Tenants Suffer As City Sells Landlords’ Tax Debt to Speculators

When Fabiola Burbano fled a violent living situation in 2012, she feared she would have to move with her children into a shelter.

Then Victoria Alicea, an acquaintance from her children’s Tae Kwon Do studio, heard that the family had nowhere to go and offered a unit in the building she owned at 702 Grand St.

The rent-regulated Williamsburg apartment became a refuge for Burbano and her family.

“When we first got here, we only had two blankets. We slept on the floor,” said Jessica Campoverde, Fabiola’s now 24-year-old daughter. “This place was our first peace of mind after leaving that horrible situation.”

It wasn’t perfect — the apartment was old and repairs sometimes lagged — but it was home, and it only cost Burbano $700 a month.

Since then, Burbano’s family has grown and flourished on Grand Street. Over the years, she worked long hours, got married, had a baby and even beat cancer.

Life did not go so smoothly for Alicea, the building’s owner. Alicea had originally inherited the six-unit building from her father, and with it, the tax debt that had accumulated. Even before Burbano moved into the building in 2012, Alicea was struggling to pay her bills, including her property taxes.

When a property owner in New York is behind on their taxes or other municipal charges for more than a year, the city sells that debt at a discount to a private trust of investors in the form of what is called a “tax lien.”

The city gets upfront cash — about 73 cents on the dollar — and the investors take on the responsibility to collect the debt. Interest rates can be as high as 18%, compounded daily. That, plus fees charged by the debt servicer, can make original debts balloon seemingly overnight. In addition to charging high interest rates and fees, the lien trust can also foreclose on properties and sell them at auction.

Since 1998, 702 Grand St. has been on the city’s tax lien sale 12 times. The most recent sale, in 2019, was for a debt of nearly $38,000.

“Being young, I didn’t know when it was happening with the liens,” Alicea said. “These are the things no one teaches you in life.”

“It Was a Family Building”

Former Mayor Rudy Giuliani created the tax lien sale in 1996 as a way for the city to enforce property tax collection without taking on the burden of foreclosure, while also collecting some of the city’s debt. Prior to the tax lien sale, the city regularly foreclosed on tax-delinquent properties through a process called in-rem foreclosure. But during the capital flight of the 1970s and 1980s, the city had become burdened with a huge inventory of decrepit buildings.

“The city owned 60% of the units in Harlem in the 1980s,” said Mark Willis, senior policy fellow at the NYU Furman Center and former deputy commissioner of development at the Department of Housing Preservation and Development. “That’s how much abandonment had taken place there.”

Supporters of Giuliani’s plan claimed that private owners would do a better job of revitalizing financially stressed buildings than the city would, while the prospect of lien sales could serve as a cudgel to encourage delinquent owners to pay their taxes.

But the actual results of lien sales have been mixed, especially for multifamily buildings.

Although New York’s tax lien sale is intended to incentivize property owners to pay their taxes, the process of selling liens can pressure owners to sell their buildings to speculators or cut corners with maintenance to make up for the debt owed — all without oversight from the city and at the expense of tenants who are unaware of what’s happening behind the scenes.

In 2019, the city sold more than $120 million of tax liens and received about $74 million in the sale, according to the Department of Finance and the City Comptroller’s office.

The next year, nearly 1,000 foreclosure cases were filed.

Alicea said she had gotten offers from developers hoping to buy her building for years, “but it never felt right because it was a family building.”

But by 2020, with the debt mounting to roughly $90,000, and personal circumstances shifting, Alicea decided the time had come.

“I felt like I was in over my head with the liens, and the bills and everything going on in my personal life,” Alicea said. “I was left with a six-unit building and a store underneath all by myself. It was too much. With everything going on, it was best for me to sell.”

She sold the building in January 2020 for $2.25 million to a Staten Island-based investor, David Banda, even though she estimated it was worth more than $4 million.

“At the time, I was desperate,” she said. “I just wanted to be out of it and move forward, so I was OK with it. But when I look at the long term aspects of it, I don’t think it was a good deal.”

A year later, Burbano and her family were now alone at 702 Grand St.

Her neighbors all left, either when Alicea first asked them to leave or after the building’s new owner offered them buyouts, but Burbano stayed. She said that no buyout would be enough to house her family elsewhere.

