Gothamist Hundreds Of Nonprofits At Risk Of Having Their Tax Debt Sold—Even Though Many Should Likely Be Tax Exempt by Nathan Tempey
"These are the community spaces where all of the things that hold New York City neighborhoods together happen," said Paula Segal, a senior attorney with the Community Development Project of the Urban Justice Center. "These are the places where community theater happens, these are soup kitchens, these are community gardens. They are places of exchange, places of worship. When they go through the tax lien process, they go into this administrative process where they become targeted for speculation."
Created in 1996 under Rudy Giuliani, the tax lien sale is meant to pressure delinquent property owners into paying their outstanding taxes and water fees. If they fail to do so, each spring the debt is converted into liens and the right to collect on the liens is sold off to a private trust managed by the Bank of New York Mellon.
One major problem identified by Segal and the group she founded, 596 Acres, is a 2011 rule change mandating that nonprofits refile for property tax exemption every year, whereas before properties were considered exempt until the owners filed paperwork indicating otherwise. The result of that and similar rules for water fee exemptions, according to 596 Acres, is that 349 nonprofits had properties in danger of having their tax debt sold as of last week. Nonprofit administrators have been individually working out resolutions with the Department of Finance since then, often at the prodding of volunteering Fordham Law School students who have been going down the list and trying to contact each organization. By Monday, the number of nonprofit properties at risk was down to 324.
That tally is still too large for comfort for Segal and her allies on the City Council. A letter to Finance that 596 Acres is circulating for elected officials' signatures reads in part, "We urge you to remove all recently-exempt properties DOF identified from next week's tax lien sale. Charity properties are entitled to be free from paying property tax under the New York State Constitution; including them in the lien sale puts them at risk of closing their doors and selling to speculators."
Twelve Council members have signed on so far. Brooklyn Borough President Eric Adams also spoke out against the inclusion of nonprofit properties on the lien sale list. In a statement, Adams said, "At a time when underserved communities find themselves relying on charitable organizations more and more, with those organizations stretched thinner and thinner, we should making a greater effort to help the helpers."
This year marked the first time that DOF created lists of properties that had been registered as tax-exempt until recently, as well as vacant lots, of which there are 1,155. The sign-on letter also calls for those lots to be removed from the tax lien sale, arguing that holding onto the debt gives the city leverage to try to convert the properties into affordable housing or some other community use.
"We have these vacant properties—they’ve got to serve a city purpose," Bushwick Councilman Antonio Reynoso said. "How can they serve a city purpose when they’re eventually going to be sold for for-profit development? We have an opportunity. If it’s good enough for somebody to buy the liens off of, it’s good enough to have some value. We should get that value."
Under the current system, lien buyers are "not incentivized to do something with" the vacant lots they buy the debt to, according to 596 Acres director of partnerships Mara Kravitz. "The land just sits there, and there’s no penalty for warehousing."
Advocates have plenty of examples to point to when describing the lien sale process running amok. By their tally, 89 properties with community uses had their tax debt sold in 2016. Among them was Grace Baptist Church in Bedford-Stuyvesant, which sold last year to cover wrongfully levied tax bills, according to reporting by Urban Omnibus. The Al-Muneer Foundation, a mosque and community center, in Jamaica, Queens had its wrongfully issued tax debt sold in 2014 and had to fight to get the tax erased.
A church's failure to pay taxes or file for an exemption for one of three neighboring lots that make up the Imani Community Garden in Crown Heights led to its tax debt being sold in 2004. The affected lot is in the middle of the garden and contains a decades-old willow tree. In 2015, BNY Mellon's trust foreclosed on the debt, and a developer bought it at private auction. The new owner fenced the lot off from the other two sides of the garden, and is now planning to build an apartment building there, according to Buildings Department records.
Aging nonprofit administrators, dwindling church congregations, decentralized dioceses, and transient volunteer pools can all contribute to nonprofits missing the significance of bills or failing to file paperwork, according to people familiar with the issue.
"I’ve heard from some folks who are like, 'Why can’t some nonprofits fill out some forms?'" said East Side Councilman Ben Kallos, who lead the sign-on effort. "If this goes into the lien sale, no bank is going to say, 'Oh you don’t need to pay us back, you just need to fill out this form with the city.' The city should be reaching out proactively to folks."
The cornerstone of Church of the Holy Trinity on East 88th Street. (Cornerstones of NY/Flickr)
Ghostly storefront churches and community gardens with muddled histories aren't the only entities at risk. The Upper East Side's Church of the Holy Trinity is among those trying to get rid of a mistaken water bill that could yet turn into a lien.
"The Church of the Holy Trinity is an active congregation," Kallos said. "It has a budget of millions. The fact that a solvent, active church that takes care of the homeless, has a soup kitchen, has community events every night, ended up on the lien sale list is of concern to me."
Holy Trinity parish administrator Erlinda Brent declined to comment, saying that the church is still working the issue out.
Several properties owned by Mount Sinai Hospital were also listed as non-exempt in error for a time. An administrator for the hospital did not respond to a call seeking comment.
In January, the City Council passed a bill giving property owners more leeway in negotiating with the Finance Department about their outstanding bills, but the legislation focused on individual and corporate property owners, not keeping nonprofits' properties off the block. Another bill, that would require the Department of Housing Preservation and Development to work with DOF to create a trust aimed at preserving and rehabilitating affordable housing, stalled in committee the same month. This would seek to address another problem presented by the tax lien sale—that of chronically distressed properties that have their debt sold repeatedly while long-suffering tenants get little relief—but again would not help nonprofits targeted in error.
Sonia Alleyne, a spokeswoman for the Department of Finance, called activists' points as laid out in a recent op-ed "misleading." A DOF official explained that houses of worship and other nonprofits sometimes develop for-profit uses for their properties to cover costs, such as leasing to a catering company, which would make the property not wholly exempt. Alleyne wrote, "Given the amount of time that has elapsed, there is a good chance that the use of the property may have changed and in some instances, it is even possible that the property was transferred to another entity without the transfer being registered with the city."
Segal countered that she has no objection to the city checking in annually to see if nonprofit properties have changed hands, "but selling the debt to a private collection agency known for using aggressive tactics is absolutely beyond what that law requires." She noted that her groups' analysis had identified 24 properties that were no longer exempt, and said, "Selling debt on hundreds of key places where none should be owed to make collection on these 24 more efficient is absurd."
The DOF official emphasized that the agency sends numerous mailings to property owners before selling liens, and said that a state Taxation Department opinion requires municipalities to make nonprofits renew their exemptions annually. The opinion includes a provision that allows agencies such as DOF to exempt nonprofits from the requirement.
Alleyne also said that the DOF started trying to identify nonprofits last year after issuing liens, and that it will do so again this year, voiding the lien sales if they are determined to have been made in error. Segal welcomed this development, but said more needs to be done to address the main issue.
"Allowing the property to become collateral for debt to a for-profit hedge fund ignores the needs of neighborhoods and squanders our history," she said.
The Mayor's Office declined to comment for this story.