New York Law Review

Tag: tax lien

  • Kese Industries v. Roslyn Torah Foundation, 19 N.Y.3d 484 (2012): Defines ‘Legal Representative’ in Tax Lien Redemption Notices

    Kese Industries, Inc. v. Roslyn Torah Foundation, 19 N.Y.3d 484 (2012)

    The term “legal representative” in Nassau County Administrative Code § 5-51.0, regarding notice of tax lien redemption, refers to executors or administrators of an estate, not to a party’s attorney in a pending action.

    Summary

    Kese Industries, a mortgagee in a foreclosure action, and Roslyn Gate Corporation, a property owner, challenged the validity of a tax deed issued to Gillen Living Trust. The challenge was based on Gillen’s failure to serve notice to redeem the tax lien on Kese’s foreclosure attorney and the court-appointed referee. The New York Court of Appeals reversed the lower courts, holding that a foreclosure attorney is not a “legal representative” under Nassau County Administrative Code § 5-51.0, and that a referee is not an interested party requiring notice. This decision clarifies the scope of required notice in tax lien foreclosure proceedings, emphasizing the traditional definition of “legal representative.”

    Facts

    Roslyn Torah Foundation (RTF) defaulted on a mortgage held by Kese Industries, leading to a foreclosure action. RTF also defaulted on property taxes, resulting in Nassau County issuing a tax lien to Gillen Living Trust. Gillen served notice to redeem the tax lien on Kese, RTF, and Roslyn Gate Corporation, but did not serve Kese’s foreclosure attorney or the court-appointed referee. Kese and Roslyn Gate then sued, claiming the tax deed issued to Gillen was void due to improper notice.

    Procedural History

    Supreme Court ruled in favor of Kese and Roslyn Gate, voiding the tax deed because Gillen failed to serve Kese’s attorney. The Appellate Division affirmed, relying on precedent that defined a “legal representative” to include a mortgagee’s foreclosure attorney. Gillen appealed to the New York Court of Appeals, arguing that a foreclosure attorney does not fall under the definition of “legal representative” in the relevant statute.

    Issue(s)

    1. Whether the term “legal representative” in Nassau County Administrative Code § 5-51.0 includes a mortgagee’s attorney in a pending foreclosure action.
    2. Whether a court-appointed referee in a foreclosure action is an interested party entitled to notice under Nassau County Administrative Code § 5-51.0.

    Holding

    1. No, because the term “legal representative” ordinarily denotes the executor or administrator of an estate, not a party’s attorney in a pending action.
    2. No, because the referee is an agent of the court performing ministerial duties, not a party with a lien, claim, or interest in the property.

    Court’s Reasoning

    The Court of Appeals reasoned that the term “legal representative,” in its ordinary sense, refers to someone who manages the legal affairs of another due to incapacity or death, such as an executor or administrator. The Court cited its prior decisions, noting that “‘legal representatives’ mean ordinarily executors or administrators, and that meaning will be attributed to them in any instance unless there be facts existing which show that the words were not used in their ordinary sense, but to denote some other and different idea.”
    The court emphasized the principle of noscitur a sociis, interpreting the term in relation to the adjacent words in the statute: “heirs” and “assigns,” all of which relate to the transfer of rights and duties of a property owner. The presence of the term “attorney” in other sections of the Nassau County Administrative Code indicated that the legislature would have used that term explicitly if it intended to include attorneys in the notice requirement. The Court further reasoned that a referee acts as an agent of the court without any independent legal interest in the property. The court stated, “the legislative purpose of requiring service upon a ‘legal representative’ is to ensure that personal representatives, namely executors or administrators of an estate, are notified of a risk of divestiture of title to their property.”

  • Matter of Mill Creek Phase 1, 10 N.Y.3d 898 (2008): Interest Rate on Tax Lien Survives Eminent Domain

    Matter of Mill Creek Phase 1 Staten Island Bluebelt System, 10 N.Y.3d 898 (2008)

    The exercise of eminent domain does not automatically reduce the interest rate on a pre-existing tax lien attached to the condemned property; the lienholder is entitled to the contractually agreed upon interest rate until the lien is paid in full.

    Summary

    This case addresses whether the interest rate on a tax lien is reduced when the property subject to the lien is taken by the City of New York through eminent domain. The NYCTL 1998-1 Trust held a tax lien certificate on a property later acquired by the City. The Trust sought to compel the City to pay the lien with an 18% interest rate, as stipulated in the tax lien certificate. The lower courts limited the interest rate to 6% after the City acquired the property. The Court of Appeals reversed, holding that the eminent domain proceeding did not affect the contractual interest rate on the tax lien, and the Trust was entitled to 18% interest until the lien was fully paid.

