Northeast Times

Philly Realtors’ group pushing to restart lien sales

Bri­an O’Neill

Cherry Hill does it. Ne­wark does it. But Philly doesn’t — sell li­en cer­ti­fic­ates on the tens of thou­sands of prop­er­ties whose own­ers have failed to pay their an­nu­al real-es­tate taxes.

Now, a city Re­altors’ group is push­ing to re­start li­en sales in Phil­adelphia as a way to boost the city’s tax rev­en­ues and to make the prop­erty tax sys­tem fairer for all.

Those who do pay their taxes would pay less if the city sold its un­col­lec­ted debt to in­vestors, said Al­lan Domb, pres­id­ent of the Great­er Phil­adelphia As­so­ci­ation of Re­altors.

How such a pro­pos­al would go over with City Coun­cil is not cer­tain, but one North­east mem­ber, Re­pub­lic­an Bri­an O’Neill, is all for the city get­ting out of the col­lec­tions and fore­clos­ure busi­ness.

Domb said his or­gan­iz­a­tion is pre­par­ing le­gis­la­tion that would out­line how the city could con­duct sales of tax li­en cer­ti­fic­ates. O’Neill (R-10th dist.) said he would be happy to in­tro­duce such a meas­ure.

“We have to get ser­i­ous about this,” the coun­cil­man said.

A lot money is at stake. Clar­ena Tolson, the city’s new rev­en­ue com­mis­sion­er, told City Coun­cil on April 23 that there are 107,000 tax de­lin­quents in Phil­adelphia.      O’Neill said there is about $175 mil­lion in taxes the city doesn’t col­lect every year.  Those de­lin­quen­cies add up year after year, and some es­tim­ate the city is owed about a half-bil­lion dol­lars — or more.

Domb said selling tax li­ens would be fairer to the people who du­ti­fully pay their city taxes be­cause they are sub­sid­iz­ing those who don’t. They are pay­ing taxes at high­er rates to make up for the rev­en­ue that doesn’t come in.

He said Phil­adelphia’s col­lec­tion rate is 85 per­cent, though former city Rev­en­ue Com­mis­sion­er Keith Richard­son put the fig­ure at 91.5 per­cent.

Domb, who said his or­gan­iz­a­tion has re­searched tax li­en sales in 20 states, said up­ping the city’s col­lec­tion rate could shave the city’s real es­tate tax rate to $1,000 for every $100,000 of as­sessed prop­erty value. In his 2014 $3.75 bil­lion budget pro­pos­al, May­or Mi­chael Nut­ter asked for $1,320.40 per $100,000. 

THE CASH IS RIGHT HERE

City Coun­cil cur­rently is hold­ing budget hear­ings and must fi­nal­ize a budget by June 30. Mem­bers are mak­ing their own pro­pos­als re­gard­ing the tax rate, or mil­lage. They’re also look­ing at how they might ease the im­pact of new as­sess­ments that put prop­er­ties at 100 per­cent of their mar­ket val­ues. 

In March, for ex­ample, Coun­cil­man Jim Ken­ney (D-at large) in­tro­duced a bill that would set the tax rate at $1,000 per $100,000. To set the rate that low, Ken­ney said, the city would have to find oth­er money sources or slash spend­ing by $200 mil­lion or more.

As far as Domb is con­cerned, that cash is right here — in un­col­lec­ted taxes — and the surest way to turn hun­dreds of mil­lions of dol­lars of de­lin­quen­cies in­to real money is to sell off the debt to in­vestors. 

The pur­pose of the switch to as­sess­ing prop­er­ties to their full mar­ket val­ues is fair­ness, Domb said, adding his or­gan­iz­a­tion sup­ports the city’s Ac­tu­al Value Ini­ti­at­ive. What could be fairer, he asked, than de­mand­ing less money from the people who nev­er shirked their re­spons­ib­il­it­ies to pay their taxes? 

Giv­en the acute at­ten­tion prop­erty own­ers are giv­ing to taxes since they began re­ceiv­ing re­as­sess­ment no­tices in Feb­ru­ary, this may be the best time to look in­to ad­dress­ing the im­pact of de­lin­quent taxes, O’Neill said. Es­pe­cially, he said, since so many people are not happy. 

If li­en sales are go­ing to get ser­ous con­sid­er­a­tion, O’Neill said, “It should be when the pub­lic is scream­ing … and there is a real call to get the mil­lage down as low as pos­sible.”

The city’s last li­en sales were, in some re­spect, half-heartedly con­duc­ted. O’Neill said when the city con­duc­ted such sales in the 1990s, half of the city’s 10 coun­cil­man­ic dis­tricts were ex­empt.

“You can’t ex­clude half the city,” he said.

HOW DOES IT WORK?

In Phil­adelphia, a li­en in put on a prop­erty when the taxes on it are not paid. When the prop­erty is sold, the pro­ceeds are first used to pay the taxes owed be­fore the seller sees any money. Un­less the own­ers of liened prop­er­ties pay off their ob­lig­a­tions, the city waits un­til those prop­er­ties are sold — either in private sales or via sher­iff’s sales — to get its tax money. 

