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IN A TAX FORECLOSURE PROCEEDING, EVIDENCE THE LETTERS PROVIDING NOTICE OF THE FORECLOSURE WERE NOT RETURNED TO THE TAXING AUTHORITY DOES NOT PRECLUDE RAISING A QUESTION OF FACT WITH PROOF NOTICE WAS NOT RECEIVED (CT APP). ​

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Cannataro, determined the controlling statute, Real Property Tax Law (RPTL) 1125(1)(b), does not preclude plaintiff in a tax foreclosure proceeding from presenting evidence the statutory notice requirements were not complied with. The statute states that notice of the foreclosure “shall be deemed received” if neither the certified letter nor the letter sent by first class mail are returned within 45 days. The taxing authority presented evidence the letters were not returned. Plaintiff presented evidence notice was sent to the wrong address and the certified letter lacked a postmark. The Court of Appeals held plaintiff had raised a question of fact about compliance with the statutory notice requirement, notwithstanding the evidence the letters were not returned:

By its unambiguous terms, RPTL 1125 (1) (b) (i) relates to whether notice will be “deemed received,” not whether the taxing authority has complied with the statutory mailing requirements. Although the taxing authority must ensure that “[a]n affidavit of mailing of such notice [is] executed” … , the statute expressly provides that “[t]he failure of an intended recipient to receive any such notice shall not invalidate any tax or prevent the enforcement of the same as provided by law” … . It is only when both the certified mailing and the first class mailing are returned that the statute requires the taxing authority to take additional action beyond the requirements set forth in RPTL 1125 (1) (b) (i) … .

That is not the end of the analysis, however, in cases where the interested party argues, as plaintiff does here, that the taxing authority failed to comply with the mailing requirements set forth in RPTL 1125 (1) (b) (i). … RPTL 1125 (1) (b) (i) contains no “presumption of service” … . Nor does section 1125 (1) (b) (i) bar an interested party from submitting evidence that would call the taxing authority’s compliance with its requirements into issue or limit the proof an interested party may use to raise an issue of fact with respect to that compliance only to evidence that both the certified and first class mailings were returned. Courts “may not create a limitation that the legislature did not enact” … . James B. Nutter & Co. v County of Saratoga, 2023 NY Slip Op 01469, CtApp 3-21-23

Practice Point: In a tax foreclosure proceeding, proof that the letters notifying the property owner of the foreclosure were not returned to the taxing authority (RPTL 1125(1)(b)) does not preclude the owner from raising a question of fact with evidence notice was not received (here evidence the certified letter did not have a postmark and a letter was sent to the wrong address).

 

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THE COUNTY HAD IN REM JURISDICTION IN THIS TAX FORECLOSURE PROCEEDING AND MADE ADEQUATE ATTEMPTS TO NOTIFY THE NECESSARY PARTIES (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Rivera, affirming the appellate division, determined the county had in rem jurisdiction in this tax foreclosure proceeding and the county’s attempts to notify all parties of the tax foreclosure proceedings were sufficient:

Two fundamental legal principles govern our decision in this appeal. First, a tax foreclosure proceeding is in rem against the “res”—the taxable real property—and not an action in personam commenced against an individual to establish personal liability. Second, New York statutory law and state and federal constitutional guarantees of due process require that the petitioner in a foreclosure proceeding must attempt notice that is reasonably calculated to alert all parties with an interest in the property.

Here, defendants commenced an in rem tax foreclosure proceeding and mailed the statutorily-required notice to the publicly-listed owners of the property, posted and filed the notice, and publicized the notice in the press. Upon learning that a person listed as an owner died before the notices were issued, defendant County Treasurer also personally contacted the sole business located on the property in an effort to identify and personally inform a manager, owner, or any person in charge of the pending foreclosure proceeding. Under these circumstances, defendants provided legally adequate notice of a validly commenced tax foreclosure action. Hetelekides v County of Ontario, 2023 NY Slip Op 00803, CtApp 2-14-23

Practice Point: A tax foreclosure proceeding is an in rem proceeding against the taxable real property, not an in personam action against an individual.

