No Covid break for big properties with unpaid taxes

A lot has changed since 1991, when the city set the interest penalty at 18 percent for unpaid taxes on large properties. Inflation and interest rates are at historic lows and a pandemic is pounding the economy, but that steep rate for late payers remains — to the dismay of the real estate industry.

“No one is saying the penalty should be waived,” said Paimaan Lodhi, a senior vice president at the Real Estate Board of New York. “But in this time of crisis it should be reduced to not further punish those that are experiencing hardship.”

Showing some heart, the New York City Banking Commission this month did recommend the City Council give late payers a break, but only for properties assessed at $250,000 or less.

With property taxes due July 1, REBNY has raised the idea of letting owners stretch out payments “so there isn’t one big hit in July,” said James Whelan, the group’s president.

The city made no mention of the 18 percent interest rate in announcing the Banking Commission’s call to eliminate interest on late payments for property taxes due in July for properties assessed below $250,000 and enduring a financial hardship as a result of Covid-19.

The commission is controlled by Mayor Bill de Blasio as he and his finance commissioner, Jacques Jiha, hold two of the three seats. The third member is the city comptroller, Scott Stringer, who in the announcement urged the City Council “to let us go further.”

The Banking Commission’s proposed rate must be at least 6 percentage points greater than the prime rate, which was 3.25 percent on May 12. That means the panel could have proposed a rate as low as 9.25 percent. Keeping the rate at nearly twice that number left REBNY and others unsatisfied.

“We need to use every tool at our disposal to provide compassionate relief,” said Stringer, a contender for mayor next year.

Even in setting that 18 percent rate, the Banking Commission said delinquency for the properties assessed over $250,000 increased by nearly one-fifth, to 8.8 percent, in fiscal 2020, which it noted dryly “is still a healthy delinquency rate.”

There is some leniency for property owners who are delinquent or just don’t want to fall behind. They can set up payment plans that run as long as 10 years but must keep up with interest and new charges. Owners of single-family homes facing ongoing hardships can defer as much as 25 percent of the amount due and condominium owners as much as 50 percent while on fixed payment plans. There are plans for seniors and low-income owners as well.

And this year, for the first time, the city is offering an automatic monthly payment plan for all property owners.

But with evidence indicating that delinquency is growing, the commission advised keeping the 18 percent rate for large properties anyway, reasoning, “It is in the city’s best interest to encourage the prompt payment of real estate taxes by all taxpayers.”

Relief was reserved for smaller properties, as the panel called for legislation allowing zero interest for properties assessed at $250,000 or less, but then only for the quarterly payment due July 1 and only if the owner can prove a Covid-19 hardship.

For those smaller properties without Covid hardship, and if no legislation is passed, it voted to drop the rate for payments due in July to 3.25 percent from 7 percent, and to 5 percent for the remaining three payments of the fiscal year.

De Blasio crowed about the lower rate, saying, “We are doing everything in our power to help families who are struggling.”

The outnumbered Stringer noted, “To an unemployed New Yorker, the potential forgiveness of late payments may be the difference between paying back their taxes and facing foreclosure.”

When owners miss a quarterly or half-year tax payment, interest shows up immediately in the property’s on-line city tax and payment files.

If payments are late by a year or more, the lien may be sold, depending on the assessed value, kind of property and the type of charge — property tax, emergency repairs or water use, for example. Private funds that buy the liens then tack on fees and try to collect on the debts.

The city holds an annual lien sale, but first notifies owners 90 days in advance that if they don’t pay a certain amount or enter into a payment agreement, the lien on their property will be sold and they could face other charges and foreclosure. This year’s lien sale, scheduled for May 15, has been postponed to the end of the summer because of Covid.

Of nearly 16,000 properties on the city’s most recent 60-day lien list, 1,867 assessed at $250,000 or less have owed money for at least a year. The Banking Commission says the delinquency rate for such properties rose by one-quarter in the last fiscal year to 13 percent.

For properties assessed at more than $250,000, which pay semi-annually, the delinquency rate climbed by 19.3 percent. As of March 6, the city’s 60-day lien list included 13,854 of these properties, with the interest rate ticking along at 18 percent.

The effect of that rate is that owners who get behind often never catch up. Their liens are sold in bulk to a bond-like trust serviced by a financial company which can add a 5 percent fee and other expenses to the amount due.

If a property owner does not keep up with payments to the servicer, the building can be foreclosed and sold. But foreclosure cannot begin for seven to 12 months after a lien is sold and the timing depends on whether payments are made to the servicer. Foreclosure can take months or years after that, as the debt holder must follow the same state court process as in a mortgage foreclosure.

Of the 18,843 liens sold from 2008 to 2011, only 322, or 1.7 percent, resulted in a property foreclosure, the city’s Lien Sale Task Force said in a 2016 report.