However, right across the Delaware in New Jer­sey, Cherry Hill doesn’t wait for its dough. The town­ship sells its li­ens to in­vestors. Cherry Hill gets its money, and it’s the in­vestors who wait to get paid. There are no sher­iff sales.

In­vestors bid on the li­ens, said Car­ol Red­mond, Cherry Hill’s tax col­lect­or. 

That bid­ding is done by bid­ding down how much in­terest an in­vestor will charge the homeown­er whose debt is be­ing bought. The in­vestor will­ing to charge the de­lin­quent tax­pay­er the least amount of in­terest wins the bid­ding, Red­mond said.

That bid­ding starts at 18 per­cent in­terest and goes down. In­vestors can bid a li­en on a de­sir­able prop­erty down to 0.0 per­cent in­terest and even of­fer the town­ship an in­terest-free premi­um to get the li­en, she said. 

So how does an in­vestor make any money by pay­ing for a debt in which he col­lects no in­terest? Since the suc­cess­ful bid­der would have an in­terest in the prop­erty, he can pay the suc­ceed­ing de­lin­quent taxes and charge the de­lin­quent tax­pay­er 18 per­cent in­terest, Red­mond said. Also, the bid­der who holds the li­en would be paid off first when the prop­erty is sold or if the own­er wants to settle ac­counts. And, fi­nally, the suc­cess­ful bid­der can start fore­clos­ing in two years, Red­mond said.

The tax col­lec­tion rate in Cherry Hill is 99.9 per­cent, Red­mond said. Tax li­en sales ac­count for 0.54 per­cent of that total rate. Li­ens on prop­er­ties that are in bank­ruptcy, she said, can­not be sold.

In Ne­wark, New Jer­sey’s largest city, the tax col­lec­tion rate is 96 per­cent, said Fin­ance Dir­ect­or Susan Jac­obucci.

The real es­tate tax-col­lec­tion rate is some­where between 91 and 92 per­cent be­fore the city sells li­ens, Jac­obucci said in an April 24 phone in­ter­view.

Ne­wark, which has about a fifth of Philly’s pop­u­la­tion, sells tax li­en cer­ti­fic­ates in two ways, she said.

First, it has as de­lin­quent tax sales. Right now, that would mean li­ens for un­paid taxes in 2012 and earli­er are sold. Those sales bring in money, Jac­obucci said, but that cash doesn’t build up the cur­rent year’s tax-col­lec­tion rate. But selling li­ens on 2013’s un­paid taxes in ac­cel­er­ated sales does push the col­lec­tion rate up, Jac­obucci said. Ac­cel­er­ated sales have been oc­cur­ring for a couple years, she said.

Also, the fact that cur­rent-year debt can be sold off to in­vestors, she said, gives prop­erty own­ers an in­cent­ive to pay Ne­wark what they owe. And prop­erty taxes be­come de­lin­quent on the 11th day of the year’s 11th month, she said. 

Ac­cord­ing to Jac­obuzzi, the threat of li­en sales seems to be enough to bring some tax­pay­ers in­to line. In 2011, the own­ers of 11,000 prop­er­ties were no­ti­fied that tax li­ens would be sold. About 6,000 paid up be­fore the sale, Jac­obuzzi said. In 2012, more than 5,000 li­ens were to go on sale, but only 3,000 were sold.

“People know you mean busi­ness now,” she said. “It’s chan­ging the cul­ture.”

IS IT JUST THAT SIMPLE?

Selling tax li­ens sounds un­com­plic­ated. By selling its debt, a mu­ni­cip­al­ity takes it­self out of the debt-col­lec­tion busi­ness and the ex­penses as­so­ci­ated with that, and also in­creases its rev­en­ues.

Or is it more com­plic­ated than that, es­pe­cially in a big city like Phil­adelphia?

Philly isn’t Ne­wark, said Coun­cil­man Bobby Hen­on (D-6th dist.), adding he has some ques­tions about wheth­er tax li­en sales would work here. 

“But any kind of en­cour­age­ment is a plus,” he said in an April 24 phone in­ter­view.

Philly’s neigh­bor­hoods are dif­fer­ent; em­ploy­ment here is dif­fer­ent; and the city has large-scale tax de­lin­quen­cies, he said.

“We should push more to sher­iff sales,” he said.

Richard­son said the city’s last tax li­en sale was in 1997.  

“We don’t do it any­more,” he said in an April 18 phone in­ter­view while still rev­en­ue com­mis­sion­er. Richard­son said he doesn’t think con­di­tions ex­ist to prompt the city to again sell li­ens. 

Also, he said, let­ting a third party con­trol how debt is col­lec­ted takes some flex­ib­il­ity away from the city, and it might not be fair to people.

How will de­lin­quent tax­pay­ers be treated? “We wouldn’t have any con­trol over how people be­have,” he said.

Hen­on es­tim­ated that about half of the half-bil­lion dol­lars in de­lin­quent taxes the city is owed prob­ably isn’t col­lect­able.

“We are up in our de­lin­quen­cies this year,” Hen­on said. “Why? … We are left with a pro­cess that has sym­pathy for tax de­lin­quents, and it has to end.” ••

Re­port­er John Loftus can be reached at 215-354-3110 or jloftus@bsmphilly.com

You can reach at jloftus@bsmphilly.com.

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