There is an $11.6 million pot of money that could be divided among people whose properties were sold at Buffalo’s tax foreclosure auctions over the past five years.
But the city never told these people that the money is there for them to claim.
And two state lawmakers are now proposing legislation that would allow the city, not the former property owners, to keep this money.
Once a year, properties in Buffalo are auctioned off when their owners fail to pay taxes and utility fees. In recent years, these auction prices have skyrocketed, exceeding the tax debt owed. And when that happens, the excess money can be claimed by the foreclosed owners and any lienholders. But no one is telling them. The pot of money has accumulated to the tune of $11.6 million and stands to grow substantially next year when 2015’s excess proceeds are added.
SEARCHABLE DATABASE: Buffalo property auction surpluses, 2009-14
Thousands of former property owners have no idea about these funds. Right now, this money eventually ends up going to the state, though property owners or their heirs still retain the right to file a claim. But State Sen. Timothy M. Kennedy, D-Buffalo, and Assemblyman Sean M. Ryan, D-Buffalo, as part of an initiative addressing urban blight and slumlords, are trying to pass legislation that would redirect the funds to the city. What’s more, the former property owners would lose their right to claim the money once it’s sent to the city. Previous attempts to pass similar legislation since 2008 failed.
The legislation has picked up the support of key Common Council members.
If it passes, it could mean a windfall for the city’s weatherization and home-improvement program. But it also could mean hard-luck city residents, such as Colleen Parker, who already lost their homes in the tax lien sales, would lose their rights to claim funds. Parker was unaware – until The Buffalo News told her – that her former home netted a $92,742 surplus from the 2014 auction.
“Why would the city not tell people or notify us in some way?” the 57-year-old woman asked. “The city doesn’t know the struggles we’re going through.”
Parker is getting by on workers’ compensation and disability payments. “It’s already embarrassing and hurtful to lose something you’ve worked so hard for, and then for the city to sock you in the stomach again by not telling you about the money,” she said. “It’s a double whammy.”
Warren Kubiak, 67, a retired corrections officer, is another former property owner with money to claim. He tried to sell his home on the market and had a buyer, so he got an apartment. But the buyer backed out at the last minute.
“I couldn’t afford the house and the apartment,” he said.
It was foreclosed last year and sold at auction, but he was not notified of the $45,333 surplus.
The sale prices at auction have gone through the roof in recent years. Speculators, investors and immigrants seeking low-cost housing have turned the auction into a high-stakes event, with homes that would have gone for $5,000 in the past fetching $40,000 and more.
In 2009, a slate of 826 properties sold for $4.6 million at the auction. Five years later, 808 properties yielded $9.2 million. Only 158 properties fetched more than what was owed to the city in 2009, leaving $1.1 million. But in 2014, 324 properties netted surpluses, totaling $4.6 million.
After the properties are auctioned, the city withholds money for outstanding taxes, issues payments for county tax and utility liens, then deducts administrative and other fees. Whatever is left is transferred to the county comptroller, who handles all unclaimed funds in the county.
“We almost serve as a minimal pass-through,” said Erie County Comptroller Stefan I. Mychajliw Jr. “We try our best to make sure that people recover the money that are due to them.”
If the auction money is unclaimed for five years, it is turned over to the State Comptroller’s Office and becomes a part of the general fund. Even then, claims can still be made through the County Clerk’s Office.
By law, the money belongs to the parties with recorded interest in the property – the former owners, lienholders and judgment creditors of all kinds. But the same law doesn’t require the city to tell these stakeholders.
So it doesn’t.
“We don’t notify formally as part of the process,” said Timothy A. Ball, the city’s corporation counsel. “If someone calls and asks, we will point them in the right direction. Our focus has been on helping people save these properties on the front end and providing mechanisms to avoid foreclosure.”
Currently, $11.6 million sits in an escrow account – excess proceeds from the auctions held in 2009 to 2014 – from the sale of more than 1,200 properties.
The average amount is $9,600. One former owner can claim almost $150,000.
Only 11 percent, or $2.56 million, has been claimed for the sale of 153 properties out of 1,368 with surpluses since 2009.
