Bridgeport, Conn., began a tax lien sell-off on Monday that is intended to bridge the city's projected $6.5 million budget gap, but the majority of the sale has been postponed until August by an administrative court judge.
Administrative Judge George N. Thim of the Judicial District of Fairfield at Bridgeport, ruling June 22 in a suit filed by owners of some of the properties affected, said many had not been adequately informed of the pending auction.
The judge also ruled, however, that the city was within its jurisdiction undertaking the sale, and called for only a temporary delay.
Jerome I Baron, director of finance for the city, said 37 properties were sold Monday. "There are approximately 227 properties left to sell," he added. "We have, however, adjourned the sale of the bulk of the remaining lots until August 27 and 28, when the city can enter bids of its own on the available lots."
Mr. Baron said the sales that have taken place so far have generated over $200,000 for the city.
City officials said that although fiscal year 1992 ended yesterday and the sale will not take place until August, a state review board will allow revenues realized from the sale of these properties to offset the current budget deficit.
The officials said that because the sale was delayed, it is impossible to assess the city's current deficit. In early June, the city faced a projected $6.5 million deficit, according to Mr. Baron.
He also said that since the tax lien program was announced June 3, the city has raised $2 million from landowners paying back taxes to keep their properties from being auctioned.
Mr. Baron said the city has alerted property owners through certified mail that the city intends to collect on the delinquent taxes, and that the entire list of properties will have been listed in local newspapers three times.
Officials announced and outlined the program at the June 3 meeting of the Bridgeport Financial Review Board. Mayor Joseph P. Ganim stated then that if the city perceives a problem with the sale of a property or if a court orders a hold on the sale, the city will temporarily put the sale on hold.
In fact, two properties owned by real estate developer David Daddario and several other large lots were ordered by Judge Thim to be temporarily restrained from sale.
Mr. Daddario's properties, a Sears Automotive Center, and a downtown mall will be readvertised and placed for sale Sept. 27.
Mayor Ganim said those two properties alone could generate as much as $2 million for the city. The remainder of the properties will be offered for sale at the end of August.
Richard Robinson, who is working as a consultant for the transactions' financial consultant, Fleet/Norstar Securites Inc., said the judge's decision was both disappointing and encouraging.
"While the judge ruled that we had to provide better advertising, and we could have done that in about five days, he did uphold the constitutionality of the city raising revenues this way," Mr. Robinson said.
"In the long run, the ruling could better serve the city's needs," he added. "The extra month could help solidify the investors who want these properties and also allow the city to focus on which properties it is interested in obtaining."
Mr. Robinson, a former city director of finance, said Bridgeport and interested investors are in an enviable position.
"On properties that are not bid for, the city will submit the low bid but not have to put up any money." he said. "It's a win-win situation for us."
Mayor Ganim said that just because bids on these properties are submitted, the current owners of the properties will not immediately lose control of their holdings.
"For one year after the auction, the current owners will have the option of covering the bid themselves, plus 18% interest," Mayor Ganim said. "We anticipate involving the city in the bidding process."
Mayor Ganim said the tax sale should stimulate both a short-term and a long-term improvement in the city's ability to collect back taxes.
"Doing this gives the town's enforcement of taxes some teeth," he said. " It will bolster our annual tax collection as well as pull us out of the hole we are in."
Mayor Ganim added that the city has made great strides in the past months in bridging the budget gap, but acknowledged that many of the problems in the city remain.
Robert Lesser, attorney for Mr. Daddario, stated an argument against the city's program. Although he is pleased with the temporary restraining order, he is fighting for a permanent injunction placed on the sale.
"We don't feel that this method of raising revenue allows for due process," Mr. Lesser said. "Normal foreclosures are handled in a court and adjudicated by an impartial judge. This process allows for the city to place arbitrary levels on the lots."
Mr. Lesser also said he suspects banks will react unfavorably to the sale. According to the lawyer, a bidder is awarded the property with no concern for outstanding mortgages owed to banks. He said the process effectively wipes out the existing mortgages for as little as the minimum bid.
"Banks will have little choice in the matter," he said. "To protect themselves, banks will be forced into the bidding and add the fee to the owners' existing mortgages."
Mr. Lesser added that usually this type of action takes place on open lots, farms, or land with no existing mortgage.
Last August, Bridgeport, a city of over 142,000, became the largest to ever file for bankruptcy protection.
The petition was rejected, however, on the grounds that the city had too many assets to be technically bankrupt.
Mayor Ganim, who was elected last November to succeed former Mayor Mary C. Moran, was highly critical of the initial bankruptcy petition and retracted it when he took office.