PHA was liable for $10 million in costs, fines and interest. The city agreed to accept less, said Kelvin Jeremiah, PHA's acting executive director.
"PHA has not made good on those liens or reimbursing the city," Jeremiah said. "This is an attempt to address that."
PHA is responsible for much of the blight scarring neighborhoods, with about 4,000 vacant buildings or lots.
The authority has been trying to unload its inventory of unused property by auctioning parcels and houses to the public. But that initiative has been hampered by city liens - which sometimes were higher than the underlying value of the properties.
Mark McDonald, a spokesman for Mayor Nutter, said the settlement funds would be deposited in the general fund but earmarked for use in developing affordable housing.
He said the hope is that PHA will work closely with the Office of Housing and Community Development to decide how best to allocate the money. The housing office, which has a budget of $137 million, is the main city agency for allocating federal community block grants.
PHA, meanwhile, receives about $370 million in federal funds to house the city's poorest residents.
In 2009, the sides reached a memorandum of understanding whereby PHA would reimburse the city for millions in costs. City Council endorsed the settlement, but PHA did not follow through.
Contact Jennifer Lin at 215-854-5659 or email@example.com, or on Twitter @j_linq.