In mid-October, the city announced it will help some homeowners who have fallen behind in paying their property taxes to get current and stay current. They can accept that help, or else face foreclosure.
Or, those homeowners, along with everybody else who owes unpaid taxes to the city, might face something else. As October ended, City Council passed a measure that would allow the city to sell delinquent taxpayers’ debts, the liens put on their properties, to third-party investors, who pay what is owed, giving the city its money and cutting what the city must pay to collect its overdue taxes.
New Jersey municipalities, for example, use tax lien sales to bring their tax-collection rates close to 100 percent. Cherry Hill’s is about 99.9 percent, and Newark’s is more than 96 percent. Philadelphia’s rate, depending on whom you ask, is between 86 and 91 percent, a fact that those who do pay regard with no small degree of bitterness.
The tax lien sale passed, 15-2, now goes to the mayor, who can sign it into law or veto it. Overriding a veto requires 12 votes. If the mayor goes along, then the ordinance takes effect on Nov. 15 and the Revenue Department will have to work out how lien sales will be organized.
The measure was introduced in the spring by Councilmen Bill Green, David Oh, Brian O’Neill, Bobby Henon, Jim Kenney and Mark Squilla. The only members to vote against it were Maria Quinones Sanchez and Jannie Blackwell.
Sanchez, Green and others, however, introduced the other plan to collect delinquent taxes that the city is rolling out now.
Green estimated lien sales could knock down the city’s roughly half-billion dollars in delinquent real estate taxes by $50 million to $60 million each year.
“This is an important tool that we have to raise both additional funds for the city and school district,” Green stated in a news release.
In talking up the idea in April, O’Neill had said lien sales would get money to the city and keep it out of the collection business.
“Lien sales can help us end our city’s unfortunate culture of noncompliance,” said Henon. “People have a responsibility to pay their taxes, and we have the responsibility to make sure our city and schools get the funds they are entitled to.”
Quinones Sanchez, who joined Green in introducing the legislation for Owner-Occupied Real Estate Payment Agreement in the spring, saw a downside in lien sales and opposed it.
A complaint about lien sales is that the debt can be scooped up by investors from outside the city.
“If they sell the liens and I have to go to China to find out who bought it, that could totally destabilize a neighborhood,” she said in an interview a week before the tax lien sales measure passed.
In an Oct. 16 news release, the Revenue Department outlined a program in which, based on income eligibility, that will steer owners who live in their own homes toward paying down their outstanding tax debt.
The four-tiered program is based on a City Council ordinance, 120054, passed earlier this year. The city announcement, however, made no mention of the measure, which was introduced by Sanchez, Green and Councilman Curtis Jones and co-sponsored by O’Neill, Henon, Squilla, Blackwell, Oh, and members W. Wilson Goode Jr., Dennis O’Brien and Marian Tasco.
The Owner-Occupied Real Estate Payment Agreement will be offered to delinquent property taxpayers in a system based on family income and size.
Using a family of four as an example:
• Those with monthly incomes of $4,622 and higher must pay the full amounts of past due property taxes, including interest and penalties. Monthly payment amounts will be set at the discretion of the city’s Revenue Department.
• Those with monthly incomes from $3,301 to $4,621 must pay 10 percent of their monthly incomes. They are entitled to waivers of 100 percent of accrued penalties.
• Families with monthly incomes from $1,981 to $3,300 must pay 8 percent of their monthly household incomes. They are entitled to waivers of 50 percent of the interest and 100 percent of the penalties accrued on their delinquent taxes.
• Those with monthly incomes of zero to $1,980 must pay the city 5 percent of their monthly incomes, but no less than $25 per month. All interest and penalties will be waived.
To qualify and continue with the payment plans, applicants must remain current or under agreement for current and future real estate taxes. The penalties for not living up to an installment agreement with the city is to be dropped from the program and face speedy foreclosure.
THE NO-PAY WAY
According to information on the bill signed by Mayor Michael Nutter in June, Philadelphia has the least-effective tax-collection system of the nation’s largest cities, with 110,000 delinquent parcels that represent almost 19 percent of all the properties in the city.
In a phone interview earlier in October, Henon said his 6th District has about 1,700 delinquent owner-occupied properties, which represent $7 million of the citywide $150 million debt such properties owe.
Three-quarters of the owners of those parcels in his district are not on any kind of payment plans right now, he said. They can apply for this new program, which he described as accommodating, but tough.
“This is a game changer,” Quinones Sanchez said in a phone interview. It gives homeowners who’ve been affected by the bad economy the opportunity to get on some sort of payment plan that is realistic for them and potentially save their homes, she said.
O’Neill called the plan a piece of the solution to the city’s delinquent tax woes because not only does it aid homeowners who have financial problems keep their homes, it “helps us go after the high-end investors” who just aren’t paying their taxes. “I hope it’s a first step in an aggressive approach to go after tax delinquents that have money … but that game the system,” he said. ••