The City of Philadelphia has taken an unusual step in its efforts to collect taxes owed on more than 98,000 properties. At the end of June, the city put hundreds of tax liens up for auction on the Internet. While investors did not exactly snap them up, officials said that investors bought 240 of the 865 liens available. (Initial reports put the number at 938).
As we explained in our last post, the tax liens, not the properties, were up for sale. Essentially, the city was selling its right to collect the delinquent taxes from the property owner. The city gets the cash, and the investor gets to collect as much of the debt as possible from the property owner. (Starting bids did not include penalties, just taxes owed and interest accrued.) The new lienholder has the power to foreclose if the account is not settled.
Critics of the plan said the city is ignoring the long-term effects of the lien sales. They argue that the city looks at these vacant properties as a revenue problem, when, in fact, they are a development and rejuvenation problem. There is still a lien on the property that may make future attempts to acquire the parcel even more difficult. In the end, the city may have to pay even more to get the property back — in order to condemn it, for example — than it earned in the sale. Plus, the sale of the lien only takes the past due amount off the city’s books. There is still the problem of collecting current and future taxes from the property owner.
Nevertheless, officials said the auction, or the threat of auction, proved to be an effective enforcement tool. The Revenue Department collected an additional $5.3 million in back taxes from nearly 1,500 property owners. Another 500 property owners will pay more than $2 million over time after negotiating payment plans with the city.
There may be more auctions in the future. Before that happens, though, critics are hoping the city will consider the impact of these auctions on the Land Bank. Does the sale of tax liens undercut the Land Bank’s stated purpose?
We will get into the particulars of that issue in a future post.
Source: Philly.com, “City nets $2 million in sale of liens,” Claudia Vargas, July 1, 2015
