NYC City Council Aims to Revive Third Party Transfer

20 minutes read

A City Council push to resurrect a controversial property seizure program is gaining momentum, with the Mamdani administration supporting a redesign that would once again allow the city to transfer tax-delinquent buildings with dangerous conditions to new owners.

Council member Pierina Ana Sanchez, who chairs the Committee on Housing and Buildings, introduced legislation in late January to reboot the city’s Third Party Transfer program. The initiative, halted by former Mayor Bill de Blasio in 2019 after criticism that it disproportionately impacts homeowners of color, would be majorly redesigned under Sanchez’s proposal.

Dubbed the Housing Rescue and Resident Protection Act, the 80-page bill is the latest iteration of a measure first floated by Sanchez in 2024. It would effectively remake the program with some big changes: a new formula for how properties are selected, expanded eligibility to include vacant lots and unoccupied buildings, new exemptions for certain owners and, perhaps most notably, a new mechanism for owners to recoup funds the city receives from selling their property if the sale exceeds the amount of back taxes and interest owed. The legislation would also scrap the program’s so-called block pickup provision that allowed the city to seize tax-delinquent properties that were not distressed if another building on the block qualified.

“We’re trying to be as fair as possible, but also bring back a powerful tool for the city,” said Sanchez, who pointed to a jump in dangerous housing violations citywide. In 2024, Class B (hazardous) and Class C (immediately hazardous) violations each rose 32 percent year over year, according to city housing data.

“We’re talking about a focus on the worst of the worst,” she said. “Properties where the ceiling is falling down, where children are developing health issues because of the building conditions.”

Negotiations for the bill are at a pivotal moment. Proponents argue that the program is a key housing preservation tool that motivates property owners to pay their bills. Detractors believe that the city has wrongfully seized properties and fear its revival could repeat the past. Housing officials have long-contemplated reforms, but now the Mamdani administration is throwing its weight behind Sanchez’s legislation.

Unlike the Adams administration, which said it was open to reforms but was lukewarm to the bill. Casey Berkovitz, a spokesperson for Mamdani, told The Real Deal that the city is working with Sanchez to develop and advance the legislation.

“The time has come for reforms to the Third Party Transfer program to better support and protect residents while holding bad actors accountable,” said Berkovitz. The city’s Department of Housing and Preservation, which has a key role in running the program, said it backs the bill, and noted that it has stabilized more than 6,000 homes across 520 properties to date.

Council Speaker Julie Menin, meanwhile, is playing her cards close to the chest. Her office wouldn’t share the speaker’s position on the bill and said only that the legislation will receive critical input from the city and real estate industry when it advances with a hearing on March 9. The hearing was originally scheduled for Feb. 26, but was postponed due to a blizzard.

Once the council gathers stakeholder input through a hearing, negotiations will be in full swing on the nitty-gritty provisions between the council and the Mamdani administration. If those are ironed out the legislation will progress to a committee vote, and then a full council vote. If approved, Mamdani could sign the bill into law or let it automatically become law after 30 days.

Menin is notably not among the bill’s 31 sponsors (just four shy of a council supermajority), which include a mix of progressive and moderate Democrats. (Brooklyn Borough President Antonio Reynoso, who does not have a vote in the council, is another sponsor.) Menin also was not among the bill’s sponsors when it was introduced in 2024.

Negotiations for the legislation could shape up to be an early political clash between the Council Speaker and the Mamdani administration. Sanchez added that her office is “continuing conversations with the Speaker to get this to the right point.”

Clawing back equity

The original third-party transfer program, created by the Giuliani administration in 1996, sought to take buildings in disrepair out of the hands of owners who couldn’t afford, or actively neglected, to maintain their properties.

Under the most recent version of the program, the city identified buildings with municipal arrears and hazardous violations that typically weren’t eligible for the tax lien sale, and then sold them to approved nonprofits and developers to create and maintain affordable housing.

The program, however, had a slew of issues. Namely, it came under fire for targeting communities of color (mostly in the Bronx and central Brooklyn in its last round of transfers in 2018) and it enabled the city to seize properties worth far more than the taxes owed without adequate compensation, wiping away hard-earned generational wealth.

