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Legal Research Library   >   Back to the Future...

Back to the Future with City of
New York Tax Lien Sales
By Christopher Bedell, New York Zone Counsel

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We all thought that the City of New York's conversion of its tax system to Fairtax and of the water system to the new Customer Information Service (CIS) represented the ultimate challenge and adjustment for owners of property, lenders, service companies and title companies. Little did we realize that revival of a former way of dealing with tax delinquencies loomed on the horizon: namely the sale of real property tax liens.

The City utilized the sale of tax liens until the 1950's when it was replaced by the familiar and still present In Rem Foreclosure procedure. The revival of the sale of tax liens began with the amendment to Administrative Code provisions Title II, Chapter 3 which also repealed sections 11-325, 11-329, 11-343, 11-345, 11-346 and 11-348.

The main change was in the method and terms of sale. The amendment authorizes the City to sell tax liens on either individually or in bulk by competitive bid or negotiated sale (bulk sales only) until December 31, 1997. The amendment further provides the City (acting through its Commission of Finance) with wide latitude and discretion in setting the terms and conditions of sale. Discretionary issues include bulk sales at a discount of premium, as opposed to the sale of individual tax liens for the full amount of the lien. In order for a tax lien to be eligible for sale, the oldest real property tax item had to be delinquent for at least one year for all Class 2, 3 and 4 commercial properties.

The first Notice of Intended Sale of Tax Liens on May 20, 1996 was published on March 19, 1996 providing Borough, Block and Lot those parcels eligible. Subsequently the City made available total amount of taxes due that represented the lien. Of course, the mad scramble by owners to beat the deadline and pay the taxes was on. The result was a substantial collection windfall for the City reported to have exceeded $30 million. Some properties were mistakenly placed into the lien sale for a number of reasons. Among the reasons cited were liens of previous taxes reopened within one year delinquent period requirement and properties included that were to be exempt from sale (Class I residential, Class 2 condo/coop, properties owned by Housing Development Fund Corporations, and certain distressed multiple dwellings). The City attempted to make adjustment of these errors prior to May 20th and continues to work on the problem past the sale date.

The Department of Finance computer tax history records have already begun to show the transfer of liens as "Tax Lien Write-offs." A complete list of properties with sold liens was to be published on June 13, 1996. However the procedure for redeeming the liens from the Trustee, The Bank of New York, (the holder of the Tax Talk liens is Morgan Stanley) will not be released for several weeks. We do know that the tax lien is due and payable one year after the sale date and bears interest at the rate of 18% per annum, payable semi- annually. The lien includes this interest plus the cost of advertising and notices relating to the sale, any other charge due and payable and a 5% surcharge. Since there is no party or mechanism to determine the exact charge due to redeem or pay off the liens, a substantial amount of escrow monies will likely be required by title insurer to allow transactions to close with an omission of the lien.

For now the City is also trying to make adjustment for, among other things, the payments that were made on or close to May 20, 1996, which payments did not clear in time to avert inclusion in the sale. The Department of Finance will accept and hold payment on sold liens if the payment is by certified check and made out to the "NYCTL-1996-1 Trust." The question that remains is how much to pay. Hopefully an efficient system is being developed by the Trustee to pay off and satisfy the liens. Seller and borrower should resolve questions regarding the disposition of tax lien sales with their title company prior to closing.

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