City Manager Letter

City Of Cambridge - CITY CLERK OFFICE, CAMBRIDGE MASSACHUSETTS

In response to Awaiting Report Item Number 04-82, regarding a report on real property tax receivables for the City, and on recent state legislation that allows municipalities to convert existing tax liens to revenue and place these properties back on the tax rolls, Assistant City Manager for Finance Louis DePasquale reports the following:

The Finance Department has reviewed Chapter 295 of the Acts of 2004 concerning the sale of municipal tax receivables.

This act allows a municipality to transfer tax title accounts to a purchaser.

In essence, the city sells the right to collect the outstanding taxes and interest owed for a price equal to, at minimum, the tax, fees, and 50% of the interest due at the time of the sale.

The purchaser, in turn, recoups his investment by pursuing collection actions against the property owner to collect the full amount owned (i.e. 100% of the interest, as well as the taxes and fees owed). If the purchaser is unsuccessful in collecting the outstanding amount from the taxpayer, he has the right to foreclose on the property.

At this time, I do not feel it is in the City’s best interest to adopt the provisions of this act. The City of Cambridge traditionally has a very high real estate tax collection rate.

The Finance Department’s collection procedures and the high value of real estate property in Cambridge ensure that the City collects almost 99% of its levy each year. However, each year there are tax accounts that remain unpaid. The City’s Finance Department follows State mandated procedures to ensure the eventual collection of all taxes, up to and including foreclosure. These procedures protect the City’s right to collect taxes, interest and penalties. State law requires that the City follow certain notification procedures, including demand notices, letters, and advertisement in a local newspaper.  In addition, the City includes notification of outstanding amounts on the 1

half bills, and periodically sends letters to taxpayers whose properties are in tax title to remind them of the amounts owed and of the potential consequence of nonpayment.

After required notification to the taxpayers, the City places all delinquent accounts in tax title by filing a tax lien on each property at the Registry of Deeds. The interest rate on accounts in tax title is 16%.

In select cases, the City initiates foreclosure proceedings in land court.

Currently there are 449 properties in tax title, with a total tax amount due of

$3.4 million and interest and penalty charges of $2.9 million.

Because of the high value of property in Cambridge, as well as an active real estate market, many delinquent tax accounts and tax title accounts are paid each year as a result of a property sale. Additionally, an increase in re-financing activity during the past several years due to low mortgage interest rates has resulted in the payment of many of these outstanding accounts.

During each of the past five fiscal years, the City collected an average of $1.9 million of tax title payments.

Recently, the City notified several taxpayers of imminent foreclosure proceedings. As a result, the taxpayers have either paid in full, or have signed an agreed upon payment plan and are making regular payments. The City currently has several cases pending in land court, and if payment is not received by a prescribed date, the City will take ownership of the property. As a result of these recent enforcement activities, the City’s tax title revenue is ahead of where it was at this time last year.