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City Must Remove Nonprofits from Tax Lien Sale


garden tax lien sale

(photo: Sofie Hecht/Gotham Gazette)


In New York City, tiny, vulnerable, nonprofit organizations too often lose the real estate they own to for-profit developers. These unjustifiable losses are a complete mix-up of city and state tax policy, through the mechanism called the tax lien sale. New York City needs to fix this problem by removing nonprofits from the tax lien sale.

Nonprofits of various sizes -- religious institutions, universities, and community gardens alike -- frequently own property. These organizations, due to their nonprofit status, according to the New York State Constitution and New York State law and are tax exempt. Yet every year, New York City facilitates the sale of some of these properties to private speculative developers, and it is never the mega universities or big churches that end up in this mess, but small, local nonprofits.

New York City is correctly concerned with maintaining its tax base to keep the city functioning. In 1996, the Giuliani administration drastically changed the way the city deals with owners who don’t pay their property taxes out of concern for the lost tax revenue. One aspect of that change was the introduction of the tax lien sale for all property owners, including nonprofit owners even though they do not owe these taxes in the first place.

The tax lien sale works like this: if you, as a property owner, don’t pay your property taxes, the city places a lien on your property and sells it to a tax lien trust, an investment vehicle only rich ("accredited") investors can use. The trust then adds interest and fees and collects the "past due" taxes even when they were not technically due. If the property owner doesn't pay those fees, the trust initiates foreclosure and then sells to a buyer, usually a developer, at a post-foreclosure auction.

If you are a nonprofit owner, to avoid the tax lien sale you need to successfully apply for a tax exemption. When your tiny organization has a staff of two or three people, sometimes the administration is imperfect and you don’t file an exemption form when you acquire the property, which can lead to the loss of your property because of the tax lien system.

To continue avoiding the tax lien sale, your nonprofit needs to annually file a renewal form with the Department of Finance. So, if your community garden board misses a few pieces of mail because the former president retired and the new generation of garden caretakers doesn’t have every city agency sending mail to the right place, the renewal might not get filed. And the tax lien warnings may go unnoticed.

In a year or two, New York City thinks this property has a civic duty to pay taxes (which it does not) and is delinquent in that duty. The lien gets sold, and then your garden or church gets foreclosed. The worst case scenario happens when a developer shows up with court papers at your garden’s fence and tells you “we own this now and you must go.”

So, even though the state constitution provides for the exemption of property taxes for nonprofits, and even though New York law provides that your property is exempt from the date you acquire the property as a nonprofit, the City Department of Finance is still permitting the tax lien sales of nonprofits.

As D.W. Gibson reported earlier this year, the Black Veterans for Social Justice in Bedford-Stuyvesant, Brooklyn learned this year that tax debt on their property had been sold. Tax debt that, under state constitutional principle and state law, they do not owe. They are working on untangling this mess before their building ends up in foreclosure.

Tax revenue from property owners is an important piece of how the city functions. But this cannot be an excuse for seeing a small community nonprofit, especially in an already pressed neighborhood, fall into foreclosure.

The city should collect taxes from luxury real estate developers. The city should exert more muscle to collect fines from delinquent landlords who permit their buildings to collapse around tenants. The city should focus its hunt for lost revenue on the actual organizations that legally and morally should be paying it.

The rules around tax lien sales are up for renewal this year. New York City must exempt nonprofits from the tax lien sale altogether. New York City should not be seeking lost revenue from the most vulnerable populations. This problem can be fixed.

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Richard Semegram is a tenant lawyer and an advisory committee member of 596 Acres. On Twitter @richagram.

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