The City Council is resurrecting a system to collect unpaid property taxes after a nearly three-year hiatus, adding new safeguards for vulnerable owners.

For many years, the city Department of Finance issued liens for unpaid property tax and water bills and then sold them at a discount to private investors, who attempt to collect the debt.

But that system last lien sale took place in December 2021. 

Months of negotiations between the Council, Mayor Eric Adams’ istration and advocates yielded the Home Preservation and Debt Resolution Reform Act, which the Council’s finance committee reviewed on Tuesday.

The bill would create new pathways property owners could use to resolve debt, allows for exemptions for certain homeowners, and establishes a way for indebted homeowners to remain in their homes by transferring the title to a third party. It also ramps up outreach about such options to homeowners.

Tenants of buildings whose landlords owe back taxes would also get attention, with the city Department of Housing Preservation and Development required to inspect the properties and provide residents with information about their rights.

“This bill will fundamentally change how we resolve property tax debt, going further than ever before to recognize the distinction between property owners who could pay but do not and those who would pay but cannot,” testified Finance Commissioner Preston Niblack. “Our goal is to help taxpayers resolve their debt and to dramatically reduce the number of owners that face enforcement actions.”

The city is currently owed about $839 million in property taxes and about $1 billion in water debt, according to the finance department.

Avoiding Foreclosure 

Former Mayor Rudy Giuliani launched the tax lien sales system in 1996. It was at a time when the city was digging out from responsibility for thousands of private buildings, many of them abandoned, that it had foreclosed on for failure to pay taxes. 

The revenue generated for city coffers came at a price: Property owners late on their bills must pay fees and interest in addition to what they already owe, which can send them further into debt and can end in foreclosure.

Community advocacy groups have long opposed the lien sale. A swath of them formed the Abolish the Tax Lien Coalition to push against efforts to resurrect it, citing the disproportionate impact of the sale on homeowners of color and tenants.

“The reauthorization of the tax lien sale, we still believe, just as a rule, is a harmful blow to our small homeowners, particularly our Black and brown homeowners and low- to moderate-income homeowners,” said Kevin Wolfe, deputy director of advocacy and public affairs with the Center for New York City Neighborhoods, which assists homeowners.

Still, the proposed new tax lien sale system attempts to protect homeowners and to a certain extent, tenants.

“This bill would continue a shift of how the city approaches this debt, taking a broader view of resolving its underlying causes to do that,” said Councilmember Justin Brannan (D-Brooklyn), chair of the Council’s finance committee. “It’s part one of an ongoing process to rethink and reimagine and continually improve how we approach the resolution of property taxes and other city charges.”

Aspects of the bill include allowing certain low-income owners of one- to three-unit homes and condo units to remove themselves from the debt collection process up to three times; expanding tax payment deferral options; quadrupling the funding for community organizations to conduct outreach to homeowners, and providing funding for those groups to help with estate planning.

Homeowners unable to pay their taxes but who want to avoid foreclosure could enter a voluntary program to transfer the title to a “qualified preservation purchaser,” such as a nonprofit, which would lease the property back to the owner for 99 years at an affordable rate and provide the owner with limited equity. 

Though Council and those testifying lauded the bill for protecting vulnerable homeowners, critics charged the Council bill focuses inadequately on tenants of tax-delinquent buildings. 

Paula Segal, a senior attorney with Take Root Justice, said proactive outreach to tenants would not occur in all financially distressed buildings with tenants, and pointed out that mandatory inspections for buildings with at least four units would exclude many tenants living in smaller buildings.

“Folks need to know if their landlord is taking their rent and then not paying their bills to the city. They might be able to call in HPD to do an inspection. They might be able to actually influence the situation,” she said.

The bill does not determine a way to deal with renter-occupied abandoned properties. The way forward, istration officials indicated in their testimony, would be through resurrecting another Giuliani-created program known as charge that the program stripped homeowners, small landlords and co-op shareholders of valuable assets.

Will Spisak, senior program associate at the racial and economic justice advocacy group New Economy Project, said the success of the new tax collection system depends on a new third party transfer approach that “will create a viable program for neglected multifamily buildings to be rehabilitated under community ownership.”

“From a process standpoint, this bill should have been prioritized over the new lien sale bill,” he said. “Now the council has to kind of backpedal and work to duct tape the new TPT program onto this new lien sale process.”