    Facts

    The City of New York acquired title to a property in Staten Island through eminent domain on July 31, 1998.
    Prior to the acquisition, NYCTL 1998-1 Trust held a tax lien certificate on the property.
    The tax lien certificate specified an 18% interest rate on the tax lien until it was paid in full, as per Administrative Code of City of NY §§ 11-224, 11-319 (b) (6).
    The Trust filed a claim in the condemnation proceeding seeking payment of the lien, including interest at the 18% rate.

    Procedural History

    The Supreme Court granted the Trust’s motion for payment but limited the interest rate to 6% from the date the City acquired title, citing General Municipal Law § 3-a (2).
    The Appellate Division affirmed the Supreme Court’s decision.
    The Court of Appeals granted the Trust’s motion for leave to appeal.

    Issue(s)

    Whether the interest rate on a tax lien remains at the rate specified in the tax lien certificate (18% in this case) after the property subject to the lien is acquired by the City of New York through eminent domain, until the tax lien is fully paid.

    Holding

    Yes, because the exercise of eminent domain does not reduce the interest on a tax lien, and there is no statutory authority to reduce the interest rate below the amount fixed by law; therefore, the Trust is entitled to receive interest at the rate of 18% until the tax lien is fully paid.

    Court’s Reasoning

    The Court of Appeals relied on its prior decision in Matter of City of New York [Hammel Boardwalk Corp.], 288 NY 51 (1942), which established that eminent domain does not automatically reduce the interest rate on a tax lien. The court emphasized that, absent a specific statutory provision allowing for a reduction in interest, the contractual terms of the tax lien remain in effect.
    The court stated that “reduction of interest upon any taxes, assessments and water rents below the amount fixed by law is forbidden (Administrative Code, § 415[1]-8.0, p. 217), and all taxes, assessments and water rents and interest thereon constitute liens until paid (Administrative Code, § 415[1]-7.0, p. 217)”. These sections are now recodified as sections 11-232 and 11-301 respectively.
    The court noted that the NYCTL 1998-1 Trust, as the holder of the tax lien certificate, stands in the shoes of the City and has the same rights as the City, per Administrative Code § 11-332 (a). This includes the right to receive interest at the rate of 18% as originally agreed upon.
    The fact that the Trust filed a claim against the condemnation award, rather than the property itself, did not change the interest rate on the underlying lien.
    Therefore, the interest continued to accrue at 18% from the vesting of title in the City until full payment of the lien.

  • Insurance Co. of N. Am. v. City of New York, 67 N.Y.2d 983 (1986): Receiver’s Insurance Policy Insures Owner’s Interest for Tax Lien Purposes

    Insurance Co. of N. Am. v. City of New York, 67 N.Y.2d 983 (1986)

    A fire insurance policy procured by a court-appointed receiver on a property subject to foreclosure insures the interest of the owner, thus allowing the city to claim the insurance proceeds to satisfy outstanding real estate tax liens before distributing any funds to the receiver.

    Summary

    This case concerns the distribution of fire insurance proceeds when a receiver, appointed for a foreclosed property, obtained the insurance, and the property had outstanding tax liens. The New York Court of Appeals held that the insurance policy obtained by the receiver should be treated as insuring the owner’s interest for the purpose of satisfying the City’s tax lien under Administrative Code of the City of New York § 11-2801(3). The Court reasoned that the receiver stands in the stead of the owner and that prioritizing the tax lien aligns with the statute’s intent to ensure direct payment of proceeds to satisfy municipal tax liens, preventing potential loss or diminishment of funds.

    Facts

    Defendant Cohen was appointed as a receiver for Bronx premises subject to a foreclosure proceeding in 1980. Cohen obtained a fire insurance policy from the plaintiff, Insurance Co. of North America. In 1984, a fire occurred, resulting in a $20,400 loss. The City of New York had a real estate tax lien on the property amounting to $58,395.02. The insurance company paid the insurance proceeds to the City, relying on Administrative Code of the City of New York § 11-2801(3).

    Procedural History

    The Insurance Company initiated an interpleader action. The Supreme Court ruled that the policy did not insure the owner’s interest and that the receiver was personally entitled to the proceeds. The Supreme Court directed the City to return the funds to the insurer for payment to the receiver. The Appellate Division affirmed this decision. The City of New York appealed to the New York Court of Appeals.

    Issue(s)

    Whether a fire insurance policy obtained by a court-appointed receiver on a property subject to foreclosure, is considered a policy that “insures the interest of an owner” under Administrative Code of the City of New York § 11-2801(3), allowing the city to claim the insurance proceeds to satisfy outstanding real estate tax liens.

