The City of Buffalo's new plan to bring in $4.8 million by taking ownership of properties on the foreclosure lists before they are auctioned next month could lead to the tax burden being shifted to other property owners in Erie County, according to County Clerk Michael "Mickey" Kearns.
And attorneys with the Western New York Law Center say part of the plan could amount to a distribution of public funds in violation of the state constitution.
In previous years, a property foreclosed on because the owner was delinquent in paying property taxes or user fees would go to a buyer at the city's annual tax foreclosure sale. Any surplus funds above what the city is owed are forwarded to the Erie County comptroller, and then eventually to New York State. The original owner or lien holder at the time of the auction could apply for the funds.
Under the new proposal, which the city plans to implement at its foreclosure auction beginning Oct. 29, the city – as titleholder – would pocket all surplus funds from the sale of the properties. Officials have indicated in meetings with the Law Center that the city intends to turn over that surplus – above what it is owed – to the homeowner.
The new plan would be good for homeowners, city officials said.
"What the city is proposing is for the process to be much simpler and better for the homeowner. City homeowners will be entitled to the same surplus as any other year," said city spokesman Michael J. DeGeorge.
But once the city takes the title to the parcels, Kearns said, they are removed from the tax rolls and no longer considered taxable real property, which will have an adverse impact upon the county's tax base and require that the tax burden be shifted to other property owners in Erie County.
"The city doesn't pay taxes to any properties it owns because that's not taxable status," Kearns said. "There are certain taxable properties and everybody pays their fair share. When you take out properties, it's going to spread the responsibility."
Kearns also said he was informed by attorneys that under the new foreclosure plan, the county will no longer be able to recover amounts owed on county Department of Social Services liens from the surplus funds.
And without a written claim form for property owners to recoup the surplus funds they are owed, the city's plan could "run afoul" of the New York State Constitution, said Amy Gathings, an attorney at the Western New York Law Center, during a Common Council committee meeting this week.
"Any proceeds with the auction would belong to the city, and then if they're proposing to make a procedure where they're going to distribute that money to homeowners without any written guidelines, it could be construed to be a gift of public funds because the money that they have received from the auction has become public funds automatically. And then if they're going to start giving it out, it becomes a gift from the city of public funds to individual homeowners and lien holders," she said. "The attorney general has said this would be an unconstitutional gift of public funds."
Representatives from the Law Center asked Council members during the Council's Finance Committee on Tuesday to urge the administration to "hold off" on implementing the new foreclosure plan because it needs more work.
Council members plan to attend the next meeting between the Law Center and the city Corporation Counsel's office, once a date and time are determined, to sort through such issues.