In a letter to the Justice Department, the lawmakers said vulnerable homeowners — the elderly, veterans and people with disabilities — should not lose their houses to companies that turn small tax debts into massive liabilities.

The senators said they were spurred by a Washington Post investigation that found that investors had bought thousands of tax liens throughout the District, then charged homeowners legal fees and other costs that far exceeded their original tax bills.

When homeowners were unable to pay, the investors took the properties through foreclosure — about 500 since 2005 — stripping families of their equity. One 95-year-old woman, Daisy Dolsey, lost a $300,000 house that had been in her family for half a century over a $44.79 tax debt.

Homeowners have been “put out on the street for a tax debt which initially amounted to less than a week’s worth of groceries or a month of cable television,” the senators wrote, citing Dolsey’s case. “While we understand that some state and local governments are struggling in the current economic climate, it is never acceptable to make up such a shortfall on the backs of some of our most vulnerable citizens.”

Homes for the taking

View Photos

For decades, the District has placed liens on properties when homeowners failed to pay their tax bills, then sold those liens to investors who could take the homes through foreclosure if the owners didn’t repay the debt with interest.

The push by lawmakers, led by Sen. Ron Wyden (D-Ore.), marks one of the first concerted efforts by federal leaders to intervene in an industry that has been run for decades by local governments, often with little scrutiny.

“The rip-off artists very often know that something that works in one area, they can very often duplicate it somewhere else,” said Wyden, who worked for years as an advocate for the elderly in Oregon before coming to Congress. “Washington, D.C., is not the only place where seniors get fleeced this way.”

A Post analysis found that about half of U.S. counties sell tax liens or other instruments to private investors to recover back taxes, while others have programs to recoup the money themselves.

Lawmakers, including Sen. Mark R. Warner (D-Va.) and Sen. Timothy M. Kaine (D-Va.), are asking the Justice Department and the recently created Consumer Financial Protection Bureau to examine one of the most common abuses: the fees imposed by investors.

The 12 senators also want to know whether local programs ban the taking of homes from the elderly and disabled and offer payment plans to cash-strapped homeowners. The District doesn’t have those kinds of safeguards in place, although this week its leaders passed emergency legislation to add protections to the city’s century-old program.

Lawmakers also want federal officials to analyze foreclosure rates, paying particular attention to homes lost by veterans, low-income families and people with chronic illnesses or disabilities. The senators asked the federal agencies to make recommendations to Congress about whether federal oversight is needed.

“It appears that some third-party investors are cynically leveraging these regulatory gaps to maximize profits,” the lawmakers wrote.

The industry’s trade group said Thursday it “welcomed the opportunity” to work with the federal agencies but was leery of direct federal intervention.

“Every jurisdiction is so different,” said Brad Westover, executive director of the National Tax Lien Association, who met this week with the District’s tax office and D.C. Council member Jack Evans (D-Ward 2) to discuss the city’s program.

Carolyn L. Carter, deputy director for advocacy at the National Consumer Law Center, said a federal probe is crucial.

“There is a great need to reform tax-lien laws so that they promote the interests of citizens and the government, rather than being a profit-making machine for investors,” Carter said.

In their letter, lawmakers also asked the federal government to investigate third-party vendors hired by mortgage holders during the foreclosure process, citing a story in the New York Times saying that banks and their vendors were using aggressive tactics when homeowners fell behind on mortgage payments.

The letter from the senators, which seeks a response from the federal government by Oct. 31, was signed by Wyden, Warner, Kaine, Elizabeth Warren (Mass.), Jeff Merkley (Ore.), Edward Markey (Mass.), Bernard Sanders (Vt.), Robert Menendez (N.J.), Chris Murphy (Conn.), Bill Nelson (Fla.), Mark Begich (Alaska) and Richard Blumenthal (Conn.). All are Democrats except Sanders, who is an independent.