Marcus is a disabled, 66 year-old Vietnam war veteran. He lives in a house in the East New York neighborhood of Brooklyn that has been in his family since the 1960’s. An only child, he inherited the home when his parents passed, his only piece of generational wealth. But after falling behind on property taxes, the city placed an $11,000 lien on his home. That lien will be sold to a third party, making the debt nearly impossible to pay off.
Adding to the stress, Marcus began receiving visitors.
“Quite a few people have come to my house and asked to buy it,” he says. “They call on the phone, send letters every month, knock on my door asking me to sell. They call asking to speak to my father who is deceased. They say they got my info off of the tax lien sale list.”
Tomorrow, New York City will resume its annual tax lien sale, where outstanding debt is sold to private creditors, after pausing it in 2020 due to the pandemic. But a coalition of nonprofits, community land trusts, and elected officials are asking the city to cancel the lien sale altogether and consider less predatory approaches to debt.
“We would like the sale to be completely abolished, it’s a terrible approach for public policy,” says Oksana Mironova, a housing policy analyst with Community Service Society of New York, a member of the Abolish The Tax Lien Sale Coalition. The coalition wants the city to consider other ways to collect debt, including selling properties to nonprofits to operate as community land trusts. Some elected officials, including Comptroller Brad Lander, support the idea.
While the collective is asking the city to imagine new ways of handling tax debt, in the short-term they are asking the city to cancel this year’s tax lien sale and ask them not to renew legislation that authorizes it, which sunsets in February 2022. (The lien sale legislation is typically renewed for four years, but the city council chose to renew only for a year in 2020 while a task force developed recommendations to improve the tax lien sale.)
About 10,000 properties — a mix of residential, commercial and industrial uses — with unpaid property taxes have had liens placed on them, which allows the debt to be sold to and serviced by a third party. The city will sell the liens to a trust made up of private investors for about 70 cents on the dollar; the trust employs creditors to recoup the debt, along with fees and interest that will cause the debt to quickly climb. Private investors can also foreclose on the building to recoup the unpaid debt — which becomes more likely as the debt balloons — and sell the property to speculators.
Years of data shows the tax lien sale has had a disparate impact on Black and Latino neighborhoods, resulting in both a loss of wealth to property owners and displacement of owner occupants and renters. An analysis of tax lien sales between 2008-2016 conducted by the Coalition for Affordable Homes found the liens were six times more likely to be sold in a majority Black neighborhood than in a majority white neighborhood. The analysis also found that the median debt increased 65 percent in a year. An analysis by NY Focus found property owners sell to avoid foreclosure and tenants are often evicted in the resulting turnover.
While the Department of Finance says they issue four notices prior to the sale and makes the list public, advocates say many people are still unaware they are on the lien sale list. (According to their website the Department of Finance held three in-person outreach events in November and 15 virtual events since October, to inform people on the tax lien sale list about their options to pay off the debt.)
All this has led some advocates to push the city to end the tax lien sale and envision a different way to recoup unpaid taxes.
“In a normal year the tax lien sale is incredibly devastating to communities of color, seniors and disabled people,” says Ivy Perez, with the Center for NYC Neighborhoods, one of the organizations calling for an end to the lien sale. “It’s worse to have a lien sale a week before Christmas and without the outreach that property owners need in order to get off of the lien sale.” (The Department of Finance offers exemptions to seniors and disabled people in owner-occupied buildings. A request to the office for the number of exemptions requested and granted was not returned in time.)
One alternative model put forth by the Abolish The Tax Lien Sale coalition is for the city to transfer the deeds to properties over to community land trusts rather than selling the debt to outside creditors. When a property owner is delinquent on taxes, the city would either foreclose on the property or offer to purchase the deed and sell it to a non-profit housing developer. The city would either consider the debt resolved or the CLT would enter an agreement with the property owner to recoup the debt, without ballooning interest or fees.
If the owner chooses to sell to the CLT, the nonprofit would issue a ground lease to the owner, agreeing to keep the units affordable to renters and allowing the homeowner to keep any underlying equity that has already accrued in the property. This could keep the property out of speculation — another problem with tax lien sales, where speculators purchase properties for a fraction of their value in order to flip them. (An entire ecosystem of instruction videos devoted to this practice has emerged on YouTube.)
“It highlights what’s frustrating about the current lien sale system that allows predatory lenders to buy, flip properties, but doesn’t give the city the ability to intervene,” says Will Spisak, a senior program associate with New Economy Project, a member of Abolish The Tax Lien Sale coalition.
Spisak and New Economy Project also conducted research looking at the amount of vacant properties that will be put up in the tax lien sale, and estimated how much affordable housing could be built on those lots. While many of the properties in the lien sale are commercial and industrial, Spisak found there were nearly 3 million square feet encompassing 392 vacant residentially zoned lots, which could hold more than 3600 units of new affordable housing.
Spisak says this is another reason the lien sale is harmful: instead of using its leverage over the properties to keep the units affordable, the city instead primes them for speculation.
City officials have in the past argued that the tax lien sale is the only thing motivating New Yorkers to pay their property taxes. While the 2019 tax lien sale brought the city $74 million for about $120 million of outstanding debt, it’s a fraction of the $30 billion in revenue the city brings in from property taxes.
“The city says if you don’t reauthorize [the tax lien sale] there’s going to be chaos,” says Spisak. “Most homeowners don’t know the lien sale exists.” Los Angeles,he says, has a higher tax collection rate than New York City and does not operate a lien sale.
“The vast majority of people pay their taxes,” says Perez. “The times when delinquency goes up are times of financial disruption.”
A growing chorus of elected officials have also been asking the city to either delay the tax lien sale or end it altogether. They include Attorney General Letitia James, who asked in a letter to Mayor Bill de Blasio that the city “look ahead and come up with something more than a short-term fix for the tax lien sale.” The city’s Department of Finance did not respond to a request to comment on the sale and the opposition from elected officials and advocates.
Advocates are cautiously optimistic that the incoming mayor Eric Adams could find a different approach to the tax lien sale, one of his campaign promises. “Our focus should be on reinvesting in historically marginalized communities, and there are a number of promising models we will consider to replace the lien sale and do just that,” Adams said on his campaign website.
The city is invested in the tax lien sale because property taxes are the city’s main income source, accounting for 44 percent of the city’s revenue. Even if the properties were sold to a CLT and the original debt forgiven, there’s a possibility that a property owner could again become delinquent. While there may not be an easy way to get people to pay outstanding property taxes, Perez believes there are more humanistic ones. “They should not be selling liens to a private trust and allowing Wall Street to collect on those debts,” she says.
Editor’s note: We’ve corrected the spelling of Oksana Mironova’s name.
This article is part of Backyard, a newsletter exploring scalable solutions to make housing fairer, more affordable and more environmentally sustainable. Subscribe to our weekly Backyard newsletter.
Roshan Abraham is Next City's housing correspondent and a former Equitable Cities fellow. He is based in Queens. Follow him on Twitter at @roshantone.