The City: Council Considers Killing the Tax-Collection Machine Rudy Giuliani Built

By PETER SENZAMICI AND ALLISON DIKANOVIC | This story was originally published on October 22, 2020 by.

Council member Antonio Reynoso, left, and Al Scott, a homeowner and organizer with East New York Community Land Trust Initiative, speak outside City Hall during a rally demanding an end to the city’s tax lien sales, October 13, 2020.
Council member Antonio Reynoso, left, and Al Scott, a homeowner and organizer with East New York Community Land Trust Initiative, speak outside City Hall during a rally demanding an end to the city’s tax lien sales, October 13, 2020.
 Allison Dikanovic/THE CITY

New York’s pandemic pause on a program that sells unpaid city property debts to investors has community advocates calling to scrap the Giuliani-era approach altogether.

The annual tax lien sales by the Department of Finance, transferring outstanding property, water and other municipal taxes to a private trust, are harming strapped property owners and tenants while yielding only modest returns to city coffers, critics say.

Mayor Bill de Blasio and Gov. Andrew Cuomo have delayed a scheduled sale of this year’s pool of unpaid debts four times — providing taxpayers relief in an economic crisis.

“Why do they keep extending it for 30 days, 30 days, 30 days?” said Debra Ack, a longtime East New York resident and member of the East New York Community Land Trust Initiative, a group pressing to replace the sales with efforts to preserve affordable housing.

“Does that not say something to you? That maybe we need to get rid of it?”

The law authorizing the lien sale expires in December and would need to be renewed by City Council to continue. Some Council members are already saying they intend to kill the sales program.

Once liens are sold, the trust, managed by the Bank of New York Mellon, has the power to foreclose on property if debts remain unpaid.

Debra Ack, a longtime East New York resident and member of the East New York Community Land Trust Initiative, stands outside of her home, Oct. 22, 2020.
Debra Ack, a longtime East New York resident and member of the East New York Community Land Trust Initiative, stands outside of her home, Oct. 22, 2020.
 Peter Senzamici/THE CITY

Tax officials say conducting the typical outreach to property owners to urge payment of debts before their liens get sold to the trust has not been possible during the pandemic. Many owners can’t pay this year, after losing work or rental income.

But like many property owners, the city is also strapped for much-needed cash. Last year’s lien sale of nearly $89 million in unpaid taxes and utility bills brought in a large portion of that total as cash for the city, while also nudging many on the list to pay their past-due bills before the sale.

Removing a reliable revenue stream while staring down a bleak budget outlook could be a tough sell.

Speculators’ Frenzy

The East New York Community Land Trust Initiative, one of the groups advocating to abolish the tax lien sale, says the practice of hawking property debt to a private investment pool is a product of a bygone era.

“It’s a Wall Street entity making money off the backs of communities of color during a pandemic,” said Al Scott, a homeowner and organizer in East New York. “They are commodifying our communities.”

The organizers say that selling tax liens and shifting debt collection to private investors, who can charge interest up to 18%, encourages the displacement of lower income homeowners through foreclosure and predatory real estate speculation.

Homeowners whose addresses appear on the list for a pending tax lien sale can expect to get a knock on the door from professional buyers offering cash for their houses to make their tax troubles vanish.

“The impact that I see on the ground is just so much more real,” Scott said of East New York, where residents have already taken steps to stave off speculators by pushing to make the neighborhood a cease-and-desist zone. “In communities like ours, we’re equity rich, but cash poor.”

The highest number of one- to three-family homes on the 2020 tax lien sale list are in East New York and Canarsie in Brooklyn, and Jamaica, Queens — all of them majority-Black neighborhoods.

Ack has taken it upon herself to do more outreach in her neighborhood to make sure homeowners know about the lien sale and options to get off of it through exemptions or by setting up payment plans with the city Department of Finance.

“People are just afraid,” she said of neighbors who are behind on bills. “I tell them, ‘We don’t want you to rush to sell your home to people who are calling or knocking. They’ll pay to buy your home, but how long is that money going to last you? Where are you going to go?’”

Council Can Act

City liens also hit apartment buildings when landlords fall behind on their property or utility bills — often as tenants’ living conditions deteriorate for lack of investment.

The coalition says that simply selling off tax liens is a missed opportunity for the city to score major progress toward de Blasio’s goals to create or preserve 300,000 affordable apartments.

“If there was no lien sale, then there is the potential for the city to do what it did historically before Giuliani changed the policy, and just collect its own taxes,” said Julia Duranti-Martínez, an organizer with the New Economy Project. “It could use that leverage that it has, especially over multifamily buildings that are really distressed, to help preserve affordable housing.”

State Attorney General Letitia James supports the movement to abolish lien sales. So does mayoral hopeful and Brooklyn Borough President Eric Adams.

“As a city, we should be doing everything we can to help our constituents stay in their homes, keep their homes, and not take them away,” said Councilmember Antonio Reynoso (D-Brooklyn), who has already vowed to not reauthorize the sale alongside Councilmember Adrienne Adams (D-Brooklyn).

