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Philadelphia owed a half-billion dollars in 'nuisance liens' - maybe

Triumph Baptist Church wanted to grow. It bought an old suit factory in North Philadelphia in 1998, hoping to tear it down and build a house of worship.

The large vacant lot at 1801 West Courtland St. is shown in the foreground with the homes on Gratz Street in the background on April 25, 2014. (CHARLES FOX/Staff Photographer)
The large vacant lot at 1801 West Courtland St. is shown in the foreground with the homes on Gratz Street in the background on April 25, 2014. (CHARLES FOX/Staff Photographer)Read more

Triumph Baptist Church wanted to grow. It bought an old suit factory in North Philadelphia in 1998, hoping to tear it down and build a house of worship.

But over time, Triumph changed its plans. The vacant factory became an eyesore and hazard, leaving the city little choice but to demolish it in 2011 at a cost of $794,191 to taxpayers.

The owners were supposed to reimburse the city for the work. Three years later, they haven't.

Thus did 1801 W. Courtland Ave. join the list of 39,391 properties with "nuisance liens" - unpaid bills for sealing, cleaning, or demolition done at taxpayer expense by the Department of Licenses and Inspections. Work that building owners were supposed to pay for but didn't.

The total of those liens is $423 million, according to city records obtained by The Inquirer via a Right-to-Know Law request.

The figure rivals a better-known one: the half-billion dollars Philadelphia is owed in uncollected real estate taxes plus penalties and interest.

It's almost enough to cover, for example, the Philadelphia School District's $440 million deficit.

But the records are messy. People inside and outside government say the true amount of nuisance debt is elusive. And like the unpaid real estate taxes, only a fraction of it is considered collectible.

The nuisance debt is another cost of running a city where, even as new buildings rise, others are falling apart after years of neglect by owners. One former official calls it a decades-old malaise overdue for a cure.

"It's a surprise to me that in a city that is stone-cold broke, someone hasn't figured out a way to collect these liens," said Bennett Levin, who headed L&I in the 1990s. "We are encouraging blight by not going after it."

The city provided The Inquirer with a record of all unpaid nuisance liens, the oldest of which dates to 1975. Though most are for demolition, the liens are also for L&I work ranging from asbestos removal to weeding.

The Inquirer found numerous discrepancies in the records. Some properties, for instance, were bought at sheriff's sales - which requires clearing up any liens or claims - but were still listed as having nuisance liens totalling in the millions.

Here is some of what The Inquirer found in its review of the data, and from interviews with city officials, property owners, and financial experts:

"Not perfect" records. That's how Revenue Commissioner Clarena Tolson described flaws in the lien data. Others used stronger language. At least $58 million of the debt is in an uncollectible, if confusing, category: it is for work L&I did on properties the city now owns.

Who owes $17 million? That figure is the total of liens for demolition and other nuisance work done between 1978 and 1999 on properties for which addresses and owners' names are missing.

Tolson said, "We had some programming challenges and would have needed to take time to do additional data searches."

Costly collections. In 2009, the city hired a Delaware County collection agency, Progressive Financial Services, to go after property owners who owed L&I for demolition or other work. As of June, the firm had been paid $625,000 for its efforts - and had brought in just $1.26 million so far.

Big debt, small dent. Starting last year, in another effort to reduce the mountain of nuisance debt, the city began the court process to send properties on the list to sheriff's sale, a tactic often used to go after tax delinquencies. But to date, just 38 properties are in the sheriff-sale pipeline purely because of nuisance liens.

For bookkeeping purposes, the city writes off nuisance liens older than two years, Tolson said. But the liens "don't automatically go away" after two years, she warned. Owners are still on the hook.

But how sharp a hook? All told, the city has collected just $15.6 million in nuisance liens since 2009. That includes $6.3 million from the Philadelphia Housing Authority for demolition work. It also includes many liens that were paid off when properties were bought or sold.

Birth of a nuisance lien

In 2013, a city revenue collection report said L&I bills owners about $12 million a year for cleaning vacant lots, sealing empty buildings, and tearing down dangerous ones. Only a quarter of the money comes back, the report said.

That's where the liens come in: If a bill for nuisance work is not paid in 90 days, a lien is slapped on the property, enabling the city to take it to sheriff's sale if the owner doesn't pay up, Tolson said.

That's also where L&I's responsibility ends, said its commissioner, Carlton Williams. "We don't act as a billing agent," he said.

When a property goes to sheriff's sale, though, nuisance liens are the lowest priority. Proceeds from the sale must first pay off taxes, then gas and water liens, and, finally, L&I demolition or other nuisance work, according to the Sheriff's Office.

If the proceeds aren't enough to pay all debts, the liens are wiped off anyway. The city gets shortchanged for the work L&I did - but the new owner gets a clean title.

Clean, that is, if the city updates its records after a sale. The Inquirer's review found that isn't always so.

For instance: The largest outstanding nuisance lien on the list is $2 million for demolition at 1900 W. Allegheny Ave. in North Philadelphia. That was news to the owner, Newcourtland Elder Services, a nonprofit that bought the site from the city in 2004 for $50,000.

The demolition work, it turns out, was done when the city owned the site.  

Then there is a small lot the University of Pennsylvania bought at 42d and Filbert Streets in 2008 for $21,000. The city's records tell of a nuisance lien for about $12,000, including interest, dating to 1996.

But a deed history shows the previous owner, RFR Properties, bought the lot in 2007 at a sheriff's sale, which should have left the property lien-free.

"The system is not perfect," Tolson acknowledged. "This is a database that requires manual intervention."

"It's so frustrating"

The messy, incomplete records are "a chronic problem with the city," Controller Alan Butkovitz said. He said records turned in to his office by the Nutter administration for auditing had only a dash on the line for demolition costs.

Butkovitz said demolition costs surely account for much of the $25 million that owners owe the city for work done as part of the Street administration's antiblight effort, the Neighborhood Transformation Initiative. But he doesn't know how much - there's no breakdown of that line item.

He contends the city could collect up to 40 percent of the nuisance debt if it got more aggressive about billing - and more transparent about the totals. He said the numbers "should not be hidden, they should be highlighted as a way to track the city's collection efforts."

Title professionals who work on transfers of properties in the city say no one knows how much the city is truly owed.

"It's so frustrating," said lawyer Laura Fox of the Fidelity National Title Group. She estimated "a minuscule portion" of the $423 million total was real debt and collectible.

Fox said she had sent in nuisance-lien payments on behalf of clients but never received confirmation from the city that the liens were satisfied - though the city cashed the checks.

"It's part of the city's smoke and mirrors," she said. "Why wouldn't they want to know the real number?"

Officials say they have ramped up efforts in the last year by suing owners for unpaid demolition bills. But they also cite the positives of forgiving some liens.

With thousands of properties waiting to be disentangled from liens, the city has to juggle its options. If a lien is wiped off the books as part of a deal to sell a property and make way for taxable development, such as homes or businesses, Tolson said, that's a good outcome for the city.

When the city sues

Even when owners are taken to court, the process can drag out.

The city sued Triumph Baptist in July for the demolition debt the church has owed taxpayers since 2011 - a debt which, with interest, is nearing $1 million. The two sides are talking, and on Tuesday, Common Pleas Court Judge Ellen Ceisler considered granting more time.

The church has applied for low-income housing tax credits. "Triumph plans to develop 50 units of senior-citizen housing on the site," its attorney, Robert Archie Jr., former chairman of the School Reform Commission, assured the judge.

Ceisler noted that the property was no longer dangerous and that there were plans to develop it. "It sounds like a win-win if it works out," she said.

She gave Triumph seven more months to pay.