Philadelphia's decades-long neglect of property-tax collections has been a disaster for public schools, the city budget, and typical taxpaying homeowners.
But the system does have its advantages for low-rent landlords, out-of-town speculators, and anyone else interested in playing property Powerball, a game where the objective is to pile up real estate in hope of hitting a gentrification jackpot, while keeping out-of-pocket expenses - like taxes - as low as possible.
Some are big winners, such as the investor who picked up three adjacent Northern Liberties lots in 1994 for a combined $16,000, skipped paying taxes on the lots for more than a decade, and made good on the debt only after flipping the parcels for $750,000 in 2010.
Such speculative windfalls are rare, but it's not for lack of trying. Of the roughly 100,000 tax-delinquent properties in Philadelphia, at least 57,500 are owned by investors, not occupants. These are parcels deeded to suburbanites and Floridians, developers and Brooklyn-based holding companies, small-time local speculators and real estate tycoons with dozens of properties to their name.
They are property magnates like Antoine Gardiner, a Villanova resident and owner of a property management company, Bizness As Usual. According to public records, Gardiner and his company owe $471,000 in back taxes on 58 properties, many of which are rentals, though Gardiner disputes the city's accounting.
Or Edward Williams, the owner of record of 23 vacant lots that are $69,000 in arrears, most of them clustered in the blocks east of Temple University. City records show Williams snapped up the parcels in the 1980s for as little as $100 or $200 apiece, prices that reflected the bombed-out condition of the area at the time. The neighborhood is recovering, but the Williams-owned properties sit there, blighted and unused.
Investors like these form the stubborn core of Philadelphia's tax-delinquency dilemma. The city's decades-old delinquency epidemic - the worst of any big city in the country except Detroit - has reached a level where it depresses the overall tax base by at least $9.5 billion, saps an average of 22.8 percent of the market value of all single-family homes in Philadelphia, and deprives City Hall and the cash-strapped School District of $298 million a year, an Inquirer/PlanPhilly investigation has found.
Those calamitous effects are mostly the work of tax-delinquent investors, who owe at least $316 million in unpaid taxes, penalties, and interest, compared with the owner-occupant tab of $200 million. The average investor-owned delinquent property is 8.6 years behind on its taxes, compared with 5.4 years for owner-occupied delinquent property.
The review of city tax records further showed that:
At least 11,000 of the tax-delinquent properties are owned by people and entities with billing addresses outside Philadelphia, from Salt Lake City and Los Angeles to Puerto Rico and Peakes Island, Maine.
Tax-delinquent investors in the seven counties surrounding Philadelphia owe $41.4 million to the city and School District in taxes, penalties, and interest. Cumulatively, those suburban-based property owners are 44,500 years in arrears on their city real estate taxes.
About a third of all tax-delinquent properties are owned by a company or individual with more than one delinquency.
Of the 8,641 properties that are 20 or more years delinquent, more than 80 percent are investor-owned.
The ranks of the biggest delinquents - the top 500, who collectively owe $62.9 million - are loaded with investors, 391, to 109 owner-occupants.
A significant share of delinquent deed-holders are dead. The Inquirer and PlanPhilly examined the paper trail of 380 tax-delinquent properties that were a decade or more in arrears, and found that 20 percent were still titled to defunct companies or individuals listed as deceased in the Social Security Death Index.
The findings run counter to the long-standing assumption of many city political leaders that the delinquency rolls are dominated by low-income owner-occupants, a belief that has helped to undermine rigorous enforcement. In reality, only 21,600 tax delinquents - about 21 percent - are owner-occupants living in neighborhoods with low to moderate median household incomes.
The Inquirer and PlanPhilly shared these findings with the Nutter administration six weeks ago, seeking answers about the high level of investor ownership of tax-delinquent properties. Administration officials declined repeated interview requests, and while they provided written responses to most tax-delinquency questions, there was no response to questions about investor ownership.
"The policy has been, we don't want people to lose their homes, so we don't enforce," said Councilman Bill Green, who held hearings with cosponsor Maria Quiñones Sánchez this month on a proposal to reform enforcement of property-tax delinquency. "But why do investors get a pass? Why didn't we look at the data to see who were investors and not owners? Why apply the same enforcement approach to everybody?"
At a February news conference announcing new tax-delinquency strategies, Mayor Nutter said he draws "a significant distinction between those who want to pay and can't because of various financial circumstances" and "those who just choose not to pay, who are your garden-variety tax deadbeats."
