New York Real Estate Lawyers Blog
Longtime readers of this blog will remember several prior posts relating to the recovery of surplus funds in tax lien foreclosures. The United States Supreme Court ruled in Tyler v. Hennepin County, Minnesota whether the government could keep surplus funds in tax lien foreclosures. The ultimate ruling was that it was an unconstitutional taking of property for a municipality to retain excess funds in a tax lien foreclosure.
To summarize, if a property is sold at a tax auction in order to satisfy a lien for unpaid property taxes, and the amount for which the property is sold exceeds the amount of past due taxes, the (former) property owner is now legally entitled to the surplus funds raised by the auction. Prior to the Supreme Court’s decision, certain states (including New York) would simply keep any excess funds collected in the auction, and the former owner would have no claims to these funds under the applicable state laws, which have now been held to be unconstitutional.
What does this mean on a practical basis? Although it is beyond the scope of this blog to discuss how other states are handling the situation, counties in New York State have been preparing databases showing the surplus funds, if any, raised in tax lien sales. These lists show the amount of the tax lien, the date of the tax auction, the sum for which the property was sold at the auction, and the surplus funds being held by the county. Under the Supreme Court decision in Tyler, the former owner now has a right to claim these funds in New York.
However, this is not the end of the story. There may be other claimants, such as companies who may have a lien against the former owner’s property. For example, if there is a judgment against the former owner, and the judgment holder has entered the judgment in the county in which the property is located, then the judgment holder may have a right to claim some portion of the surplus funds.
How can a former owner claim the surplus funds being held? There is no simple answer to this question. New York has many counties, sixty-two in all, including the five counties constituting New York City. Each of these counties sets their own rules on how a claimant may recover funds. Some may require Court filings, such as a motion, before any funds can be disbursed. Other counties require a Court order executed by a Supreme Court Judge before they will disburse any funds. We recommend that potential claimants hire counsel experienced in the recovery of surplus funds in order to expedite the process.
In addition to the recovery of surplus funds in a tax sale, former owners are also still legally entitled to recover any surplus funds which resulted after a standard property foreclosure, such as one conducted by an institutional lender. This recovery may also be limited by the claims of other lienholders, such as second mortgage holders. Since the process may become quite complicated, we recommend engaging skilled attorneys to assist in recovery efforts.