Selling More Than Just Liens

Jacquelyn Griffin, an attorney for Brooklyn Legal Services, frequently hears from smaller property owners unexpectedly caught up in the lien sale process. She still remembers her first client, an heir overwhelmed by the lien trust servicer’s demands for payment. Many of her clients find themselves in similar situations — the city sells a lien on their small building, and soon they are inundated with letters from debt servicers demanding payment.

According to Griffin, the terms of the lien trust’s payment plans are usually strict and unforgiving, which makes it difficult for owners to stay current on their payments and adds pressure on them to sell.

“You’re losing the home itself, and that ends up losing that generational wealth and that history, but you’re also losing affordable housing over time,” Griffin said, adding that many families living in these buildings will find it impossible to find new housing within their budgets.

John Krinsky, professor of political science at CUNY and founding board member of the New York City Community Land Initiative, said the city can’t plead ignorance of these harms.

“They already have all kinds of acknowledgement that the lien sale is bad for the properties that go through it. And yet, they keep doing it anyway,” he said.

On the Department of Finance’s web page with lien sale information, a section titled “Avoid Predatory Lenders!” admits to a certain level of hazard.

The website warns: “These lenders try to take advantage of your financial situation, and you could lose your property.”

The city does provide multiple public notices before the sale, including a published list of the eligible properties 90 days in advance. Publicizing properties eligible for sale helps ensure that people know their properties are at risk, the mayor’s office told New York Focus.

“They’ve basically made the calculation that it’s worth it in terms of money collectable by the city,” Krinsky said. “And that’s the real shame of it, because nobody says they couldn’t collect the money in some other way.”

Since the first delay of the lien sale in the spring of 2020, critics have pushed against renewing for the lien sale. The de Blasio administration has defended the program, arguing that the lien sale is responsible for nearly a billion dollars in property tax revenue because of its enforcement ability.

Lien Sales Hit Tenants Hardest

Controversy surrounding the lien sale is not new, but the discussion often revolves around its impact on small homeowners. However, there are more residents in larger multifamily buildings, like Burbano and her family, who live in buildings with sold liens than in smaller buildings.

The lien sale hits multifamily buildings in Brooklyn hardest, especially neighborhoods including Bedford-Stuyvesant, East New York, Brownsville, Bushwick and Flatbush.

Between 2014 and 2019, according to city records, over 3,500 liens were sold on buildings with more than three units, known as class 2 buildings. Nearly half of those liens were sold on buildings in Brooklyn, even though only 29% of class 2 buildings are in Brooklyn.

According to an analysis of lien sale data between 2014 and 2019, the multifamily buildings with liens sold contained over 26,000 residential units. The smaller class 1 buildings contained around 22,600 units.

Among these buildings, there’s a sizable subset that accrues multiple liens, sometimes circulating through the sale when owners don’t pay their taxes year after year. Past studies from the Independent Budget Office and public advocate’s office show that buildings with more than one lien sold are much less likely to ever pay back the debt.

Out of the 734 multifamily buildings that had liens sold in 2019, more than a third of them had a lien sold at least one other time since 2014. 43% of buildings with a lien sold in 2014 had a lien sold at least one time previously, the Independent Budget Office found.

In the six years between 2014 to 2019, New York Focus found, 881 multifamily buildings citywide had liens sold multiple years, and 429 of those buildings were in Brooklyn.

Every year, the public lien sale list provides a tally of which building owners are in financial distress, attracting speculators who specialize in distressed properties.

Four of Banda’s properties, including 702 Grand St, had multiple liens on them prior to his purchase. To fund his purchases of those four properties, Banda relied on financing from specialized non-bank lenders, who often provided him with mortgages exceeding the deed price.

In the case of 702 Grand St, Banda took out a mortgage of $2.5 million, $250,000 more than the property’s deed price, from a non-bank lender called Broadview Capital LLC. After Banda acquired the property, he offered buyouts to all existing tenants. Once all but Burbano left the building, he filed a building permit with the city to start construction on an “unoccupied” building at 702 Grand St., as if Burbano and her family weren’t there at all.

Jaime Weisberg, senior campaign analyst for the Association for Neighborhood & Housing Development, said that wasn’t surprising.