The city’s silence has nurtured a fertile market for “asset locator” companies that charge to unite people with unclaimed assets.
“All of my clients learned about their surplus from solicitation letters they received from these downstate companies,” said Daria L. Pratcher, a local real estate attorney. “It seems that’s the way most people find out they are entitled to these funds.”
But their finders’ fees often range from 15 percent to a third of the money.
The Western New York Law Center provides free assistance, but Paulette D. Cooke, a staff attorney, can only count three or four surplus clients over the last few years.
“People just don’t know,” she said. “It’s unfortunate because in most cases, these are people who could really use the money.”
Delores Ogletree, an 81-year-old great grandmother on a fixed income, had to move into her daughter’s spare bedroom after the foreclosure last year. She was unaware of the $5,633 left from the sale of her former home.
“I could use that to get back on my feet, I could get an apartment and get furniture,” she said.
The city might not be the only municipality mum about leftover money.
Former suburban homeowners are missing out on almost $3 million in surplus funds from Erie County’s similar pot of money, and those funds also are tended by the comptroller and destined for Albany after five years.
Mychajliw said he has considered creating a surplus database and will work with lawmakers to better notify foreclosed homeowners.
And starting next year, city officials said the surplus information will be included in the six to eight foreclosure notices sent to homeowners.
“We’re always looking to improve the process,” Ball said.
But government officials are cautious about creating a false sense of hope or giving unscrupulous owners a profitable way to dump properties. Although 40 percent of auctioned properties yielded surpluses last year, the other 60 percent did not. Furthermore, the foreclosed owner is last in line for excess funds. Lienholders, such as banks and mortgage companies, and credit card companies holding judgments have first claim and could seek all of it, depending on the amount of the surplus and debt. And because of that, claiming the money is a legal process presided over by a state Supreme Court justice. A lawyer is recommended and the process can take up to two months.
Kennedy and Ryan have been at war with big banks behind the foreclosures on abandoned “zombie” homes, as well as slumlords and their dilapidated properties. But the rights of foreclosed owners could become collateral damage.
Their first legislation calls for code violations on non-owner-occupied homes to become tax liens. If that property is foreclosed on, a second bill directs any excess proceeds from that sale and all sales at the auction to the city instead of the state.
If that law passes next year, it would go into effect immediately. So surplus funds from the 2010 auction will be transferred to the city.
“Rather than let this money continue to be swept up by bureaucratic Albany, our legislation would ensure that the funds would stay right here in Buffalo,” Kennedy said. “If unclaimed after five years, they would no longer be diverted to the Capitol, but instead would be directed towards the city’s Urban Renewal Agency, which focuses on helping responsible homeowners with weatherization, home repairs and community development.”
The tandem legislation was announced and touted last May. Council President Darius G. Pridgen and members of Project Slumlord were on hand for the news conference. Lovejoy Council Member Richard A. Fontana drafted matching resolutions that were adopted in May by the Council.
The city and Council members said they didn’t know the total amount of the surplus. Pridgen said he was unaware of the city’s lack of notification to property owners but is committed to improving the process.
While some of money can be claimed by people living in far-flung places, like California and even Australia, the surplus list abounds with city residents who fell on hard times. Job loss, bankruptcy, divorce, death or other changes in their financial situations led to foreclosures.
Take Yvonne Young, who bought a fixer-upper on Connecticut Street for only $4,100 in 2001. Repairs on the home were constant and beyond her budget, setting her back in property taxes and utility fees “As a single mother, it was hard trying to keep up,” said Young, who works as a clerk for Buffalo schools. “I put so much money into that house and tried my best. But there was always something that needed to be fixed. And it just became too much. There was nothing I could do.”
It sold for $70,000 in the 2012 auction. And Young, along with her two children, moved in with her then-boyfriend, who is now her husband.
The surplus she’s entitled to is about $64,000.
“That’s incredible, so surreal,” said Young, 47, learning of the money three years after the sale. “I can’t even speak. There’s so much I could do with that money. But I won’t believe it until I can actually get it.”