    Holding

    Yes, because the receiver, standing in the stead of the financially defaulting owner, also stands in the same relationship to the tax lienor municipality as the owner does, at least for the purposes of the statute. Therefore, the insurance policy secured by the receiver is treated as one which insures the interest of an owner for satisfying the prioritized municipal tax lien.

    Court’s Reasoning

    The Court of Appeals reasoned that a receiver has fiduciary responsibilities and stands in the place of the defaulting owner. Treating the receiver’s insurance policy as one insuring the owner’s interest aligns with the intent of Administrative Code § 11-2801(3). This interpretation ensures direct and accelerated payment of insurance proceeds to satisfy prioritized municipal tax liens, preventing potential loss or diminishment of funds as the proceeds would not have to pass through the receiver’s hands first. The court noted that the statute was designed to accomplish direct payment of proceeds, along with arson fraud prevention. The court referenced the Bill Jacket for General Municipal Law §22(3) to support their reasoning.

    The Court also pointed out that Administrative Code § 11-2801(6) allows the receiver to request and recoup the fire insurance proceeds from the City if used to restore the property, indicating that the receiver’s interests are not inherently undermined by this construction. The Court stated, “The ordinary reading and construction of the pertinent Administrative Code provision plainly warrants our treating this policy, secured by the receiver, as one which insures the interest of an owner at least for purposes of satisfaction of this prioritized municipal tax lien.”

  • Siegel v. Money, 31 N.Y.2d 624 (1973): Tax Lien vs. Condemnation Award Ownership

    Siegel v. Money, 31 N.Y.2d 624 (1973)

    When property is condemned before the expiration of a tax sale redemption period, the tax sale purchaser’s interest is limited to an equitable lien on the condemnation award, not ownership of the condemned property.

    Summary

    This case addresses the conflict between a tax lien and a subsequent condemnation proceeding. Siegel and Kessler owned property that was sold for unpaid taxes. Before the redemption period expired, Nassau County condemned the land. After the condemnation, the tax sale purchaser’s successors, the Moneys, obtained a tax deed. The court had to determine who was entitled to the condemnation award: the original owners (Siegel and Kessler) or the tax sale purchasers (the Moneys). The court held that the condemnation extinguished the tax lien on the land, but substituted an equitable lien on the condemnation award. Thus, the original owners were entitled to the award, subject to the tax lien.

    Facts

    Respondents Siegel and Kessler owned real property in Freeport, NY.
    The Village of Freeport sold the property at a tax sale to Edward Morse in 1964 for unpaid 1963 taxes.
    Before the two-year redemption period expired, Nassau County condemned the property in July 1964.
    In 1967, the appellants, as executors of Morse’s estate, obtained a tax sale deed from the village.
    Respondents filed a claim in the condemnation proceeding, asserting ownership.
    A title search revealed the appellants’ tax sale deed.

    Procedural History

    Respondents moved in the condemnation proceeding to determine ownership of the condemnation award.
    Special Term held that respondents, as owners of record at the time of condemnation, were entitled to the award, subject to tax liens.
    The Appellate Division affirmed.
    The case was appealed to the New York Court of Appeals.

    Issue(s)

    Whether ownership in condemned real property lies with the owner of record at the time of condemnation, or with the purchaser at a tax sale held before condemnation who obtains a title deed to the property after the condemnation.

    Holding

    No, because the tax sale purchaser only acquires a lien interest until the redemption period expires; condemnation vests full title in the condemnor and extinguishes the tax lien on the property itself, substituting an equitable lien on the condemnation award.

    Court’s Reasoning

    The court reasoned that under the Real Property Tax Law, the tax sale purchaser acquires only a lien interest, not title, until the redemption period expires. The court distinguished its prior decision in Matter of Ueck, noting that the statutes in that case referred to the land as “sold” and “purchased” at the tax sale. In contrast, the Real Property Tax Law identifies the tax sale certificate as evidencing a lien.

    The court emphasized that condemnation vested full title in Nassau County before the expiration of the redemption period. Therefore, the appellants held only a tax lien at the time of the taking. Condemnation extinguished all lien interests in the property itself.

    However, the court also stated that the tax lien was substituted by an equitable lien on the proceeds of the condemnation award. The court cited precedent such as Copp v. Sands Point Marina, 17 N.Y.2d 291, 293, emphasizing that while the tax lien on the property is extinguished, the tax sale purchaser retains a right to the condemnation proceeds to the extent of the tax lien and interest. The court noted that the appellants could assert their equitable lien when the condemnation award is apportioned.

    In conclusion, the tax sale deed obtained by the appellants was deemed invalid because title vested in Nassau County before the redemption period expired and while the tax was only a lien.