 

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TOWNHOUSES PURCHASED BY A NOT-FOR-PROFIT SCHOOL TO HOUSE FACULTY ARE TAX EXEMPT (SECOND DEPT),

The Second Department, reversing the city board of assessment review (BAR) determined that townhouses purchased by the Rye County Day School (RCDS), a not-for-profit school, to house faculty were tax exempt:

RPTL 420-a(1)(a) provides that “[r]eal property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.” The word “exclusively” in the statute has been broadly defined as “principally” or “primarily” … , such that “purposes and uses merely auxiliary or incidental to the main and exempt purpose and use will not defeat the exemption” … . Thus, the two-part test for determining entitlement to a property tax exemption under RPTL 420-a is “(1) whether the owner of the property is organized or conducted exclusively, or primarily, for an exempt purpose; and (2) whether the particular property for which the exemption is sought is itself primarily used for an exempt purpose” … .

RCDS demonstrated that the “primary use” of the faculty-occupied townhouses furthered its “primary purpose” of operating as a school.

… RCDS demonstrated that the “primary use” of the faculty-occupied townhouses furthered its “primary purpose” of operating as a school … . Matter of Rye Country Day Sch. v Whitty, 2023 NY Slip Op 00323, Second Dept 1-25-23

Practice Pont: Faculty housing for a not-for-profit school is tax exempt.

 

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THE CITY PROPERLY AMENDED ITS CHARTER DELETING THE PROVISIONS REQUIRING THE CITY TO ENFORCE PAYMENT OF DELINQUENT PROPERTY TAXES, IMPOSING THAT DUTY ON THE COUNTY (THIRD DEPT).

The Third Department, over a two-justice dissent, determined the city properly amended its charter by deleting the provisions requiring the city to enforce payment of delinquent property taxes, thereby imposing that duty upon the county:

By adopting Local Law No. 2, the City amended its charter by deleting the provisions requiring the City to enforce the payment of delinquent taxes, leaving the County with that obligation under RPTL article 11. The City was statutorily authorized to do so pursuant to RPTL 1104 (2), which recognizes that a city charter “may from time to time be amended.” As a consequence of the amendment, the City is no longer a “tax district” for purposes of RPTL article 11 … and the County treasurer becomes the enforcing officer … . As such, the County treasurer is statutorily required to credit the City for unpaid delinquent taxes upon the return at the end of the fiscal year … . This outcome is neither an expansion nor impairment of the County’s powers but simply a consequence of the statutory structure outlined in RPTL articles 9 and 11. Matter of St. Lawrence County v City of Ogdensburg, 2022 NY Slip Op 04932, Third Dept 8-11-22

Practice Point: Here the city, pursuant to the Real Property Tax Law, properly amended its charter to remove the provisions requiring the city to enforce payment of delinquent property taxes, a duty which now falls upon the county.

 

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THE TENANT (A NET LESSEE), WHICH WAS OBLIGATED BY THE TERMS OF THE LEASE TO PAY PROPERTY TAXES, CAN CHALLENGE A PROPERTY-TAX ASSESSMENT BY FILING A GRIEVANCE PURSUANT TO REAL PROPERTY TAX LAW (RPTL) 524 (3); THE APPELLATE DIVISION HAD RULED ONLY THE PROPERTY OWNER COULD CHALLENGE THE ASSESSMENT (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, reversing the Appellate Division, determined a tenant who is obligated to pay property taxes can properly file a grievance contesting a property-tax assessment:

RPTL 524 (3) presents an ambiguity. The clause “person whose property is assessed” is not defined in the RPTL, and it lends itself to more than one reasonable interpretation … . * * *

… [W]e … hold that a grievance complaint filed with the assessor or board of assessment review at the administrative level by a net lessee who is contractually obligated to pay real estate taxes on the subject property satisfies RPTL 524 (3). Matter of DCH Auto v Town of Mamaroneck, 2022 NY Slip Op 03929, CtApp 6-16-22

Practice Point: Clearing up an ambiguity in Real Property Tax Law RPTL section 524, the Court of Appeals held that a tenant (a net lessee), which is obligated by the terms of the lease to pay the property taxes, can file a grievance challenging the property-tax assessment. The Appellate Division had held only the property owner could challenge an assessment.

