Melahn v. Hearn, 60 N.Y.2d 944 (1983)

A tax sale, if valid and unredeemed, creates a new and paramount title that extinguishes prior liens, including mortgages, on the property.

Summary

Melahn sued to foreclose on a mortgage held on property formerly owned by Hearn. Hearn argued he wasn’t a proper party because the property was sold at a tax sale. Hearn had reacquired the property at the tax sale but then conveyed it to another party after Melahn filed a lis pendens. Melahn argued that the tax sale was unconstitutional because he, as the mortgagee, didn’t receive personal notice. The Court of Appeals affirmed the lower court’s decision, holding that because Melahn didn’t redeem the property within the statutory period, the tax sale extinguished the mortgage. The court noted that the constitutional issue wasn’t properly preserved for appeal. The purchaser at a tax sale obtains a new and complete title, free of prior claims.

Facts

Defendant Hearn executed a mortgage in favor of plaintiff Melahn’s assignor on property he owned. Hearn defaulted on property taxes, leading to a public auction of the property for unpaid taxes.
Hearn reacquired the property at the tax sale.
Subsequently, Hearn conveyed the property to another party after Melahn filed a lis pendens but before this foreclosure action commenced.
Melahn, the mortgagee, was not given actual notice of the tax sale or the right to redeem the property.

Procedural History

Melahn brought a foreclosure action against Hearn.
Hearn moved for summary judgment, arguing he wasn’t a proper party due to the tax sale.
The Appellate Division affirmed the lower court’s decision granting Hearn summary judgment. Melahn appealed to the New York Court of Appeals.

Issue(s)

Whether a tax sale, where the mortgagee of record did not receive actual notice, extinguishes the mortgage lien if the property is not redeemed within the statutory period.
Whether the failure to provide actual notice to the mortgagee of the tax sale violates due process.

Holding

No, because when the mortgagee failed to redeem the property within the three-year period provided by law, the purchaser’s title became “absolute” (Real Property Tax Law, § 1024, subd 1) and that the mortgage was extinguished and was unenforceable.
No, because that constitutional issue was not raised below and thus, it is not preserved for review.

Court’s Reasoning

The Court of Appeals affirmed the Appellate Division’s decision, agreeing that the tax sale extinguished the mortgage because Melahn failed to redeem the property within the statutory period. The court emphasized that the purchaser at a tax sale acquires a new and complete title, free of prior claims.
The court cited Real Property Tax Law § 1024, subd 1, which states that after the redemption period, the purchaser’s title becomes absolute.
The court relied on Hefner v. Northwestern Life Ins. Co., stating that a valid tax deed provides the purchaser with a title “free of any prior claims to the property or interests in it and not merely the title of the prior owner or the party assessed for taxes”.
The court refused to address the constitutional argument regarding lack of notice because it was not raised in the lower courts. The court stated: “Since that constitutional issue was not raised below, it is not preserved for our review”.
The court allowed the plaintiff to replead to assert a claim to recover on the underlying bond associated with the mortgage.