NY ruling could help servicers, borrowers battle tax lien seizures

By: ameer@trustedteam.com

A recent ruling by New York’s top court potentially opens the door to more relief for servicers and homeowners in cases where they lose ownership of properties due to tax-lien notification issues.

The New York Court of Appeals opinion filed March 21 pertains to a default on a mortgaged property that servicer and lender James B. Nutter & Co. discovered when it attempted to foreclose on the home after the borrowers’ passing, and found the county had already claimed ownership based on a tax lien and sold it.

While such instances are rare, tax liens supersede all others and therefore are a big concern when it comes to the ownership of homes.

“This is an important case because it brings clarity to the ability of a homeowner or a mortgagor to contest the validity of a tax sale in New York,” said Gregory Blase, a partner at law firm K&L Gates who was part of the team representing the plaintiff.

The case, James B. Nutter v. County of Saratoga, could have national as well as state ramifications because it involves an interpretation of a U.S. Supreme Court decision that also revolved around the tax-lien notification process.

To understand this, it helps to take a step back and look at the history of legal developments in this area.

Going back to 2006, the U.S. Supreme Court ruled in a case called Jones v. Flowers that two tax-related notifications returned by the post office marked “unclaimed” should’ve been followed up with additional outreach by the state in question, Arkansas.

“When mailed notice of a tax sale is returned unclaimed, a state must take additional reasonable steps to attempt to provide notice to the property owner before selling his property, if it is practicable to do so,” the court ruled.

Flash forward to the current lawsuit, which is the first to address the issue in the context of New York’s particular process for notification in tax lien defaults.

At first the lower court ruled that Jones v. Flowers did not pertain to the situation at hand in New York, which was as follows:

After the mortgage company went to foreclose on the property, it was notified by Galway, a town in New York, of a $3,309.02 outstanding tax bill, which it subsequently paid, according to court documents.

However, the town had a process in which older tax liens were turned over to the county after two years and notifications that the county sent about those obligations never reached the company.

The notifications were in the required forms of first-class and certified mailings and the county had the correct address on file. But the first-class attempt was not tracked nor returned. 

The receipt for the certified mailing also lacks a postmark. Tracking provided as part of the certified mailing shows it went to the wrong address.

A lower court’s decision cited the lack of the notices’ return by the post office as undeliverable as indicative that Jones v. Flowers did not apply.

Nevertheless, in the most recent ruling, Acting Chief Judge of the Court of Appeals Anthony Cannataro found based on other precedent in case law that while the lower court “confined its inquiry to whether plaintiff created a question of fact through evidence that both the certified and first-class mailings were returned…an interested party may also meet its burden of establishing that the taxing authority ‘did not substantially comply with the requirement of providing the taxpayer with proper notice of the foreclosure proceeding’ by other means such as, for example, demonstrating deficiencies in the affidavits of mailing.”

Specifically referencing Jones v. Flowers, Cannataro said, “the Supreme Court emphasized that ‘[d]ue process does not require that a property owner receive actual notice before the government may take [the owner’s] property’…The Court held, however, that “when the government learns its attempt at notice has failed, due process requires the government to do something more before real property may be sold in a tax sale.”

The case was remanded back to the lower court. The lower court was instructed to reconsider it with the higher one’s instructions in mind.

Related post