Lien In: Lien Sales Help New York Recoup More Cash Than Foreclosures, Report Finds

While the drama of a threatened foreclosure might seem the best method for collecting unpaid bills, property lien sales are more effective.

Government cheese.
Government cheese. (Wiki)

While the drama of a threatened foreclosure might seem to be the best motivation for getting a property owner to pay back taxes, a new report from the Independent Budget Office reveals that property lien sales are actually a better method of collecting unpaid bills.

New York City recoups tens of millions of dollars per year on lien sales—from 2009 through 2012, the total value of liens sold ranged from $70 million to $110 million per year, according to the IBO—which may be placed on a property for unpaid taxes, water and sewer bills and recently, emergency repair work. (The city, through the Department of Housing Preservation and Development’s Alternative Enforcement Program, can make repairs on dangerously decrepit residential buildings if the owner has refused or failed to do so.)

The program, which has been in place since 1996, replaced the practice of initiating foreclosure proceedings for unpaid property taxes; over the years, the policy has been modified to also allow for lien sales on unpaid water and sewer bills. Property holders are notified 90 days before liens are sold, have been surprisingly effective at motivating owners to pay or begin payment plans, according to the IBO. Of the 24,300 properties placed on notification lists in the 2009 through 2012 period studied by the agency, 80 percent of bills were paid within the 90 day window.

Still, liens on some 5,000 properties are sold annually (and some properties have multiple liens on them), with the sales producing significant income for the city. (Property owners who did not repay their liens actually ended up paying substantially more than they originally owed.) When property owners fail to pay under threat of a lien sale, the city sells the liens at a fraction of their nominal value to a city-created trust. They are then packaged as bonds and sold to investors, with the city adding a 5 percent surcharge, an administration fee of $200. The interest rate, meanwhile, jumps to 18 percent with the third-party lien servicer, who may also use collection agencies try to collect on the debt. (Foreclosure is the eventual outcome if a property owner does not make payments.) Any revenue beyond debt service and collection agency fees goes to the city.

The IBO report found that the majority of liens sold in 2012–59 percent—were on residential properties, with 25 percent on nonresidential properties and 16 percent on vacant lots. Properties with liens were concentrated in less-affluent neighborhoods: Bushwick, Bed-Stuy, East Flatbush and East New York in Brooklyn and in Southeast Queens. Other areas with lesser concentrations included Harlem, the North Shore of Staten Island and the Bronx.

The number of properties placed on 90-day list peaked in 2011, the waning days of the recession for the city’s real estate market.

Lien In: Lien Sales Help New York Recoup More Cash Than Foreclosures, Report Finds