The Sale of New York City Tax Liens at Auction

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Almost every parcel of real property within New York City is assessed taxes on an annual basis. When these real estate taxes are not paid, tax liens are created by law which “attach” to the property. The tax lien, similar to other liens, serves as notice to the public that the City has a claim against the property. Traditionally, New York City was enabled by statute to bring “in rem” proceedings to foreclose on the lien and, thus, become the owner of the property.

In 1996, New York City’s Administrative Code was amended to include an article permitting the City to sell at auction these real estate tax liens. This was done partly to shift the administrative burden of collecting the tax liens outside of the City’s system; it was also partly done to get the City immediate money from the sale of the liens from third parties.

The change of process from “in rem” proceedings to the sale of tax liens, affects owners of real property against which tax liens exist in important ways:

1. Unlike in the past, where the City may have been perceived as almost lethargic in collecting the tax arrears, this new process motivates the purchaser of the tax lien to immediately take action to collect on the lien, including the bringing of a foreclosure action in the Supreme Court in the county in which the property is located.
2. The statute gives the purchaser of the tax lien a high rate of interest on the tax lien until paid, plus an award of reasonable attorney’s fees and expenses for the prosecution of the foreclosure action.
3. Once the tax lien is sold, it is removed from the records of the City. Unless the homeowner inspects the tax lien records in the City Register’s office, the tax lien information will not appear on the owner’s tax bill. This may cause confusion, with the assumption that no older tax arrears are due.

Prior to the sale of a tax lien, the City is required to provide notice to the owner of the subject property and to the public. The owner will be sent notice by mail at the registered address for such owner (which, in some cases, may be different than the property’s address). The public will receive notice by virtue of advertisements of the sale published in newspapers.

Once the tax lien is sold…

Once the tax lien is sold, the purchaser will send notification to the owner of the property. Further, the purchaser will afford the owner the opportunity to satisfy the lien prior to the commencement of a foreclosure action. In the event that payment is not made, a foreclosure action will be commenced for the unpaid tax arrears as indicated in the tax lien, along with a request for interest and attorney’s fees. After a Judgment of Foreclosure is entered, the property will be auctioned off to first satisfy the lien and, then, to pay off junior lienors. Any surplus moneys left over will be turned over to the owner of record.

— Richard A. Klass, Esq.
©2003 Richard A. Klass

Richard A. Klass, Esq., maintains a law firm engaged in general civil practice at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached by phone or e-mail with any questions. Prior results do not guarantee a similar outcome.