Attorney General Letitia James speaks with a coalition of housing advocates outside City Hall to demand an end to the city’s tax lien sale.
Attorney General Letitia James speaks with a coalition of housing advocates outside City Hall to demand an end to the city’s tax lien sale.
 Allison Dikanovic/THE CITY

While property taxes make up almost $28 billion out of a $90 billion budget this year, according to the Independent Budget Office, the mayor projects this year’s tax lien sale will eventually bring in $57 million in revenue.

“The lien sale doesn’t bring the city that much money, but it robs our communities of so much more,” said Ivy Perez, a senior policy analyst at the Center for New York City Neighborhoods, a group founded with City Hall’s help to assist homeowners.

“It robs them of what they have worked hard to keep and to have. These are essential workers. These are the communities and families who have been hit hardest by COVID-19.”

Added Perez: “The tax lien sale needs to be reimagined. This doesn’t mean forgoing tax collection…. There’s a different way.”

From Liens to Land Trusts

As of Aug. 17, over 9,000 properties across the city were eligible for the sale. According to a 2016 Furman Center report, more than half of the properties on the lien sale list between 2010 and 2015 were one- to three-family homes.

City payment programs can help owners settle overdue property debt and avoid foreclosure. Seniors, veterans, and other vulnerable populations may obtain exemptions. A third program, PT AID, allows for the deferral of property tax payments for an “unexpected event or hardship,” but the qualifications are narrow.

Paula Segal, an attorney with TakeRoot Justice, a grassroots legal support group, said the city could help owners in several ways if the lien sale is abolished. Among them: expanding negotiated payment programs or renewing tax assessments to see “whether the bills were assessed fairly.”

If the owner still could not pay back the lien, Segal said, they could “decide that they want to transfer the value of their land to the community land trust as a way of resolving the debt.”

“They would give up some of their equity,” she said, “but they would not be foreclosed upon.”

community land trust is a property ownership structure that aims to promote long-term affordability by separating the value of the land from the value of the building. A community-based nonprofit owns the land, while the home, building or units are owned by the occupant.

Similar to limited-equity cooperative housing, community land trusts can limit the amount owners can sell their homes for or how often they can sell. In exchange, the homes are priced far below market value and may also have income requirements for residents.

A board of residents, neighbors and other stakeholders like nonprofits, elected officials or local leaders create the specific terms and agreements for each trust, and the group provides support to owners to help prevent foreclosures.

“A community land trust is a tool to assist in fighting for our community,” Scott said. “It’s giving our community hope to say we don’t need to sit idly by, there is a mechanism to retain local ownership.”

Creating Affordable Housing

The concept had its New York City heyday over 30 years ago, with a handful of community land trusts established back when the city would handle its own tax foreclosures, noted Segal.

One of these is the Cooper Square Committee, which obtained multiple tax-foreclosed properties near the Bowery in 1991.

“Cooper Square got its property through the city, and the city got those buildings through taking over distressed properties like it used to,” Duranti-Martinez explained.

Getting rid of the lien sale would open the door to this possibility again, the advocates said — and in recent years, city government has taken steps to nudge the land trust concept forward.

Last year, the City Council funded neighborhood groups to start planning for new community land trusts. More than a dozen groups across the city are now working to gain local buy-in and find locations. The Council renewed the funds this year, but at a reduced level due to coronavirus budget cuts.

Duranti-Martinez told THE CITY that acquiring property is the next hurdle for land trust groups around the city.

“If we’re talking about the value of the lien sale,” Segal said, “as how much it would cost to create a pipeline of properties that would be directed towards permanently affordable housing in New York City neighborhoods, it is extremely cheap compared to other housing plans.”

The city already has a program, called Third Party Transfer, that hands off apartment buildings with unpaid taxes to affordable housing developers. But the program has been saddled with recent accusations that it took buildings from owners the city’s housing agency should have helped.

‘No Silver Bullet’

Before the 1996 advent of tax lien sales, the City of New York had become the owner of hundreds of thousands of properties foreclosed on for unpaid taxes, responsible for their management and upkeep.

The lien sale not only collected cash for city coffers but relieved the government of responsibility for often dilapidated properties, many of them abandoned.

With New York City strapped for cash during a public health and fiscal crisis, housing experts say moving to end the sale comes with costs.

“You can’t give up the lien sale and not have some other way of helping to ensure that you collect your property taxes,” said Mark Willis, senior policy fellow at the Furman Center. “There has to be some penalty or some consequences for not paying your taxes.”

Segal says that getting rid of the lien sale would simply exclude third parties from profiting off of the debt, but consequences for not paying taxes would remain — including charging interest.

Willis warned people should be cognizant of the trade-offs, since buyers will never be able to see the value of their real estate appreciate much in a community trust set-up.

“There’s no silver bullet for balancing wealth building and maintaining affordability,” he said.


This story was originally published by THE CITY, an independent, nonprofit news organization dedicated to hard-hitting reporting that serves the people of New York. It is republished under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 US License.