Lien on Me
Debra Ack was running out of time. On December 17, New York City would transfer over a hundred million dollars of publicly held debt into private hands—and many of those affected didn’t even know about it. That’s why Ack, along with other volunteers from the East New York Community Land Trust (CLT), were knocking on doors across East New York and other parts of Brooklyn in the days leading up to the transfer. They visited houses that, without intervention, would have their unpaid property taxes sold off to a third-party trust serviced by Wall Street firms, putting homeowners—disproportionately people of color—at risk of compounding interest rates, fees, penalties, and foreclosure. Ack’s goal was to reach those who may not have been aware of their indebted status, or the Covid-19 hardship declaration offered to indebted homeowners that would have kept their property tax debt from falling into the hands of Wall Street profiteers.
Alongside the outreach effort, the East New York CLT and a larger coalition of community land trusts and grassroots community organizations appealed to the city to cancel the sale—or abolish the practice entirely. But in the end, it went through, sending $134 million of tax lien debt from nearly three thousand properties into the care of Wall Street servicers. While New York is unique in its securitization of property tax debt via a third-party trust, the sale or auctioning of tax debt and tax-delinquent properties is a beloved pastime from Pittsburgh to Phoenix. The intention of these sales is to incentivize property owners to pay taxes to fund local services, but the result is often neighborhoods of color being strip-mined of their wealth, as well as the acceleration of displacement and gentrification—all while efforts to expand affordable housing are stymied.
Once a property owner’s debt is in the hands of investors in New York, they are free to tack on punitive interest rates as high as 18 percent. A 2016 analysis of property tax debt by the Coalition for Affordable Homes found that median debt increased by 65 percent—from $6,562 to $10,847—once fees and interest rates were included, driving some property owners to take on high-cost loans to avoid foreclosure. Others received incessant phone calls and visits from vulturous speculators who, aware of the owners’ indebted status, promised to pay cash right now to relieve them of their property—usually for well below market value. That same analysis found that, of the one-to-three family homes on the tax lien sale list in 2011, nearly half were sold within five years, compared to 13 percent of all such properties in Brooklyn during that same period. For cash-poor property owners, including seniors and those who inherited property from a relative, there is often little recourse. For small commercial establishments and tenants in tax-delinquent apartment buildings, the result is often eviction.
Allyson Martinez and Rachel Goodfriend, cofounders of the community outreach and resource provision group Brooklyn Level Up, led a campaign of door-knocking prior to the recent tax lien sale in East Flatbush. What they and others noticed from the homeowners they spoke to was a lack of knowledge about estate planning or how to properly facilitate property transfers between family members. Individuals who informally inherit property may owe tax debt and simply not know. Martinez describes East Flatbush, which is 85 percent Black, as one of the “last bastions of Black homeownership” in New York. But tax lien sales and other forces are driving “a loss of intergenerational wealth, which then translates into a loss of communal wealth,” she says. As the report from the Coalition for Affordable Homes notes, New York City is six times more likely to sell a tax lien in a majority Black than in a majority white neighborhood—and twice as likely to sell a lien in a majority Hispanic than in a majority white neighborhood. These sales lead to displacement and gentrification, all aided by private actors with little interest in the communities they profit from.
New York’s tax lien sale was postponed several times in 2020 due to the pandemic but finally scheduled for December 2021—with the stipulation that lower-income property owners could be eligible to avoid the sale if they submitted a Covid-19 hardship declaration. While the city sent out mailers to individuals in arrears and hosted online sessions about the carve-out in the months and weeks leading up to the sale, advocates characterized the process as confusing: many property owners that volunteers reached were largely unaware of the paperwork they were required to submit. As Ack notes, “We have seniors who are on these lien sales who have worked and paid off a thirty-year mortgage, [but] who have fallen behind on their taxes.” And when they get letters from the city in the mail, many of them don’t understand it and disregard it. “People have no clue what happens during a tax lien sale.” In the end, and in no small part due to the efforts of community activists, 941 properties were removed from the sale through the hardship declaration.
New York City’s current practice originates from an unlikely place: New Jersey. In the 1990s, Bret Schundler, a former investment banker and then-mayor of Jersey City, believed a battery of “market solutions”—like securitizing property debt —would solve the city’s mounting budget crisis. The experiment came as part of a larger shift toward “public sector entrepreneurialism,” or the financialization and privatization of government services and functions in the wake of federal disinvestment. As Irene Tung, a senior researcher and policy analyst at the National Employment Law Project, notes in her dissertation, indebted property owners in Jersey City questioned the legality of the arrangement and sued loan servicers, which delayed payments and drew negative attention to the deal. The city also accused loan servicers of purposely dragging their feet on collections, because they stood to collect higher fees the longer the debt accrued. As a result, the city did not continue the securitization following 1994. But the following year, the same firm that advised Jersey City on its now defunct securitized lien sale program brought the proposal to the Giuliani administration, where many advisors hailed from the world of finance and thought auctioning off public debt would help the city—and their pals on Wall Street—make a quick buck.
As Will Spisak, a senior program associate with the New Economy Project, notes, the tax lien sale “speaks to the unique relationship between the financial sector and New York City.” The Giuliani administration saw the financialization of public debt as a panacea to the city’s budget problems, which could provide cash up front in exchange for the liens, as well as help the city deal with the large-scale abandonment that made it the de facto owner of abandoned and dilapidated properties. Today, the money brought in by tax sales is relatively small compared to the city’s overall tax base. In 2019, the city received $74 million from the tax lien sale—but collected nearly $40 billion in overall property taxes.
