Asset-Backed Alert
NYC Pool Big on Small Properties
An upcoming securitization of New York tax liens is shaping up to be more than twice the size of the city’s previous offering.
Despite a revamp of the tax-lien program that added protections for owners and tenants of one- to three-unit residences, meanwhile, the bond collateral is likely to be more heavily concentrated in such properties. Indeed, the city’s Department of Finance last week delayed the sale of the liens to a securitization trust by two weeks, to June 3, to give homeowners more time to safeguard their properties.
The potential collateral pool for the transaction as of May 6 contained liens on 18,445 properties, compared with 7,530 that the city identified at the same stage as it last was preparing an $88.9 million deal that priced in 2022.
In February, the Department of Finance released a list of 29,972 properties with liens eligible to back the upcoming securitization. The May 6 count, in turn, represented a 38% reduction, reflecting the resumption of payments and enrollments in payment plans.
Still, the so-called cure rate remained well below the historical average, according to law firm Rosenberg & Estis. Moreover, half of the remaining pool consists of liens on small residential properties, an area where owners often struggle to navigate payment plans and exemptions.
By comparison, 24.5% of the liens backing New York’s 2022 securitization were on residential properties with one to three units, according to Moody’s Ratings. That deal’s single tranche earned Aaa/AAA grades from Moody’s and KBRA, in part reflecting a collateral balance that exceeded the issue’s face value by $22.2 million.
The new collateral pool also is likely to be more heavily concentrated in New York’s outer boroughs, with Brooklyn accounting for the largest exposure as of May 6, at 40.1%, according to Rosenberg & Estis. Manhattan represented the largest
exposure in the 2022 deal, at 39.1%, according to Moody’s.
That said, the exact composition of this year’s pool is yet to be determined. Additional property owners could take advantage of last week’s extension to enroll in repayment programs. And it remains to be seen if the city will exclude liens based entirely on water and sewer changes, as it did last time around.
New York has been the most frequent issuer of tax-lien bonds, having completed 28 such transactions totaling $2.6 billion since 1994, according to Asset-Backed Alert’s ABS Database. The biggest was a $215.4 million issue that priced in 1996.
The offerings typically had come annually, reflecting the cadence of lien sales to the issuing trust. The pandemic interrupted that pattern, however, with no deal taking place in 2020 and the 2022 securitization tied to a December 2021 lien sale. Authorization of the program then lapsed while the city considered recommendations for improvements.
Over the following three years, uncollected payments piled up, resulting in today’s larger lien pool. And while many property owners are taking advantage of new payment plans, a low hurdle for applicants suggests many could fall behind again and as such reappear in future lien sales. “Signing a payment plan is the easy part. Staying on it is the hard part,” said Benjamin Williams, a member at Rosenberg & Estis.
He noted that enrollees must pay on every installment date and must keep up with any new bills — the big ones landing on July 1, 2025, and Jan. 1, 2026. “Miss six months, and the agreement is void,” Williams said. “Then you face a five-year lockout from new plans unless you put down 20% of everything you owe upfront. So I expect a wave of redefaults that could make the 2026 lien sale substantially larger, and harder to avoid, than this year’s.”