Government tax lien certificate

The New York Stock Exchange, the House of Blues, 26 Federal Plaza, the Downtown Athletic Club and 680 Fifth Avenue are among the properties that were listed to become part of the city's $150 million tax lien sale, which is being planned for the end of May.

Under the terms of the lien certificate sales that is being made through a trust to sophisticated institutional investors, property owners will have to make payments once every six months at an interest rate of 18 percent.

But a 5 percent surcharge on the total lien will be added for administrative costs. A $5 or $10 fee for advertising costs will also be collected.

Lienholders will be able to work out a different payment schedule with owners, such as a monthly payment, but will not be allowed to "forgive" debt.

Under the new law, tax lien sales will not be permitted after December 31, 1997.

Steven Spinola, president of the Real Estate Board of New York, said "There reality is, that if people haven't paid their taxes, the city has the right to take [the property]. This is an alternate way of doing it."

With this new city law in place permitting the city to sell tax lien certificates, owners are inundating the Department of Finance with questions about the affect of the sale on their properties. They are also questioning past due real estate tax payments and other charges in order to avoid the additional lien certificate sale surcharges.

Another bill, that was to being discussed by the City Council last Friday, March 22nd, would permit the city to obtain a court order transferring the deed to a third party - presumably the lien certificate holder - after four quarters of arrearages. This would enable the lien certificate holder to foreclose on the certificate should the property owner fail to meet their payment obligations.

All 13,000 Class II and Class IV properties on the list are supposed to be more than one year in arrears, and sources said the cut-off point was around $5,000 in past due amounts. No amounts due were published and owners will have to obtain that information from the borough City Register offices and the City Clerk in Staten Island.

Those property owners that are up-to-date with installment agreement payments should also check to insure their property is not on the list.

Because city officials realize the list is not completely accurate, they are hoping owners will call and follow-up with documentation to let them know if the property is mistakenly on the list.

By comparing the list to city records, REW easily found properties on the list that are there erroneously.

There are high-profile buildings such as the Woolworth Building, and buildings owned by the MTA and U.S. Government, including 26 Federal Plaza, that are exempt but have outstanding water or other charges and are listed by mistake.

A mistake was apparently made on the New York Stock Exchange, said spokesperson Ray Pellecchia, who believes the Exchange's listing was due to a bill for $17,000 that was paid in November, 1995. Since that time, they have received notices the amount was past due and have been trying to get the records straightened out.

"We expect that they will bring their records up to date soon," said Pellecchia.

The Woolworth Building owners apparently have a charge of $1,123.71 for property taxes going back to January 1995, when the payment was posted after January 1st. Interest on that interest has already rung up another $1,119. Because it totals under $5,000, Finance spokesperson Richard Loconte said it probably shouldn't be on the list.

Most property tax entries are made after the due date by the bank, but then certain other payments are credited later by Finance. A payment could have been made on time, but the computer entry could have been made after the computer's internal grace date, generating a false and recurring interest problem for the owner - and for Finance. The Department has been plagued by posting date problems for the last year and they have not all been cleared up.

The city's list also includes properties that are fully or partially exempt, like the U.S. Government's 26 Federal Plaza, that owes about $1.5 million to the city. That file also shows an outstanding credit of $400,000.

The MTA also owes money for charges on Madison Avenue properties totally about $100,000, including Business Improvement District taxes and water bills.

"I'm surprised to hear that we're not totally exempt," said John Cunningham, a spokesperson for the MTA.

A spokesperson for the Republic of Zimbabwe's mission at 128 East 56th Street was upset to find out they were on the lien list. "We filled out all these papers at closing and they were not supposed to send us anything," he said.

The attorney for a Midtown owner that recently purchased a building that wasn't listed was upset that two other adjacent parcels they also own were on the city's lien list. "Why didn't the title company pick this up?," the attorney wondered. Indeed, why hasn't the city corrected those entries that owners have been trying to get corrected for many months?

"This is the new Finance," insisted Loconte, who says Commissioner Alfred C. Cerullo III, who is also still heading Consumer Affairs, is trying to make Finance an easier agency to work with.

This current project, however, could sink their valiant efforts, as employees are not able to make the changes immediately and the backlog of earlier corrections has not yet been cleared up.

They did get to the House of Blues file, but not soon enough. Currently, they owe $2.11 to the city and recently made a payment of over $53,000 - but prior to the publication of the lien list. They also have an $8,000 credit in the file that may have a certiorari attorney lien on it.

Loconte explains the mis-entries as having been done by a computer that seems to have ignored exemptions. "It was easier to have everything down first," he said, as the sale could not include properties that were not on the list. "People should not be alarmed if the property is on that list and there may be reasons," he added.

An ombudsman unit has been set up to deal with inquiries regarding the sale, including errors, and can be reached at (718) 694-0424 from 9 a.m. to 5 p.m. More personnel were added to respond to questions after callers overwhelmed the line, and REW was able to speak with the helpful personnel in the early morning hours after multiple tries in the afternoon were unsuccessful.

So far, said DOF spokesperson Loconte, the heaviest volume of calls has been from owners who say they want to come in and pay. The other big question has been, "If I pay my arrearages and bring my bill under $5,000, will I be ineligible?" The answer to that question, Loconte admitted, is still under discussion.

Without the ability to forgive some of the debt, Dan Margulies, executive director of the Community Housing Improvement Program (CHIP) believes the program is merely a way to raise quick money for the city.

"If the portfolio manager can't forgive debt, that makes it impossible to manage the portfolio prudently and devalues the whole program," he said. "The only virtue of the lien sale is that it would have created flexibility and speed. If it doesn't do that, it's merely a fiscal gimmick for the city."

Individual investors are nevertheless asking for information as to how to qualify to become bidders for the lien certificates, which under the new law, can be sold individually or in bulk. But the regular investor or building owner won't be allowed to purchase them this time around.

First Deputy Commissioner Adam Barsky said while the law gives the city the power to sell liens to individuals in the future, this first sale will be to "sophisticated investment groups."

The Commissioner of Finance has been empowered to promulgate rules to qualify bidders. Bidders may have to disclose their own financial information, and may be prohibited from participating in the sale should they owe money on real property or other taxes or charges to the City of New York.

The method of sale selected for this pool is the securitized pool. The underwriting team is composed of Morgan Stanley - the "book running manager" - Lehman Bros., Smith Barney and Bear Stearns, while the city's financial advisor is W.R. Lazard, a prominent minority-owned firm where Tax Commission President Earl Andrews Jr. used to work.

For this current sale, the liens will be sold into a trust. "Then the trust will issue bonds to highly sophisticated investors for this type of fixed-income security," Barsky explained, adding that "big insurance companies and big buyers of bonds that buy these asset-backed securities" are the expected purchasers.

At another time, there may be different liens that the Commissioner of Finance may decide to sell in bulk or individually.

The law does disqualify those bidders that may owe money to the city or have an interest in the particular parcel.