Imagine a world where ambition meets audacity: Letitia James aims to catapult her office into the business of property management.  She intends to seize the empire of the most celebrated property tycoon in recent U.S. history.

It’s a bold move, especially when you consider that her team might not have the expertise to navigate the complexities of this business.  Will ambition be enough to fill the gaps in experience and knowledge?  Or is this a recipe for unprecedented turmoil in the property management realm?  I’m no lawyer, but it seems to me that her office is the least qualified to handle what a corporation of individuals who play at a high level of performance does every day for a living.

I’ve given this scenario some thought.  Government always fails at private-sector tasks.  Why is this?  The devil is in the details.  What are some of the potential details that a state or municipal bureaucrat would never see coming? 

Let’s start with paying property taxes.  When a state seizes a property, like the Trump organization’s, the municipality where it’s located still needs the property taxes.  If the state takes over, it might be responsible for these taxes unless state laws say otherwise.  The state could pass the tax duty to a new manager or entity.  The state will need to devise temporary solutions until it finds new owners.  This could affect a municipality’s budget, so those municipality officials should be prepared for tax revenue changes.

Clearly, new property tax rates will be on the horizon.  When selling any properties, the sale price sets the new tax amount.  If this price differs from earlier estimates, the new owner can ask for a tax review.  Authorities will have to examine the sale prices compared to the market value.  Owners will challenge their property taxes.  If a property sells for less, the new owner can argue for a lower tax value.  Municipalities must prepare for reduced tax revenue levels.

I suspect that the Trumps’ properties employ many people.  When a government takes over a business, who pays the employees will depend on a state’s laws, the takeover details, and how it’s done.  If the government sets up new management or makes the business state-owned, this new group usually pays the salaries and manages the benefits.  It’s unclear if this is possible here in New York State.  There might be special funds to help pay employees during this change.  If there’s a legal dispute with the takeover, the decision from the court could affect who pays the employees.  During the transition to new management, there have to be plans to ensure proper handling of employee compensation.  There are legal protections regarding employees’ rights during such changes.

As I understand it, when a government takes over a business with rental properties, it becomes the landlord.  The government or a chosen company would then have to handle rent collection, property upkeep, property expenses, and tenant issues, following all housing laws.  They need to inform tenants about the ownership change and how it affects them, including rent and maintenance requests.  The new managers must respect existing leases and tenant rights laws.

Letitia James might find it difficult to sell properties tied up in long legal battles.  Most investors see such properties as risky and unattractive.  Buying a property involved in lawsuits demands a deep understanding of the legal risks and issues.  It’s a complex investment, not suitable for beginners or those who dislike risk.  The uncertainty, legal fees, and time involved in litigation can lower the property’s value and make it hard to sell.  Plus, there’s no guarantee that Letitia James won’t come after any new owners if they cross her politically.

This all will get a lot more complicated if Letitia James goes after out-of-state properties.  Everything I just listed will have an additional layer of complexity added as the respective taxing authorities and political officeholders get involved.  I would expect to see some interesting pushback and litigation.

Even as a non-expert, it seems to me that the overhead cost for New York State and the affected municipalities outweighs the financial gain.

J.H. Capron is an author and writer living in the Hudson Valley of N.Y.

Image: Gage Skidmore via Flickr, CC BY-SA 2.0.