These sales are also entangled with the legacy of subprime lending, when financial institutions disproportionately targeted low-income would-be homebuyers with predatory home loans, oftentimes in neighborhoods of color. In East New York, the majority of the loans at the time of the recession were subprime. Usurious interest rates strained owners’ ability to pay not only monthly mortgage payments but also water, sewage, and property tax bills. Predatory lending coincided with the over-assessment of property taxes in these very same neighborhoods; homeowners in poorer neighborhoods are often made to pay more in taxes relative to the market value of their property compared to owners in wealthier neighborhoods. A report by the National Consumer Law Center details that in the wake of the Great Recession, property tax sales increased nationwide. Times of crisis also incentivize local governments who are insufficiently supported by state and federal governments to pursue aggressive collection practices, including selling debt and tax delinquent properties, to make up for lost revenue.
Efforts to end tax lien sales in New York have been ongoing. For the organizations behind the Abolish the NYC Tax Sale Coalition, ending the annual sale would present an opportunity to reconceptualize how the city sees vacant or abandoned properties, which also appear on the sale list. They’ve put forth a proposal that would transfer vacant and abandoned tax-delinquent properties to neighborhood community land trusts, where they would be insulated from market forces and put to better use than generating profit for investors. The proposal would also enable indebted homeowners to stay in their homes in exchange for transferring the property to a nonprofit community land trust with the opportunity to resolve the debt prior to the transfer, and to repurchase following.
According to an analysis prepared by the New Economy Project, the tax lien sale list in 2021 included nearly three million square feet of vacant residential land across the five boroughs—on which over thirty-six hundred units of affordable housing could be built, if the debt for this land was not sold to investors and summarily resold or foreclosed upon. Organizers and community land trusts also see potential in vacant land zoned for commercial use. “The devastation [of Covid] has reached the commercial side,” Allyson Martinez says. “The city, in its zeal to save residential homes . . . also needs to have the same support in place to recognize the value of maintaining commercial places and commercial tenancies” in Flatbush, which has seen many local businesses shuttered. Brooklyn Level Up, East Harlem/El Barrio CLT, and Western Queens CLT have all integrated or seek to integrate commercial space into community land trusts. Part of Western Queens CLT’s plan for a former city-owned Department of Education building is an affordable manufacturing space, while East Harlem’s CLT plans for affordable commercial space prioritizing businesses that directly serve their communities.
This model has the potential to serve as a check against a rapacious market. There is precedent for the appropriation of vacant lots or abandoned tax-delinquent properties for the purposes of affordable housing and commercial space. In limited cases in the 1980s, the city’s enormous portfolio of abandoned and foreclosed buildings were turned over to tenants in need, in some cases, as limited equity tenant cooperatives in exchange for building management and repair. East Harlem/El Barrio CLT’s properties and land were provided by the city under similar circumstances. Community and tenant organization made this possible.
Mayor Eric Adams has indicated he’s open to ending the tax lien sale. As a representative from the administration states, “Mayor Adams believes the City should explore alternatives to the lien sale that ensure the city can continue collecting its debts while helping homeowners—particularly Black and brown homeowners who have been disproportionately impacted by the pandemic—retain ownership.” The city has convened a Tax Lien Sale Task Force to examine sale practices, though it has not made, let alone acted on, any definitive recommendations. Several city councilors and the attorney general have also called for changes to current practices.
The legislation that allows for the sale expires this month, but its future remains uncertain, as the city’s Department of Finance still views the sale as a “vital enforcement tool” for collecting unpaid taxes. According to the NYU Furman Center, the city received $1.3 billion in exchange for lien debt between 1997 and 2015, selling on average, according to another study, for seventy-three cents on the dollar. For now, even if the legislation is not renewed, it is unclear whether there will be relief for those whose debt has already been subject to the sale, since the debt is no longer publicly held. But one can imagine something analogous to the city’s relief program for taxicab medallion debt, achieved following years of organizing, where the city agreed to cap payments for debt it had similarly sold to a third party in exchange for guaranteed payment.
While the CARES Act established a temporary moratorium on sheriff sales, or the auctioning of individual tax delinquent properties, at the outset of the pandemic, the expiration of this moratorium at the end of last July has allowed sales of tax delinquent properties to resume nationwide. As Andrew Kahrl writes in Bloomberg’s CityLab,
all states have laws that allow local governments to sell property for unpaid taxes and other charges. In twenty-nine states plus the District of Columbia, local governments can also sell liens on tax-delinquent property, which allow investors to charge interest (in some states, as high as 50 percent annually) and additional fees on a taxpayer’s debt. And every year in America, scores of homeowners, often poor or elderly, lose (or nearly lose) their homes due to clerical errors, malfeasance, or chicanery, often over minuscule tax bills.
In Philadelphia, where the city government pays a third-party coordinator to manage tax lien sales, the sales of individual homes resumed earlier in 2021—despite protests from housing advocates.
The abolishment or reform of the tax lien sale in a market as merciless as New York City could set a precedent for other cities to consider alternatives. Foreclosed or vacant property could be developed in the public interest, rather than sold and flipped by developers. Debt relief could be extended to homeowners to keep them in their homes: Minneapolis already has programs that allow owners to stay in their homes in the event of property tax delinquency, with the potential to convert homes to shared equity properties. The Abolish the Tax Sale Coalition and others with similar visions around the country are seeking to end a form of state-sanctioned profiteering that only extracts a neighborhood’s potential.