 

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THE PETITION STATED CAUSES OF ACTION FOR A VIOLATION OF REAL PROPERTY TAX LAW (RPTL) 305 AND VIOLATION OF EQUAL PROTECTION; THE PETITION ALLEGED LARGER HOMES WERE ASSESSED AT LESS THAN 100% OF MARKET VALUE AND SMALLER HOMES WERE ASSESSED AT 100% OF MARKET VALUE (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the petition stated causes of action for improper assessment of property values and violation of equal protection. It was alleged that the methodology use to assess the value of home for property tax purposes resulted in less than 100% assessment for the larger homes and 100% assessment for the smaller homes:

Under RPTL 305(2), real property within an assessing unit must “be assessed at a uniform percentage of value”… . “[R]egardless of the methodology adopted by the [a]ssessor, the result must reflect the realistic value of the property so that the tax burden of each property is equitable” … . Although there is a presumption that a tax assessor’s property valuations are valid, property owners may rebut the presumption through submission of substantial evidence of overvaluation … .

… The petition, as supplemented by affidavits from the petitioner’s members and empirical and statistical analyses, sufficiently stated a cause of action for violation of RPTL 305. …

Accepting as true the facts alleged in the petition and according the petitioner the benefit of every favorable inference, the petition, as supplemented by the petitioner’s submissions, sufficiently stated a claim for violations of the equal protection clauses of the State and Federal Constitutions. Matter of Scarsdale Comm. for Fair Assessments v Albanese, 2022 NY Slip Op 01027, Second Dept 2-16-22

 

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NOTING THE SPLIT OF AUTHORITY BETWEEN THE 2ND AND 4TH DEPARTMENTS, THE 3RD DEPARTMENT SIDED WITH THE 2ND AND HELD THAT, WHERE THE PROPERTY OWNER IS DECEASED, JURISDICTION OVER THE PERSONAL REPRESENTATIVE OF THE DECEDENT IS REQUIRED FOR AN IN REM TAX FORECLOSURE PROCEEDING (THIRD DEPT).

The Third Department, in a complex tax foreclosure case involving many other parties and many other issues, in a full-fledged opinion by Justice Lynch, over a dissent, determined the city could not proceed against property owned by a deceased party without jurisdiction over the personal representative of the decedent’s estate. The court noted a split of authority between the Second and Fourth Departments. The Fourth Department held that a tax foreclosure is an in rem proceeding (against the property) and the death of the owner is therefore irrelevant. The Third Department sided with the contrary ruling by the Second Department(requiring jurisdiction over the personal representative). The two-justice dissent argued the Fourth Department’s approach is the correct one:

Supreme Court properly granted Paul’s motion to vacate the default judgment. Paul is the adult son of Paywantie Allicock (hereinafter decedent), who purchased the property at 82 James Street in the City of Schenectady, Schenectady County (hereinafter the property) in 2004 and resided there with her son until she passed away in May 2015. Paul continues to reside at the premises. At issue is whether petitioner duly acquired jurisdiction over the property for purposes of this RPTL article 11 in rem foreclosure proceeding, commenced in April 2019. Pertinent here, there is a split between the Second and Fourth Departments as to whether a tax foreclosure proceeding may include a parcel where the owner is deceased at the time the action is commenced (compare Matter of Foreclosure of Tax Liens, 165 AD3d at 1116, with Hetelekides v County of Ontario, 193 AD3d 1414, 1419-1420 [2021]). We ascribe to the viewpoint expressed by the Second Department that such a proceeding may not be commenced until such time as the petitioner first acquires jurisdiction over the personal representative of the decedent’s estate … . Matter of City of Schenectady, 2021 NY Slip Op 06120, Third Dept 11-10-21

 

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SUPREME COURT PROPERLY REJECTED THE LANDLORD’S CALCULATION OF RENT OVERCHARGES FOR RENT-REGULATED APARTMENTS REMOVED FROM RENT STABILIZATION WHILE THE BUILDING WAS RECEIVING J-51 TAX BENEFITS (FIRST DEPT).