And yet, the city's enforcement system makes little distinction between tax-delinquent owner-occupants and tax-delinquent investors when the ultimate enforcement - sheriff's sale - is used.
A review of the 2,417 tax-delinquent properties advertised for sheriff's sale last year found that about 60 percent of the inventory was owned by investors, while 40 percent belonged to owner-occupants - a breakdown that closely resembles the makeup of the larger delinquency pool.
"The current system is ad hoc, very informal, and it's hard to find the rules," said Montgomery Wilson, a lawyer with Community Legal Services and an advocate for low-income homeowners.
Taxpayer treatment can vary widely, depending on who is charged with collecting the debt - outside collection agencies, which are bound by written policy to offer income-based payment plans, or the city, which is under no obligation to give low-income owner-occupants a break.
City Council is considering a sweeping bill that would overhaul and formalize the city's makeshift property-tax enforcement system. It includes provisions designed to protect low-income taxpayers, but the ordinance also packs a powerful enforcement punch, requiring the city to begin foreclosure proceedings on tax-delinquent property within two years of the first unpaid tax bill, unless the owner is current on a payment agreement.
That threat of enforcement is vital, Green said, to get rid of property owners "who are just sitting on land, paying as little as possible, until they have an opportunity to flip it."
The Nutter administration endorses elements of Green's proposal, such as the formalized payment plans, but opposes a hard-and-fast date to begin the legal process that can ultimately lead to a sheriff's sale of tax-delinquent property.
"The question is, at what level do you want to prescribe what's done, or do you want to give us flexibility, as we have more experience and know better what works and what doesn't work to readjust?" said Frances Beckley, chief counsel to the city's Revenue Department, after a recent hearing.
As far as Antoine Gardiner is concerned, tax enforcement in Philadelphia is plenty robust already.
"I am speaking from experience; they are not playing," said Gardiner, who, according to public records, is one of the city's biggest property-tax delinquents.
Records from the Department of Revenue show that Gardiner, his associates, and the companies he is linked to own dozens of properties - a mix of vacant land, rental homes, and small apartment buildings, most in West Philadelphia.
Gardiner, who was a substitute teacher in the Philadelphia School District for three years, bought his first property at age 18. He had a novel strategy. Short on cash, he focused on tax-delinquent properties, whose owners were often willing to sell at low prices provided the buyer assumed the tax debt. The way Gardiner sees it, he is paying down dozens of old delinquencies and doing the city a favor.
"Who does that? A poor, young, black fellow who was born in the Tasker projects, who moved on up, who paid for college, who made a way for himself, who found a way to get into a big guy's game," Gardiner said. "That's my life story."
He produced copies of payment agreements for 17 of his 58 delinquent properties, and estimated that he had agreements covering more than half of his total delinquent holdings.
Gardiner also said the city was wrong on two properties, denying he owes anything on the parcels where city records list his debt at $40,800.
But Gardiner does not deny he has many delinquencies.
Consider the case of 4809 Chester Ave., in Squirrel Hill. Gardiner bought it as an empty lot in 2004, and city records show unpaid balances from 2003 forward, totaling $5,324 in delinquent taxes, penalties, and interest.
The investor has a payment agreement on the property with one of the city's collection agencies, which helps explain why he was able to secure five city building permits for the site since 2007, despite being tax-delinquent on that parcel and many others.
The construction project - a three-story residential building - has not gone smoothly. The structure is still unfinished, and Gardiner's company, Bizness As Usual, has been cited for 15 code violations over the last five years, according to city records.
Licenses and Inspections records show Gardiner fixed those violations, but the property is still in disrepair. As of Feb. 25, there were graffiti on the entryway and garage door and small piles of construction debris (concrete chunks, broken glass, and dirt) in the front yard.
Gardiner said he has not grown wealthy buying and selling property in the city in the last few decades. "Business is rough in this town."
It is a sentiment that New York-based real estate manager Mark Caller would endorse. The now-defunct GLC Group, where he was one of two principals, made a big play in 2005 in north Brewerytown and other sections of western North Philadelphia, buying more than 50 parcels.
GLC is the owner of record on 33 of those properties, and is $343,000 in debt to the city and School District for unpaid property taxes.
"The story is short and unfortunate," Caller said.
The company, which had successfully completed large developments in East Orange, N.J., and elsewhere, thought it had a deal to buy that batch of properties with the old delinquencies wiped clean, in exchange for the construction of low-income housing. But the deal, if there ever was one, fell through.
