Group suggests NYC sell tax liens

Real Estate Weekly, Dec 11, 1991 by Lois Weiss

Group suggests NYC sell tax liens

With New York City property tax delinquencies mounting to hundred of millions of dollars, a group of real estate professionals is lobbying the city to institute a tax sale auction system for all property types, other than single family homes.

The group, known as "Collect," says the city would get its money in a timely fashion, and at the same time, lien certificate holders could help owners keep up the properties. Critics say the city is now the bank of last resort for many owners, is making a lot of money on the accruing interest, and should not have to give up this lucrative practice to speculators who would not be interested in the properties that need the help most.

Stephen F. Anfang, founder of Collect, said the city will be owed between $500 million and $712 million in tax receivables by the end of fiscal year 1992. The city's economy could be stabilized, he said, if these otherwise uncollected tax dollars were collected and revenues would not have to be found elsewhere.

"Maybe we could reduce the taxes, which makes it more appealing for people to rent," Anfang said.

Property tax escalations now count as a major expense for commercial tenants and experts say a reduced property tax would be encouraging to businesses. "It's one way of dovetailing into a tax freeze," Anfang noted.

Collect's board is made up of Jeffrey Gural, president of Newmark & Co.; Steven D. Bloom, a partner with Robinson, Silverman Pearce Aronsohn & Berman; Jack Weprin, a partner in Goldberg Weprin & Ustin; Howard Zipser, a partner in Rosenman & Colin, and other real estate attorneys and professionals.

Anfang feels that the purchasers of these liens would give the owners more flexibility in dealing with abandonment. "Who knows how many buildings could be saved?" he said.

The city has taken title to 1,009 properties this year from four boroughs.

Queens has not vested this year, but last year, the city took 299 parcels. The city became the owner of a total of 1,586 buildings in 1990 but only 930 the year before.

While the city is becoming owner of these parcels, thousands more are in workout or delinquent situations. For instance, in July, a Manhattan action was commenced against 4,034 properties, most of which had been delinquent since the prior year.

City officials say, nevertheless, most of these owners will not abandon the properties but pay the taxes over time.

A Finance official said there are several issues that must be looked at in researching the possibility of tax lien sales. "Most of the buildings that are delinquent and that eventually go in rem," he explained, "are the ones where an investor, in order to make money, has to get rid of the tenants because they aren't' paying their rents for a whole host of social issues.

"For commercial buildings, the issue is a strict sort of rate of return question," he explained. "They pay healthy interest (18 percent) and it is set that high to get them to pay up quickly. We take very few commercial properties in rem. For the period they are delinquent, we make money."

The official said any investor would have to beat that rate of return for it to be worthwhile for the city. "There are cash flow reasons why the city might want to give up the return to get the immediate money," he said. "That is why we haven't told these folks it is not a swell idea. That is a judgement you make if you really need the cash today."

The official said if you subtract the single-family homes and the multi-family homes that are too "politically problematic," it is not even going to approach the hundreds of millions due. Then, he said, only a small component is going to attract investors. "It could be a small number and it is not to say it shouldn't be done and explored, but to say it is the magic solution to the city's crisis, is not necessarily so."

Other officials said the city has managed to collect nearly 100 percent of its property taxes within two to three years, plus interest, with owners working out up to an eight-year payment plan.

In Fiscal 1990 Finance officials said they collected $35 million in interest on all delinquent real estate taxes. At the end of Fiscal 1991, it is estimated that $47 million in interest was collected.

For all real estate charges due in Fiscal Year 1990, there was $229 million in delinquencies.

"We continued to collect money against prior years," the official explained. "People tend to forget we collect substantial money in the later years. During Fiscal 91 we collected nearly a $100 million of that $229 million."

For the Fiscal Year 1991, the total open balance was $315 million of which the city has collected, through the end of November, $84 million. The city is forecasting a net delinquency for fiscal year 1992 of $312.8 million which is expected to go up not more than another $40 million due to reserves, refunds and credits.

"In most instance the buildings with the highest values tend to pay off," the official said. "Additionally, the mortgage company would want to protect their own rights and step in and pay the taxes as well."