“A non-bank lender’s high-cost financing puts intense financial pressure on the borrower to provide a return on their investment,” he said, which can encourage new owners to evict tenants, especially if their leases prohibited full market rate rents. Regular bank lenders, Weisberg added, have regulations to help prevent displacement.

Undeterred by Burbano’s presence, Banda settled for a full gut renovation, leaving the entire building without windows or coverings for months — aside from the lone occupied unit on the second floor.

Between January and March, Banda paid off seven liens and in September, he took another mortgage of $750,000 from Broadview.

Burbano and her family were surrounded by constant construction. Water leaked when it rained. Dust flowed in under the doors, afflicting her child who uses an inhaler. If they complained, they were dismissed or promised redress — which never came.

“The demolition was extremely scary,” Campoverde said. “There were two big leaks. It literally felt like it was raining inside… There was a puddle on the floor, the blinds were wet.”

Banda did not return multiple phone calls or emails from New York Focus requesting comment. Broadview Capital confirmed their knowledge of loans to 702 Grand St„ but declined to comment further.

“I Wasn’t Going To Pay Them”

A 2016 report by then-Public Advocate Letitia James found that many multi-family buildings with multiple liens sold also had deteriorating conditions and many housing violations.

The report concluded that the sale as currently practiced “does not optimize the city’s potential to leverage debt to encourage or require the rehabilitation of affordable housing.” In fact, the report continued, it does the opposite by encouraging the “further degradation” of affordable housing and “incentivizing deregulation rather than preservation.”

In Brooklyn, multifamily buildings with four or more liens sold between 2014 and 2019 had an average of about 17 building violations per unit filed with the city’s Department of Housing, Preservation and Development, compared to the city average of 0.7 per unit. The majority of these buildings are concentrated in non-white ZIP codes, mostly in eastern Brooklyn.

One landlord, Olufemi Falade, owns many of these repeat buildings as well as a lengthy reputation for being a notoriously neglectful landlord. In 2006, he was jailed by then HPD commissioner and recent mayoral hopeful Shaun Donovan for 12 days because of his refusal to correct 1,800 violations in 12 buildings he owned, according to a NY Post article which describes him as a landlord from hell.

In a deposition he gave for a suit over the selling of 62 New York Ave — a 16 unit building in Crown Heights which he entered an agreement to sell but skipped out on the closing — he said that he had no idea what the monetary obligations for the building were.

He further explained that he made no effort to know the amounts of the outstanding liens “because I wasn’t going to pay them and it was not going to be part of the deal.”

The lien amount that Falade pleaded he had no knowledge of totaled $630,000. Ultimately, Falade walked away with $1.7 million. Krinsky suggested that landlords like Falade could be engaging in a kind of real estate arbitrage by keeping a careful eye on their margins.

“They may be sort of weighing that against the value of the lien interest and penalties and figure that if they can then sell the building, they can get that back and so much more, that it’s not worth paying taxes or upkeep on the building,” he said.

Numerous calls to phone numbers listed for Falade went unanswered.

Reform or Abolition

Last fall, residents and activists in East New York led a vocal campaign to abandon the lien sale and replace it with a preservation model. Debra Ack, an East New York resident and member of the land trust initiative’s steering committee, was at the forefront of these efforts, going door to door to let people know their property was at risk.

“It’s important for us to have ownership in our community,” Ack told New York Focus. “Where are we going if we lose our homes in East New York?”

No lien sale occurred in 2020 as a result of the Covid pandemic, but last December, the City Council voted to renew the lien sale — albeit with some caveats.

The Council also created a dedicated task force to examine the issue of lien sales. The task force is largely made up of City Council members and other government officials, but it does include one community member: Debra Ack.

At a public hearing on October 1, the task force presented their findings thus far. The written recommendations include suggestions related to a land bank and community land trusts — but notably not getting rid of the sale altogether. Numerous activists and property owners spoke at the hearing, some desperately pleading for the sale to be ended.

Hannah Anousheh, coordinator for the East New York Community Land Trust Initiative, told New York Focus that while she was glad to see some of her group’s suggestions in the initial proposal, she felt that the task force, stacked with agency heads and elected officials, were wary of taking seriously any proposals for alternatives.