After that, GLC was done.
"We ran, we never looked back," Caller said.
He wants nothing to do with the properties.
"We told the city right away, we'll give them the deeds; as far as I'm concerned, we never even owned them. We're not getting any benefit from them."
This sort of abandonment is common, and it creates problems for neighborhoods and the city agencies that serve as the caretakers of last resort.
"It's unacceptable that people 'walk away' from both the tax and maintenance responsibilities they have on properties owned in Philadelphia," Deputy Mayor Alan Greenberger said in an e-mail. "We will continue to pursue collection of moneys owed, and will explore all available legal means of repositioning these abandoned properties with people who will care for them or redevelop them."
A dozen of the 50-plus parcels GLC purchased have been auctioned at sheriff's sale in recent years, fetching prices ranging from $900 to $11,000.
"The thing that struck me about that neighborhood is that there's opportunity there," Caller said.
If there is, it won't be fully unlocked until GLC's "bad decision," as Caller calls it, is wiped away by legal seizure of the company's North Philadelphia holdings, so that new owners can take clean title of the land and put it to productive use.
Landlord on death index
Edward Williams would seem to be even less likely than GLC to make good on his debts.
The neighborhood just east of Temple, where Williams owes $69,000 in taxes on 23 vacant lots, has slowly rebounded, owing to the work of a community development corporation, Temple's presence, and development pressure pushing out of Northern Liberties and Fishtown.
Which means that, in time, Williams could be in for a windfall. If, that is, he hadn't died 15 years ago.
According to the Social Security Death Index, an Edward Williams living at the landlord's registered address - a now-abandoned and dilapidated two-story Fairhill rowhouse - died Aug. 15, 1997.
His estate covered some tax bills for a few years, but now the holdings in Williams' name are at least 11 years delinquent, and four are 34 years in arrears.
In written remarks to questions posed by PlanPhilly and The Inquirer, the Nutter administration said vacant and abandoned "properties owned by defunct companies or long-dead owner-occupants present a significant collection issue for the city." The administration identified tax-foreclosure sales as the "best tool to get the properties back in the private market."
By design, the auctioning of a tax-delinquent property at sheriff's sale is supposed to clear the parcel of all other claims. Mortgages owned by banks, liens placed on the property through private-party lawsuits, title disputes - all are theoretically wiped clean once a tax-delinquent property is sold to the highest bidder in a municipal foreclosure action.
For tax-delinquent investors with the means to pay - and an enduring interest in the property they own - the threat of sheriff's sale is often enough to compel payment of delinquent taxes. But there are instances, such as the cases of GLC and the deceased Williams, when a sheriff's sale would seem to be the best, and perhaps, only way to clear the debt and return the property to productive use.
The alternative is more of the same: properties sitting unused and underdeveloped for years or even decades, blighting neighborhoods and depreciating the value of nearby homes.
The problems presented by tax-delinquent owner-occupants are altogether different, though no less challenging for the city.
Some owner-occupants are clear-cut deadbeats - people with the means to pay but who choose to delay that responsibility for as long as the city lets them get away with it.
But there are many thousands who are in over their heads - property owners who are under water on mortgages, heirs who inherited homes with decades of delinquencies attached, and low-income families who pick and choose which bills to pay, and who have learned that, in Philadelphia, the tax man rarely comes calling.
The best approach to managing these property owners is not foreclosure and eviction, experts said, but income-based payment plans. The tax-delinquency overhaul that City Council is considering would put a premium on getting owner-occupants into payment plans, but it also would be unforgiving for those who can't keep up on their agreements: three missed checks, and the city would be compelled to foreclose.
Non-owner-occupants would have no guaranteed right to a payment plan but could be granted one at the discretion of the Revenue Department.
The administration embraces most of the reforms included in the ordinance. But it balks at the strong enforcement language, which mandates that the city begin foreclosure proceedings on delinquent owners who are not in payment plans 21 months after the March 31 tax-due date.
Green contends that "the stick" is as important as "the carrots" of more readily available agreements and a clearer notification process.
"The important thing is to get people paying. That's really the goal of this," Green said. "It's not to foreclose on properties. It's to get people to start paying what they can afford, with certainty that they can stay in their homes if they pay what they can afford."
To use an interactive map to see how tax delinquency affects your home, go to www.philly.com/taxEndText