New York Law Review

Tag: Redemption Rights

  • Melahn v. Hearn, 60 N.Y.2d 944 (1983): Tax Sale Extinguishes Mortgage Lien if Not Redeemed

    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.

  • Wood v. La Rose, 39 N.Y.2d 266 (1976): Tax Sales and Redemption Rights

    Wood v. La Rose, 39 N.Y.2d 266 (1976)

    A county treasurer is not obligated to subdivide delinquent tax properties for sale, but may allow bidding on less than the full interest; however, a tax deed may be invalidated if the property owner was incorrectly informed about redemption procedures by the county treasurer.

    Summary

    This case concerns the validity of a tax deed. The Court of Appeals addressed whether the county treasurer had a duty to subdivide the property for sale and whether the plaintiff was given incorrect information regarding the proper procedure for redemption. The Court held that the treasurer did not abuse his discretion by permitting bidding on the entire parcel. However, the Court also found evidence suggesting the plaintiff was misinformed by the treasurer about redemption procedures, specifically being told to contact the purchaser instead of the treasurer to redeem the property. The Court reversed the Appellate Division order and remitted the case to the Supreme Court for a new trial to determine if the defendants should be estopped from asserting the validity of the tax deed.

    Facts

    The plaintiff, Wood, owned property subject to delinquent taxes. The County Treasurer conducted a tax sale where La Rose purchased the property. Wood attempted to pay his delinquent taxes prior to the issuance of the tax deed. Wood claimed the County Treasurer incorrectly informed him that he needed to contact La Rose, the purchaser, to redeem the property.

    Procedural History

    The Supreme Court declared the tax deed valid. The Appellate Division affirmed. The plaintiff appealed to the Court of Appeals.

    Issue(s)

    1. Whether the county treasurer is required to subdivide delinquent tax properties and sell only so much as is necessary to cover the delinquent taxes?

    2. Whether the defendants should be estopped from asserting the validity of the tax deed because the county treasurer gave the plaintiff incorrect information about how to redeem the property?

    Holding

    1. No, because the Real Property Tax Law § 1006(1) authorizes, but does not mandate, bidding for less than a full interest in the entire parcel.

    2. Undetermined; the case is remitted to the Supreme Court for a new trial on this issue because there is evidence that the County Treasurer gave the plaintiff incorrect information about redemption procedures.

    Court’s Reasoning

    Regarding the first issue, the Court interpreted Real Property Tax Law § 1006(1), which states that the treasurer shall continue the sale until so much of each parcel shall be sold as will be sufficient to pay the amount due, as permissive rather than mandatory. The court stated that this provision “does not put the county treasurer to the costly burden of subdividing delinquent tax properties, but merely authorizes, without mandating, bidding for less than a full interest in the entire parcel.” The Court cited prior case law, including Matter of Countrywide Realty Co. v. Bruen, to support this interpretation.

    Regarding the second issue, the Court found evidence that the plaintiff attempted to pay his taxes but was allegedly misled by the treasurer. The court noted that “payment for the purpose of the redemption of property sold for delinquent taxes should be made to the county treasurer. (Real Property Tax Law, § 1010, subd 1.)” Because there was a factual question of whether the Treasurer’s office provided incorrect information, the Court could not determine if the defendants should be estopped from asserting the validity of the tax deed. The Court remitted the case to the Supreme Court for a new trial on the estoppel issue.