Owners denounce NYC tax collection plan - real estate owners; New York City plan for delinquent real estate taxes

Real Estate Weekly, March 11, 1992 by Lois Weiss

Real estate owners and attorneys loudly criticized New York City's newest plan to fund its coffers by going after owners personally for delinquent real estate taxes.

The move is one method the Department of Finance Commissioner, Carol O'Cleireacain is examining to collect large sums owed on real property tax bills. Collections are lagging and the city's in rem process stretches out payments.

Sources said the department is obviously going to go after the owners who owe the most first and that steers them right to the top delinquents of Class IV properties (see list p. 00). Owners in bankruptcy will not be at risk now.

The city is permitted to seek an in personam judgement by the Real Property Transfer Laws section 926 which authorizes the county to sell at auction personal possessions to satisfy real property taxes. The section provides that under limited circumstances, there is personal liability for city property taxes and this includes corporations which do business in the city. The law also extends beyond the county where the original property is located and acts as any other personal judgement.

"In personam is not limited to cash," explained William K. Block, a certiorari attorney in sole practice, "but runs to the typewriters in the central office to the cars driven to manage the properties and theoretically to pieces of real estate owned by the same entity."

Stephen Anfang, an owner and developer and founder of Collect, which is seeking to have the city sell tax liens to collect the monies swiftly, was adamant about his objections to the idea.

"That's ridiculous," he said. "Somebody isn't thinking clearly with a business mentality. That's one good way of scaring every developer left in New York City out of the city."

Anfang believes such a plan could create more chaos between the developers and the city." It's one more stupid idea to make sure this city stays in the graveyard," he said.

"It's a little crazy," agreed Jeff Gural, president of Newmark & Co., and co-chair of the Property Tax Fairness Coalition. "I can't imagine that you can (go after people personally)." Gural warned that if Department of Finance Commissioner Carol O'Cleireacain was successful, "It would be one more reason not to own real estate in New York and no individual would want to own real estate in New York."

The idea has been floating around city hall, since 1985 said one official who asked not to be quoted. "In good times the city doesn't look for ways to raise revenues, but in bad times they are looking for everything they can," the official said.

The city needs the money to begin generating interest and to keep its cash flow going. The top 50 delinquents alone account for $55 million of the $560 million owed by delinquent taxpayers since July 1.

If they are going to do this instead of taking the building, said Steven Spinola, president of the Real Estate Board of New York, it is a serious policy change that is "truly outrageous."

"It would require or force people to go into bankruptcy," he said, "and tell people not to own property. It's a terrible story, a terrible story, and a terrible policy."

Block, who was formerly Deputy Commissioner of Real Property for the Department of Finance, said the issue of in personam was raised in the past when the market was good. "A decision was made not to use it because it sends a message that if you invest in New York and it goes sour," he said, "you will not only lose your investment but could lose bank accounts or other businesses -- and that's a profoundly negative position to the business community. The idea of using in personam at a time when the market is going down, is counterproductive and disastrous. It is ludicrous to adopt that position now when you need people to come in and speculate."

Hubert J. Brandt, of Peter H. & Hubert J. Brandt, a certiorari expert, said he would be opposed to the plan. "Is the gamble of owning real estate in the City of New York - if you want to sink capital in and make an unsuccessful venture - do you put your home, your car and your children's bread up at risk?," Brandt said. "It's bad enough that the city takes the building," he added.

Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), said with some rare exceptions of people who are simply withholding taxes, the delinquencies are not as Commissioner O'Cleireacain suggests.

"They are not just loans that owners are taking out voluntarily at 18 percent interest," Margulies agreed. "The majority have cash flow problems and are delinquent because they are over assessed. They haven't got the cash to support the assessment. You only have to look at the sale of 1540 Broadway for half the amount of the mortgage to understand the buildings are only worth half of what they once were and are not spinning off the revenue."

Block also believes O'Cleireacain is wrong in her belief that developers are intentionally using the city as a bank. "No one uses a bank that charges 18 percent interest which is 11 percent above prime," he said. If you went back 10-years, he said, when the interest rate was set by statute and was 5 or 6 percent, there was a perception people could borrow cheaper than at the bank, and made money by using the city as a bank. Now, he said, the interest rate is set six points above prime.