The city’s yearly tax lien sale, scheduled for Dec. 17, allows private corporations to purchase homeowners’ unpaid property tax and water bill debts for about 75 cents on the dollar. The companies can then set fees and high interest rates as they aggressively seek the full total from homeowners, who could lose their homes if they don’t pay up.

This story has been updated since its original publication.

New York Attorney General Letitia James has once again called on New York City to postpone its annual tax lien sale and enact structural reforms to the practice—a debt collection scheme that threatens to disproportionately displace Black and Latino homeowners.

The city’s yearly tax lien sale, scheduled for Dec. 17, allows private corporations to purchase homeowners’ municipal debts—including unpaid property taxes and water bills—for about 75 cents on the dollar from the Department of Finance. The companies can then set fees and high interest rates as they aggressively seek the full total from homeowners, who could lose their homes if they don’t pay up.

Following demands by housing advocates and local elected officials, Mayor Bill de Blasio suspended last year’s sale multiple times to give some breathing room to property owners facing additional hardship during the COVID pandemic and related financial crisis. The City Council also voted in January to create a task force that would receive public input and propose reforms to the tax lien system.

In a letter Monday, James urged de Blasio to at least wait for the task force’s proposals before going ahead with the lien sale. She cited the lingering impact of the pandemic and said New York is on the verge of distributing hundreds of millions of dollars in federal foreclosure prevention funding.

“I find it alarming that this lien sale, which will strip homeowners of their single most valuable asset because of an unpaid water or tax debt, will take place despite the continuation of the COVID-19 pandemic and the extraordinary economic strife that it has created for so many New Yorkers,” James said. “Foreclosing on the homes of thousands of New Yorkers in need in the midst of the pandemic is the wrong response to the financial hardship these individuals confront.”

Nearly half of the 5,300 one- to three-family homes (known as Class 1 properties) on the city’s lien-sale list last year were located in just 10 council districts, with predominantly Black and Latino Council District 37, which covers East New York and Bushwick, accounting for the most at 300. Three Council districts in predominantly Black Southeast Queens were not far behind, with each accounting for nearly 300 potential tax lien sales.

James called for major reforms to the arrangement that would address the racial disparities that have long existed in the program.

“COVID19 may have exacerbated the impact of the lien sale on our vulnerable communities, but it did not create them, and 2021 will not be the only year when the lien sale causes significant harm to our families and communities,” she said.

The issue has emerged as a wedge between two elected officials from Brooklyn—James and de Blasio—both weighing runs for governor. James has frequently advocated for a suspension and overhaul of the tax lien sale model throughout the pandemic.

Eric Adams, the Brooklyn Borough President and New York City’s likely next mayor, has said he would end the tax lien sale. On Tuesday, 17 councilmembers, led by Robert Cornegy of Brooklyn, also called on de Blasio to postpone the sale.

Councilmember Brad Lander, the city’s likely next comptroller, and several lawmakers have specifically proposed moving from a lien sale system to the community land trust model, in which nonprofits own the property and maintain permanently affordable homes.

The tax lien sale program was first instituted in 1996 by then-Mayor Rudolph Giuiliani as a way to enforce property tax collection while getting the city out of the businesses of foreclosures. But the sales have had dire consequences for many low- and middle-income homeowners, particularly Black New Yorkers disproportionately impacted by the 2008 foreclosure crisis and other systemic obstacles.

Though the sales are typically seen as a threat to small homeowners, tenants can also suffer, New York Focus reported earlier this month. Property owners at risk of foreclosure often sell their homes to speculators who seek to evict existing renters and flip the properties. Larger properties with tax liens also fall into disrepair, further punishing renters.

The city’s tax lien Task Force is comprised of councilmembers and advocates who have urged the city to remove Class 1 properties from the sales to protect owners of single-family homes and other small properties, said Katrell Lewis, the vice president of government and community partnerships for Habitat for Humanity. Officials from the de Blasio administration also make up a portion of the task force and have so far resisted that idea, Lewis added.

Lewis has urged the city to allow community land trusts to play a role and keep homes permanently affordable, and said de Blasio shouldn’t sign off on the tax lien sales at the tail end of his tenure.

“If there was a tax lien sale task force to come up with new reforms, we should allow a new administration and a new Council to negotiate what a tax lien sale looks like,” Lewis said. “We shouldn’t be building New York City on the backs of Black and Brown New Yorkers.”

A City Hall spokesperson said the sale remains planned for December and that the city will ramp up outreach to inform homeowners about their right to claim COVID or Hurricane Ida hardship, and their ability to enter into a payment plan with the city to avoid the sale.

“Over the past year, the City has greatly reformed the lien sale to help more homeowners while maintaining essential city services,” said a spokesperson for the mayor. “We are currently working with the Task Force on further reforms.”

The Mayor’s Office said there are 40 percent fewer homes at risk of tax lien or water bill sales than in previous years.  Class 1 properties with water debt are not eligible for the lien sale and the Department of Environmental Protection has suspended all properties with outstanding debt from December’s bill sale. Debts on roughly 10,000 properties with tax liens are still eligible for sale in December, including more than 3,300 Class 1 properties, according to borough listings on the Department of Finance website.

City Hall officials have said in the past that the sale is important for raising revenue. New York City took in more than $74 million by selling tax and water debts to private buyers last year, according to the City Comptroller’s annual finance report.

That’s a relatively small amount in the grand scheme of New York City’s nearly $100 billion budget—and the kind of deal that leads to homelessness, displacement and related costs, said Queens Councilmember Adrienne Adams.

Adams introduced legislation last year to resume the tax lien sales with some protections for owners affected by the pandemic with properties assessed at less than $250,000. In January, the Council passed another bill that extended the lien sales by just one year while exempting buildings with 10 or fewer units where one unit is occupied by the owner, and where the owner has been financially impacted by the pandemic.

Adams, one of the task force members, said the extension should allow the city to reform the current system while exploring a different model.

“I don’t think it’s any secret that the majority of us don’t want this tax lien sale but we’re trying to accommodate reasonable reform,” she said.

In the short-term, Adams said, the task force has sought to raise awareness about the sales and assist at-risk property owners with entering into payment plans. Over the past year, 105 residents in her district have left the lien sale pool after agreeing to payment plans, while about 350 others remain on the list, she said.

The task force’s long-term goal remains a tax lien overhaul to ensure New York City’s small property owners maintain their homes, she added.

“This is Giuliani-esque stuff and we want to create real reforms,” Adams said of the current system. “New York City doesn’t want people to lose their homes for not paying their water bills.”

This story has been updated to clarify that there are no properties with only water debts eligible for the December sale.