City Council to Bring Back “Gentler” Tax Lien Sale

The city is zeroing in on a plan to reinstate tax lien sales but with more protections so property owners don’t end up in foreclosure.

City Council member Justin Brannan plans to introduce a bill “soon” to bring back the annual sale, Bloomberg Tax reported. The Adams administration has been pushing for the return of the controversial program, which was not a major revenue generator for the city but helped ensure owners paid property taxes and water bills.

The terms of a revived tax lien sale are still being debated. Brannan described the goal as a “kinder, gentler, softer lien sale process.” Department of Finance commissioner Preston Niblack recently said the proposal marked “the most significant reforms to the tax lien sale since its inception,” adding that it will “help ensure that no homeowner need ever face the prospect of eviction.”

It’s unclear if foreclosure would no longer be possible for buyers of tax liens. Marking it harder or impossible to foreclose would reduce investors’ interest in buying the liens.

The proposal aims to intensify outreach to homeowners, give them more time to escape the process and partner with community land trusts to preserve affordable housing for properties that can’t avoid the tax lien sale. Council members let the program lapse after it was criticized for disproportionately hurting communities of color and low-income homeowners.

The Department of Finance did not immediately respond to a request for comment from The Real Deal.

The tax lien sale dates back to the Giuliani administration, which sought an alternative to the city’s foreclosing on homeowners. Owners who didn’t pay property taxes, water fees and sewer fees typically had 90 days to either resolve the debt or work out a payment plan with the city. Otherwise, the lien placed on a property was sold to a trust that would bundle it with others for sale to investors.

Investors would then try to collect the debt and foreclose on properties if they couldn’t. But critics said some owners lost their properties over debts that were much smaller than the properties were worth.

The tax lien sale was last held in February 2022. The city has since lost leverage to get delinquent owners to pay property taxes, perhaps contributing to a surge in delinquencies. In fiscal 2023, first-year delinquencies increased to $735 million from $587 million the previous year, according to the Department of Finance.

The increase can’t solely be attributed to the expiration of the tax lien sale, as delinquencies also tend to rise during periods of interest-rate increases and economic downturns, such as the onset of the pandemic.

— Holden Walter-Warner