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Volume 6 - Opinions of Counsel SBEA No. 59

Opinions of Counsel index

Taxes (delinquent) (tax sale certificate - right of holder of lien to pay subsequent taxes) - Real Property Tax Law, §§ 928, 1010:

The Real Property Tax Law does not limit the right of the holder of a tax lien to pay taxes levied on the property subsequent to his purchase of the tax lien.

A question has arisen concerning the legality of a tax payment made by the holder of a tax lien. In the situation presented, a tax lien against a parcel was sold to a private individual for $491.52 on November 3, 1976. Subsequently, on January 1, 1977, county and town taxes for the 1977 fiscal year were levied.

The county in which this property is located has opted to permit payment of taxes in two equal installments pursuant to section 928 of the Real Property Tax Law. Therefore, a taxpayer has the option to either pay his taxes in full during the “interest free period” or to pay the first installment during that period and the second installment, with interest, on or before August 1.

Normally, the interest free period (for county-town purposes) runs through January 31. However, because of the unusual and extreme weather conditions prevailing in New York State during the early part of 1977, the Governor signed into law chapter 2 of the Laws of 1977 which extended the interest free period in certain counties (including the subject county) through February 15.

Acting on the assumption that he thus had an additional 15 days to make his first installment payment without any liability for interest, the owner of the property mailed his payment to the town tax collector on February 8. At the time, he was unaware that on January 31 the holder of the tax lien on his property paid the entire tax bill. On February 14, the town tax collector notified the property owner that his check would be returned because the taxes had already been paid. The owner’s concern is that this full payment of taxes has been added to the pre-existing tax lien and the sum of the charges for two years is the amount which he must now pay to redeem his property.

When taxes are unpaid after a certain period, the law permits the sale of tax liens against the property (Real Property Tax Law, § 1000). At these tax sales, a purchaser pays the amount of unpaid taxes plus interest and certain administrative expenses (id., § 1002(2)) in return for which the recipient municipality issues a tax sale certificate. This certificate represents the purchaser’s inchoate right to a conveyance of title to the property (see, Blatnicky v. Ciancimino, 1 A.D.2d 383, 151 N.Y.S.2d 267, aff’d, 2 N.Y.2d 943, 142 N.E.2d 211, 162 N.Y.S.2d 38). In addition to a statement of the amount paid and a description of the parcel against which the tax lien is issued, the tax sale certificate includes a statement of the time after which the purchaser will be entitled to a deed if the owner of record does not take certain steps to “redeem” his property (id). The right to this deed represents the ultimate sanction for the collection and enforcement of unpaid taxes in New York State.

The law recognizes the harshness of this sanction however, and provides a “grace” period during which the owner of record, an occupant or any other person may redeem the property from the outstanding tax lien and certain other charges for which the property may subsequently have become liable. The general period of redemption is one year (§ 1010(1)). In the case of occupied or mortgaged property, the time is extended an additional two years, unless the lien holder acts to limit that period in the manner prescribed by statute (see, § 1022(1) and § 1024(1), respectively).

In order to redeem the property, an interested party must pay both the amount set forth in the tax sale certificate and any subsequent taxes which the holder of the tax lien has paid for that property after the date of the sale and prior to the date of the redemption (§ 1010(1)). There is no provision in the Real Property Tax Law which limits the right of the holder of a tax lien to pay taxes levied on the property subsequent to his purchase of the tax lien. We note that this is not true of all counties; for example, section 75 of the Suffolk County Tax Act prohibits a lien holder from paying subsequent unpaid taxes until after the return of those taxes and assessments to the county treasurer. (In most counties, the date of the return of unpaid taxes is April 1 (§§ 904(1), 936), although in those counties in which installment payments are permitted, the return is not made until after the date upon which the second installment falls due.)

It seems apparent that what the holder of the tax lien was attempting to do in this case was to protect his inchoate interest in the property. Had he permitted the 1977 taxes to remain unpaid until the date of the next tax sale, the holder of the initial tax lien would have had to either bid in the succeeding unpaid taxes, penalties and interest at that sale, or redeem the property from this succeeding tax lien in order to protect his interest (see, § 1010(l)(b)).

In paying the taxes on January 31, the holder of the lien apparently acted on the assumption that the interest free period expired on that day. As we now know, two days later, the Governor signed into law the extension of the interest free period through February 15. Had the holder of the lien known of the extension, he might have waited until February 15, the last day of the extended interest free period, to make his payment although he was not bound to do so as we have explained. In paying the tax in full, rather than simply the first installment, the holder of the lien was merely seeking to avoid the monthly interest charge of one-half of one percent (§ 928(1)) until such time as the second installment might have been paid. He stayed within the bounds of the law in so acting, although this clearly worked to the property owner’s disadvantage.

April 14, 1977