New York City Was Ghoulish On Collecting Property Debt. These Council Members Are Changing That.

Earlier this year, the New York City Council passed the Home Preservation and Debt Resolution Reform Act, which drastically changes how our city collects overdue property taxes. Among these reforms were adjustments to the tax lien sale. This Rudy Giuliani-era property debt collection tool effectively privatized property debt collection, and through which many homeowners of color and at-risk tenants were displaced. Now, as the dust settles on our FY25 budget process, we want to share in detail our vision and what we accomplished.

Lien sale reform is a big and meaningful step towards greater transparency, fairness, and support for everyday New Yorkers overburdened by property taxes.

The old Giuliani lien sale was merciless and had disparate impacts on small homeowners in low-income Black and brown communities. Under the old system, private debt collectors and predatory private investors made hefty profits off collecting people’s debt. After off-loading this responsibility to these private companies, the City of New York got an average of just 75 cents on the dollar. This blunt tool was more destructive than just, and while the city needs recourse when big, wealthy property owners don’t pay their fair share of taxes, the old lien sale only further exacerbated inequities within our city’s housing crisis. Like former Mayor Giuliani, it was ghoulish.

In the past, council members would regularly receive massive lists of homeowners in our districts at risk of entering the tax lien sale and eventually of losing their homes. All too often, many of the people on these lists were senior or disabled homeowners on fixed incomes, low-income families, and regular New Yorkers facing financial obstacles who had missed making payments because they fell on hard times or simply never received the letter in the mail from the NYC Department of Finance. It was an unfair and unsustainable aspect of our system. In many cases, we were able to contact homeowners on these lists and help them avoid losing their properties. But there were always just as many people – including tenants in distressed buildings – who we were unable to reach, in many cases likely for the same reasons they had lapsed on paying their property taxes in the first place.

Over a year ago, the City Council, under the leadership of Speaker Adrienne Adams, set out to reimagine and reform the lien sale to protect at-risk homeowners, preserve homeowner equity, shield tenants in large buildings from deteriorating conditions and displacement, and effectively resolve debts from overdue property tax payments to the city. Beginning in early 2022, we brought together the New York City Department of Finance (DOF) with housing and tax policy experts, activists and advocates, and stakeholders including small homeowners adversely impacted by the old system. As a result of this work, the bill we passed implements the most significant reforms to the City’s property debt collection system and refocuses the whole process towards the simple goals of debt resolution, getting folks caught up, and most importantly keeping people in their homes.

So, what are these transformative steps we’re taking to reform the tax lien sale and protect everyday New Yorkers? They can be broken up into four categories: prevention, preservation, enforcement, and transparency.

Preventing Tax Lien Sales, In the First Place

In passing this bill, we are improving communication between the DOF and property owners to prevent people from falling behind in the first place. Previously, many property owners were caught off guard by tax liens and associated penalties. Maybe an owner missed a notification or maybe they put away the notification letter and hoped it would go away – something many of us have done with bills we didn’t want to deal with now. Now, the DOF will have to notify property owners more frequently about their tax liens and any additional liens for unpaid sewer or water charges. This enhanced communication will ensure that property owners are fully informed and can take proactive steps to address their financial obligations before ending up on the lien sale. We know from experience that so many New Yorkers affected by the lien sale had very fixable problems, which only became bigger because there was not clear communication between them and the city.

For homeowners who simply need time to catch up with unpaid debts, our bill also creates what we call the “Easy Exit” program. This first-of-its-kind program allows owners of certain Class 1 properties and condominium units to request removal from the tax lien sale list up to three times within a 36-month period – no questions asked. In doing so we are giving property owners a valuable opportunity to resolve their tax issues without immediately being put on the lien sale, offering them a lifeline during acute financial difficulties.

Of course, for many, property taxes simply remain too damn high. While the City can’t change the City’s property tax system on our own, we are delivering relief by adjusting the income thresholds for property tax and interest deferral (PT AID) plans. By conforming with income guidelines governing the Enhanced STAR program, we are expanding our existing deferred tax payment assistance to more homeowners than ever. We are also adding elements of what’s commonly called a “circuit breaker” benefit to the PT AID program, enabling owners who pay more than 10% of their income in property taxes to defer amounts above that threshold, provided they make annual payments of at least $1,500.

Additionally, we are prohibiting the sale of liens on vacant land deemed undevelopable by city agencies. Previously, owners of undevelopable vacant land could have liens placed on that property despite there being no housing or other uses on that property. Parcels like these ended up on the lien sale repeatedly with no strategy to get them into productive or other use. This protection shields property owners from unnecessary financial strain and potential exploitation by preventing the city from taking them to task on land that cannot be used anyway.

Preservation of Affordable Housing

For small homeowners in severe tax distress, who simply don’t see a path to paying off their debts, our bill creates a groundbreaking preservation program with Qualified Preservation Purchasers (QPPs) to ensure homes don’t go to predatory actors. This arrangement allows property owners to extinguish their existing debt and transfer ownership to a QPP, who then provides a long-term affordable lease that can be passed on to further generations.

This program keeps at-risk properties off the speculative market and will help Community Development Corporations, Community Land Trusts, and other community developers assume ownership of these troubled assets. This partnership not only helps former owners retain a stake in their property but also allows them to recover any equity they may have held, grants them and their kin succession rights, as well as protects any tenants that may reside in the home from displacement. If the previous owner does leave and does not pass on their lease to their family, the property will convert to a limited equity cooperative, enshrining permanent affordability and insulation from the speculative market.

Enforcement: Ensuring Good Living Conditions

Importantly, we are keeping a closer eye on big rental properties that are delinquent on property tax payments, ensuring the financial struggles or frequent changing hands of big buildings does not result in neglected unlivable conditions for tenants. The Department of Housing Preservation and Development is now tasked with inspecting Class 2 multiple dwellings that frequently appear on the tax lien sale list. This dual approach – addressing both tax issues and property maintenance – aims to improve living conditions for tenants and ensure that properties are up to code.

Improving Transparency and Accountability

Lastly, we are ramping up reporting and strengthening transparency requirements around the status and debts of properties whose liens have been sold to City-created Trusts. This is not a revolutionary concept: when the city and other actors put our constituents’ housing status and livelihoods on the line, they need to be prepared to explain every decision they make and give the Council – as well as the homeowners and tenants we represent – an opportunity to respond.

Our reformed lien sale system comes with many more guardrails than ever before. If they work as designed, these guardrails will prevent all but the worst bad faith and repeat offenders from going into the lien sale. Make no mistake: these reforms are transformative and will help unprecedented numbers of tax-burdened homeowners and at-risk tenants remain in their homes.

But we won’t be satisfied until we are convinced that we are doing everything we can to help New Yorkers thrive. To that end, our bill to reform the tax lien sale immediately also establishes a 10-member task force to explore fair and effective ways to collect delinquent property taxes without relying on the tax lien sale or the City-backed trust system on which it depends. We don’t need to make the perfect the enemy of the good, but we also don’t have to settle for less than the best we can do.

“Tax lien reform” isn’t the type of sexy headline you’ll see plastered across social media or the nightly news. But this is the kind of legislation that makes a real difference in people’s lives – meeting big, chronic problems with thoughtful and comprehensive solutions.