If at first you can’t collect property taxes, try try again

6/30/2015 | Real Estate Blog

The large inventory of vacant and abandoned properties in Philadelphia is at the center of yet another controversy. This time the issue is not safety, as we discussed in our March 12, 2015, post. This time, the issue is unpaid property taxes.

The number of tax-delinquent properties is staggering. In a city of more than 500,000 parcels, 98,000 — one-fifth — are behind on their taxes. It adds up to millions of dollars that could be spent on schools and city services. Knowing the numbers, though, and understanding the impact of the loss of revenue does not go far in solving the problem.

Neither, it seems, does filing tax liens against the properties.

Tax liens operate much the same as mechanic’s liens. First, the property may be residential or commercial. The creditor is the city, the state or the federal government. The property owner may pay off the debt, have the debt dismissed in bankruptcy or negotiate a settlement with the government. In a foreclosure, the tax lien has priority over all other liens, including first purchase mortgages — that is, the proceeds of a sale would pay the tax lien first.

A tax lien is an impediment to the sale of the property, but it apparently is not incentive enough on its own to prompt a property owner to clear up the amount in arrears. The city does have the option to foreclose on the property after a while, but the city has no guarantee that anyone will buy the property or that the sale will cover the tax debt.

So what does a city do? Philadelphia chose to auction off the tax liens. Not the properties — just the liens. We’ll explain how it is supposed to work in our next post.

Source: Philly.com, “Phila. readies to auction 938 tax liens,” Claudia Vargas, June 24, 2015