Delinquent property tax bills can pose a risk to a municipality’s financial health. Without the revenue from property taxes, the town would not be able to fund services and likely would have to take on debt to meet its obligations. That’s why municipalities have auctions to sell off delinquent properties and the tax bills that go along with them.
The city of Bayonne is different, though. It’s the only New Jersey municipality that bypasses the usual practice of selling off liens on properties whose taxes are in arrears at auction, usually called tax sales, to many bidders.
The city still collects the property taxes, but then calculates the interest due from delinquent tax bills and sells it to a single third party which charges the property owner additional interest until the debt is paid off.
For the last two years, that third party has been Fig NJ 18, LLC, an institutional capital investment group.
This year, it paid Bayonne a premium of $100,000 to take a tax levy, or interest on delinquent taxes, worth roughly $2.5 to $3 million off the city’s hands as part of a “bulk tax levy sale,” authorized by the Bayonne City Council at a special meeting on Dec. 12.
The method allows Bayonne to maintain a collection rate of nearly 100 percent.
Win-win for the town
“Sometimes, people don’t pay their taxes,” said Bayonne Tax Assessor Joe Nichols. “What you would normally do is have a collector hold an auction and sell each individual tax lien. The people who buy those liens would basically pay the taxes. This way, we have one buyer buy them all, who gets paid back later from the people [who owe the taxes]. Instead of selling individual properties, all the tax liens go to one buyer, meaning we don’t have to chase the money. The town makes out okay.”
The process is can be likened to any bill that goes unpaid. The debt is sold to a debt collector, who makes a profit from charging interest on that debt. In the case of the delinquent property taxes, Fig NJ 18, LLC receives 18 percent interest on delinquent tax bills.
The city collects the taxes, sends the third party a spreadsheet showing the amount collected, and then the third party cuts a check to the city for delinquent taxes and keeps the interest accrued.
“Somebody is going to have to deal with delinquent tax bills down the road.” — Third Ward Councilman Gary La Pelusa.
Property owners have two years to pay tax bills until the property can be foreclosed on. New Jersey had the highest rate of foreclosures in 2017, according to a report from Attom Data Solutions, which also found that foreclosure activity in 2017 across the country was at a 12-year low.
Avoiding tax increases
“Somebody is going to have to deal with delinquent tax bills down the road,” said Third Ward Councilman Gary La Pelusa. “It could be months or years before [a property owner] can pay the bill. So, we’re better off getting our money now. We can’t wait nine years, or however long it might take.”
Without the bulk tax levy sale, according to Bayonne Chief Financial Officer Terrence Malloy, the finance division would have to keep the amount of money it expects residents not to pay on reserve, which could result in the city having to raise taxes.
“It would be a lot of work to do,” said Malloy. “It saves us a lot of time and the taxpayers money in the long run.”
Rory Pasquariello can be reached at firstname.lastname@example.org