NYC To Transform Tax Lien Sale

A city-controlled land bank could soon acquire tax-delinquent properties and redevelop some of those parcels into affordable housing.

That’s the idea behind four City Council bills approved with little fanfare in late January that are poised to transform the city’s contentious tax lien sale, moving it away from the current model of selling liens to a private trust that charges owners hefty interest and can move to foreclose.

Under the legislation, a New York City Land Trust would have the authority to acquire tax liens from the city and transfer those properties to partners who would rehabilitate distressed or vacant parcels into income-restricted housing, while continuing to collect municipal arrears. Before officials can get started on any of that work, however, the city must apply for authorization from the New York State Urban Development Corp. and develop specific rules to govern the land bank.

“We’re trying to add to our toolbox to maintain and produce affordable housing,” said Council member Gale Brewer, who sponsored a bill to establish the land bank. “How can we be innovative about the lien sale, instead of having properties just go to the highest bidder?”

The bills are poised to become law by March, and crucially, they have the backing of the Mamdani administration. Matt Rauschenbach, a spokesperson for the mayor, told The Real Deal that the administration looks forward to implementing the land bank bills “to keep New Yorkers safe, stable and in their homes.”

The City Council initially passed the package of bills in December, but former Mayor Eric Adams vetoed the legislation out of concern that it would reduce the city’s collection of arrears. On Jan. 29, a Council supermajority overrode those vetoes.

Brewer’s bill, which she said would enable the city to target “likely dozens not thousands” of properties to rehabilitate, creates a seven-member board of directors to control the land bank. It would be made up of appointees by Mayor Mamdani, the commissioners of the city’s housing and finance departments and Council Speaker Julie Menin.

Huge questions remain unresolved, however, about how such a land bank would function, and if the new system would result in substantially different outcomes for property owners.

“There’s still some uncertainty here about what the process will change,” said Rachel Geballe, an attorney with Brooklyn Legal Services and a member of the Coalition for Affordable Homes, which is made up of more than 30 housing and community organizations that advocate for tax lien sale reform. “This is the first step in a longer journey,” she added.

For starters, appointees to the board have to create bylaws on how the land bank would acquire and prioritize properties — this months-long process would include a public hearing to inform those rules — and then the board must submit an application to the Urban Development Corp. for permission to create the land bank. Once the application is with the state-run agency, it will take up to two months to process, but approval is all but assured.

The Urban Development Corp. has only once denied an application for a land bank, and that was due to a jurisdiction squabble because a county and a city within it submitted competing land bank applications, said Emily Mijatovic, a spokesperson for the Empire State Development Corp., which oversees Urban Development Corp.

State push

The passage of the city legislation comes just as Gov. Kathy Hochul is pushing to expand the use of land banks as a tool to create and preserve affordable housing throughout the state. As part of her proposed budget, Hochul plans to increase the cap on the number of land banks that can be established in New York from 35 to 45 — there are currently 31 land banks across the state, including in Albany, Rochester and Syracuse. So far, none exist in the five boroughs.

Data from the New York Land Bank Association, an organization founded in 2015 to support the state’s land banks, found that the land banks have returned $135 million in assessed value to local tax rolls over the last 13 years. That includes rehabilitating 3,231 properties, the association said.

The Hochul administration has made $170 million available to support land banks in the state since 2023. City lawmakers have separately sought to create a city land bank in previous years, but they ultimately weren’t able to drum up enough support.

Four bills toward tax lien reform

Back in 2024 the City Council gave the Department of Finance permission to hold an annual tax lien sale through 2028. A tax lien auction doesn’t have to occur each year — the mayor can put off a sale and has multiple times — but when they do, they’ll have new requirements geared toward reforming the system thanks to the package of council legislation.

Beyond Brewer’s bill to establish the land bank, another bill, sponsored by former City Council Speaker Adrienne Adams, formally authorizes the city to sell tax liens to a city land bank during any future sales. It also requires that any purchaser of a tax lien on a one- to three-unit residential property that is occupied by the owner cannot foreclose upon that lien until at least one year has passed after the sale and the value of the lien reaches either 15% of the property value or $70,000, whichever is the lesser amount.

Jennifer Polovetsky, partner at Duane Morris, who worked in the city’s law department during the Giuliani administration handling tax lien sales and in rem foreclosures, said she’s pleased with the new protections for homeowners, and that the bill differentiates more between owner-occupied housing and landlords who own multi-family rental buildings.

“To take people’s homes away for tax liens that are minimal, I think, is unfair, at the same time, everybody has to pay their taxes,” said Polovetsky. “It’s a very difficult balancing act.”

To that end, a bill sponsored by Council member Sandy Nurse requires future tax lien purchases to make “best efforts” to transfer those liens to the city land bank “upon certain triggering events.” That includes any tax liens being sold to the city’s NYCTL 1998-2 Trust, often referred to as the graveyard trust. The trust warehouses the riskiest city liens, and currently holds 3,902 tax liens, according to Department of Finance data obtained by The Real Deal.

As of 2025, the city’s tax lien trusts contain 7,270 liens. That includes 3,468 liens on one, two or three-family homes, 2,452 on commercial properties and 1,355 on multi-family parcels, according to the DOF data. DOF spokesperson Ryan Lavis said the agency has not released a list of eligible properties for the next lien sale, which hasn’t been scheduled yet.

Another bill sponsored by Nurse also requires the DOF to submit annual reports on properties with chronically unresolved liens — those outstanding for 36 or more months after being sold.

A controversial program

The current tax lien sale process, established under the Giuliani administration in 1996, has faced criticism virtually since its creation for opening up property owners to predatory debt collectors. The system also has a reputation for being opaque and a beast to navigate.

The city adds a parcel to the tax lien sale list when its owner has long-overdue property taxes or water and sewer bills. The debt is sold to an authorized buyer, usually the Bank of New York Mellon and their servicer companies, MTAG Services, LLC and Tower Capital Management (Mellon, MTAG and Tower Capital did not return requests for comment on the bills). If the owner can’t pay their arrears, plus accumulated interest, the firms foreclose on the property.

Under the new model, the land bank and its partners could take on some of these responsibilities, but perhaps the biggest unanswered question is: how will this be financed? As written, the council bills do not identify a specific funding mechanism for the land bank, though Hochul’s support could help. It’s also unclear which city agency would oversee and staff the entity, and who would partner with the city to redevelop properties under its control. Nonprofit community land trusts are one such partner the council is exploring, and for which grass-roots community and housing groups are pushing.

All those lingering questions have the real estate industry feeling wary.

Dev Awasthi, vice president of government affairs at the Real Estate Board of New York, noted that land banks can be successful in producing housing, but that the city must provide the new entity with the resources it needs in the upcoming budget — a tall order given the city’s multi-billion dollar budget chasm.

Ann Korchak, board president of the Small Property Owners of New York, went further and called the prospect of a city land bank “very troubling.”

“To my mind, it’s another opportunity to create a COPA-like scenario to swoop in and take over distressed properties,” said Korchak, referring to the Community Opportunity to Purchase Act. The controversial City Council bill would have given city-approved nonprofits, as well as joint ventures with for-profit companies, the first opportunity to purchase certain distressed multifamily buildings, or those with soon-to-expire affordability requirements.

“We’re watching this very closely,” added Korchak.