Three homeowners in central Brooklyn who had their properties transferred in the program’s last round filed an ongoing federal lawsuit against the city in 2019, challenging its constitutionality.

“In my opinion, any kind of attempt to reform this program is doomed because it’s not the right tool,” said Matthew Berman, an attorney representing the three homeowners.

“They should just kill this law and bury it for good,” he added.

In fact, a 2023 U.S. Supreme Court ruling fundamentally makes the former city program unlawful because it determined that local governments must pay the surplus value of a property sold for tax debts beyond what is owed to the property owner.

Sanchez’s proposal takes a crack at developing a new mechanism that would do just that.

The bill requires an owner to apply for the funds with “evidence indicating that the property has surplus value” at the time of its sale. Specific criteria for that evidence would be determined by HPD, according to the bill. A claim must be submitted during a 10-week window after a foreclosure notice, or the owner would effectively waive their right to the balance.

Once the city receives a claim, it would send an independent appraiser to determine the property’s surplus value. As written, the bill says HPD must also create a process for owners to dispute the appraiser’s findings if they think their building is being lowballed. All told, the new process creates a way for owners to recover equity, if there’s any left after their tax bill is settled.

Soup to nuts

As Sanchez puts it, her bill aims to “rework the program from scratch.”

One key way it does so is with a new formula for selecting properties for the program.

A property is considered distressed in one of two ways. If it has a tax lien from an Environmental Control Board judgment for building violations that are at least 25 percent of its value. Or, if it has a tax lien worth 15 percent or more of its value, and either averages five or more hazardous violations per unit or HPD has paid at least $1,000 for emergency repairs.

Under the bill, the city would create a novel ranking system for such properties. Housing officials would be tasked with ranking distressed properties from the highest to lowest amount of arrears owed. The city would also create a second scale ranking of buildings by the number of hazardous or immediately hazardous violations issued. From there, the buildings would be assigned a score by multiplying the arrears rank by the violations rank. The Third Party Transfer program would go after the properties with the highest scores.

In the first selection period, it would be up to HPD to determine how many properties it enters into the program from the top twentieth percentile. In subsequent rounds HPD must select all properties in the top twentieth percentile, and would also have the discretion to include properties ranked lower into the program. The legislation does, however, create a series of new exemptions, including for owners who are senior citizens, veterans and people with disabilities.

Another new feature of the program would be the city’s ability to pull in vacant lots or abandoned properties through new criteria.

Vacant lots would qualify if the parcel has a tax lien of at least 15 percent of its value, and has multiple open violations issued by sanitation or transportation officials or has been vacant for two years with no permit applications filed with the buildings department. Abandoned properties would be eligible for the program if they hit the same tax lien threshold and have an active vacate order on the property for at least a year.

Enthusiasm and caution

Among the bill’s proponents are a coalition of affordable housing nonprofits and tenant groups who believe the retooled legislation represents an opportunity to rehabilitate and preserve distressed affordable housing. The proposal, for example, includes a more formal path for tenants living in hazardous, tax-delinquent properties to apply for eventual ownership.

“We’ve gone far beyond tweaks, right?” said Emily Goldstein, the Association for Neighborhood and Housing Development’s director of organizing and advocacy. “This proposal really does fundamentally restructure the former program and address most of the problems.”

The real estate industry is not so sure and is taking a wait-and-see approach on the bill. The New York Apartment Association and the Real Estate Board of New York declined to comment.

Policy experts involved with talks for the bill but not authorized to speak to the press said they’re skeptical of the legislation because, in their eyes, it does not address the issue at the heart of the matter: many owners of income-restricted housing are struggling to maintain their buildings amid rising costs, and are grappling with a housing court backlog to recoup owed rents that often go into keeping up properties.

Ann Korchak, board president of the Small Property Owners of New York, said she finds it especially troubling that the City Council is looking to bring back the program at a time when the Mamdani administration has pitched increasing property taxes by 9.5 percent, if Albany does not raise taxes on New York’s wealthiest and corporations.

“If you’re raising taxes the pool of people that can wind up in this financial distress is just going to keep expanding,” said Korchak.