Audit Report on the Administration of the Sales of Surplus City-Owned Real Estate Properties by the Department of Citywide Administrative Services

AUDIT REPORT IN BRIEF

The Division of Real Estate Services—a unit of the Department of Citywide Administrative Services (DCAS)—manages surplus real estate properties acquired by the City before 1993 through in-rem tax foreclosure and condemnation proceedings. Surplus properties, primarily vacant lots, are available for sale at annual public auctions conducted by DCAS. A primary goal of the auction program is to return surplus properties to productive use. For the public auction conducted in Fiscal Year 2006, DCAS listed 53 properties and sold 34 properties for a total of $15 million. During the audit, DCAS officials stated that there were no plans to hold future auctions.

The audit evaluated the adequacy of DCAS practices for selling surplus City-owned real estate properties and whether the revenue generated from the sale of surplus City-owned real estate properties was properly collected and accurately reported.

Audit Findings and Conclusions

DCAS properly collected and accurately reported revenue from the sale of surplus City-owned properties, and appropriately processed and approved all mortgage applications. However, our review found certain inadequacies in the practices of selling surplus real estate properties that impacted DCAS’s ability to sell 36 percent of the properties offered for sale at the June 13, 2006 auction; of meeting the primary mission of the public auction program, i.e., returning these properties to the City’s tax rolls; and of generating more than $6.5 million in potential sales revenue. Moreover, DCAS did not track the new property owners’ information to ensure it was properly recorded with the Department of Finance. As a result, the City may not be able to bill those new owners for real estate taxes.

Audit Recommendations

DCAS should establish appropriate policies and procedures to ensure that surplus City-owned real estate properties are effectively sold to the public. Guidelines should include, but not be limited to, methods for:

• Identifying and disclosing the legal and physical conditions of the properties being auctioned by inspecting the properties to determine illegal use and potential encroachments; and installing fences and signs that would safeguard the properties and identify them as City-owned.

• Setting up and enforcing proper guidelines with specific timeframe for requiring a City agency land-use request to be submitted before the auction.

• Including and explaining fully the key terminology and certain material terms to allow a buyer to make an informed decision and avoid sales cancellation.

• Studying the characteristics of passed parcels to determine whether those parcels meet any market demand or whether they should be entirely excluded from the auction.

• Ensuring that properties are offered to runner-up bidders.Ensuring that the new buyer’s information is recorded in the Department of Finance’s computerized system.