating new ways to profit from the financial distress of homeowners.

Yet no one is looking out for property owners who suddenly find themselves in debt to the new Wall

Street taxman. The growing $5 billion tax lien market goes largely unwatched and unregulated because

rules haven't kept pace with the industry's flourishing growth in economic hard times.

G. While federal officials have recently tightened regulations to protect consumers from a variety

of debt collection tactics, private tax collectors aren't on their radar.

H. There's an opportunity for sophisticated investors to come in and make a lot of money

until the law is able to catch up. That's the reality of what's been happening.