Property tax delinquency and foreclosure risk in New York City are rising as multifamily owners face rent increase limits from the 2019 Housing Stability and Protection Act, higher interest rates, and rising insurance costs. Banks are moving defaulted mortgage buildings from special servicing to foreclosure. Property tax liens take legal priority over mortgages, limiting the finance department's discretion to negotiate workouts. Before 1996 tax-lien foreclosures forced the city to assume management and repair costs. The Koch plan combined city investment, loans, and transfers to non-profits and private developers to produce many rehabilitated or new units at substantial public cost. The Giuliani-era program sold tax liens to private investors, generating revenue and shifting property management to private owners.
New York is a very different city from when Mayor Ed Koch was faced with upwards of 100,000 properties having been foreclosed on for property tax arrears but current rates of delinquency are on the rise. Multifamily owners are squeezed by limitations on rent increases baked into the 2019 Housing Stability and Protection Act, rising interest rates, and costs for insurance, among other things.
However, property tax liens have legal priority over mortgages and the department of finance has less discretion to fashion a workout than a private lender. Before 1996, tax lien foreclosures were common and the city was forced to step into the landlord's shoes to pay necessary expenses and make repairs. The Koch housing plan set out to address the problem by a combination of city investment, loans and transfers to not for profit organizations and in some cases private developers.
Over the course of a decade, and at a cost of over $5billion, some 250,000 units of housing were built or rehabilitated. Mayor Rudy Giuliani's administration took a different approach, creating a program by which property tax liens were sold, generating a revenue stream for the city and removing it from management of the properties in favor of new private owners who could presumably be more efficient, as well as leverage new debt and equity to support a property.
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