The First Department, over a dissent, determined Supreme Court properly refused to consider defendant landlord’s (Whitehouse’s) calculation of rent overcharges and ordered calculation by a referee. The landlord had removed rent-regulated apartments from rent stabilization while the building received J-51 tax benefits:

We find that the motion court correctly determined that plaintiffs’ legal regulated rent should be calculated according to the default formula set forth in RSC (9 NYCRR) § 2522.6(b). Although defendants may have been following the law in deregulating apartments during the period before Roberts [13 NY3d 270] was decided (see Regina, 35 NY3d at 356), their 2012 retroactive registration of the improperly deregulated apartments was an attempt to avoid the court’s adjudication of the issues and to impose their own rent calculations rather than face a determination of the legal regulated rent within the lookback period. Casey v Whitehouse Estates, Inc., 2021 NY Slip Op 04646, First Dept 8-5-21

 

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AS LONG AS BOTH THE CERTIFIED AND FIRST-CLASS-MAIL LETTERS NOTIFYING A MORTGAGEE OF A TAX FORECLOSURE SALE ARE NOT RETURNED, THE MORTGAGEE IS DEEMED TO HAVE BEEN PROPERLY SERVED PURSUANT TO REAL PROPERTY TAX LAW 1125 (THIRD DEPT).

The Third Department, over a dissent, determined that plaintiff property owner, pursuant to Real Property Tax Law (RPTL) 1125, was properly notified of the tax foreclosure proceedings, despite plaintiff’s allegation that the certified letter was delivered to a post office box, not the street address. RPTL 1125 deems service accomplished if the letters are not returned:

Defendants were required to send the notice of the tax foreclosure proceeding to plaintiff “by certified mail and ordinary first class mail” (RPTL 1125 [1] [b] [i] … ). The record contains documentary evidence demonstrating that the petition and notice of foreclosure were sent via certified mail and first class mail to plaintiff at “4153 Broadway” in Kansas City, Missouri — the address for plaintiff as listed on the mortgage … .The record also discloses that neither of these mailings was returned. Accordingly, defendants satisfied their burden of demonstrating that they complied with RPTL 1125.

In opposition thereto, plaintiff submitted, among other things, the tracking information sheet for the certified mailing sent by the County. This sheet indicated that the certified mailing was delivered to an unspecified post office box, as opposed to 4153 Broadway, in Kansas City, Missouri. To that end, plaintiff asserts that a material issue of fact exists as to whether it received notice of the tax foreclosure proceeding. The petition and notice of foreclosure sent to plaintiff, however, “shall be deemed received unless both the certified mailing and the ordinary first class mailing are returned by the United States [P]ostal [S]ervice within [45] days after being mailed” (RPTL 1125 [1] [b] [i] …). James B. Nutter & Co. v County of Saratoga, 2021 NY Slip Op 04074, Third Dept 6-24-21

 

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THE CITY CHARTER PROVISION DID NOT PROVIDE FOR NOTICE OF A PENDING TAX FORECLOSURE SALE TO MORTGAGEES AND THEREBY VIOLATED THE MORTGAGEE’S DUE PROCESS RIGHTS IN THIS PROCEEDING; THE MORTGAGEE’S MOTION FOR SUMMARY JUDGMENT AGAINST THE CITY WAS PROPERLY GRANTED (SECOND DEPT). ​

The Second Department determined the city charter provision did not provide for notice of pending tax lien sales to parties other than the owner which violated the due process rights of mortgagees:

“The constitutional guarantee of due process requires that a party who has a substantial property interest which may be affected by a tax lien sale receive notice that is ‘reasonably calculated’ to apprise it of an impending sale” … . Thus, “actual notice of a tax sale must be given to all parties with a substantial interest in the property whose names and addresses are ‘reasonably ascertainable'” … . A mortgagee has a legally protected property interest and is legally entitled to notice of a pending tax sale … .

Here, section 93 of the City Charter of the City of Middletown … does not provide for notice of pending tax lien sales to parties other than the owner, but provides only for post-sale notice 60 days prior to the divesting of all rights in the property. As such, City Charter section 93 fails to comport with due process requirements because it makes no provision for actual notice of impending tax sales to be given to mortgagees of record … . Accordingly, the Supreme Court properly denied the City’s motion for summary judgment dismissing the complaint insofar as asserted against it, and, as relevant to this appeal, granted that branch of [the mortgagee’s]  motion which was for summary judgment on the complaint insofar as asserted against the City. Bayview Loan Servicing, LLC v City of Middletown, 2021 NY Slip Op 04006, Second Dept 6-23-21

Similar issue and result in Delacorte v Luyanda, 2021 NY Slip Op 04009, Second Dept 6-23-21

 

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