BULK LIEN SALES THAT CAME BACK TO HAUNT THE CITY
UPDATE: Tax Liens case being heard by the NJ Supreme Court....
1/2004
"The keystone of the Schundler administration’s claims to fiscal progress has been the much ballyhooed bulk tax title lien sales. Hailed by Investment Dealers’ Digest as one of the 10 most innovative financial deals of 1993 and reported by the Jersey Journal on June 21, 1993 as having Schundler saying, "the lien sale not only provides a tax cut in the 1992-93 fiscal year, which ends June 30, but will provide money in the bank in the years to come." .. in The Star-Ledger, Dan Weissman wrote, "Schundler said taxes could be cut as much as 20 percent as a result of the dollars generated by the tax lien sale, virtually eliminating the local municipal portion of the property tax bill. And he said next year there would be an additional $20 million break….The record proved quite differently." From an analysis prepared by Jerome Lazarus, advisor to former Mayor Anthony Cucci.
In the 2 sales, 1993 + 1994 Bulk Lien Sale, the City sold $ 58 Million of liens and in the end, after the city's lawsuit against Breen Capital, got 65 cents on the dollar and lost 7 years of 8% interst on the Notes. The state statute has always been that for a municipality to sell a lien they must get a minimum of 70% of full value on date of sale but through the bulk lien legislation introduced for Schundler's deal, the "subordinate notes", which were promissory notes, were treated as CASH and collection was assumed at 100%. Aside from only getting 65%, the city didn't receive the contracted 8% interest on the $25 million in subordinate (promissory) notes while Breen Capital kept collecting the 18% interest from the delinquent property owners. Prior to the sale, the City was collecting $2-$5 million of interest annually on those liens.
On September 24, 1997, the City initiated a lawsuit against Breen Capital and Bankers Trust to collect on the "subordinate notes". In 2000, the city settled for $6.25 million less a million dollars in legal fees to Lawrence E. Bathgate ll (see CAMPAIGN FINANCES) of Bathgate, Wegener & Wolf. The city collected less than 25% of the $25 million value of the 2 promissory notes and no interest, after almost 7 years!
Not only did the City get fleeced but also did many of the thousands of homeowners who were in lien. In October 2000, Judge Fuentes ruled against Breen Capital in a class action suit brought on by those homeowners. The award was $40 million plus treble damages, which could total $200 million!
On the Mayor's Gubernatorial web site the Mayor states:
"So Bret Schundler went to work applying the financial skills he learned on Wall Street and the strength of character and courage he had developed over a lifetime.
| "Some liberal critics called the creative initiatives
that turned Jersey City around a mistake. But Bret Schundler proved them wrong. He doesn't
cave in to the liberals - he fights for the people!" Steve Forbes (March 2001) |
The Mayor pioneered a plan that turned tax liens valued as worthless into $40 million in cash by selling the liens in bulk to investors. This Bulk Lien Sale produced the cash needed to close the budget gap, increased the tax collection rate to 99 percent, and allowed the city to reduce property taxes by $1,200 per year for the average homeowner. This was hailed as one of the top municipal finance innovations in the country.
Source: http://www.bret2001.com/success/ (March 2001)
In a recent letter, the Mayor extolled the selling of the liens and attributed the phenomenal rise in JC's waterfront real estate values as a result of the lien sale! The fact is JC is directly across the river from Manhattan, on the PATH line and NYC's commercial and residential real estate is through the stratosphere in pricing. Major available commercial blocks of space in NYC are non-existent. NYC's Mayor Guiliani has done an excellent job in reviving NYC and the general, national prosperity has certainly helped the entire area…. not Schundler. Jersey City should thank Guiliani for the "Gold Coast". Every recent arrival I've met, whether they bought or rent, comes from NYC and for the same reason, it's much cheaper and you get more space. For NYC firms that relocate here, the added incentives include lower income taxes, very sweet tax abatements, state-of-the-art fiber optics, built to suit buildings and much lower utility bills, an even greater incentive now!
FOR THE MAIN TOPICS, CLICK BELOW