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Volume 7 - Opinions of Counsel SBEA No. 106

Opinions of Counsel index

Taxes, enforcement (reconveyance) (installment payments); Tax deed (reversionary clause) - County Law, § 215(8); Estates, Powers and Trusts Law § 6-4.4; Real Property Tax Law, § 1020:

Under certain circumstances, a county may enter into an installment payment agreement/or reconveyance of tax delinquent property to former owners.

A county tax deed may not include a reversionary clause, purporting to restrict alienability for a term of years following conveyance.

We have been asked to review a proposal concerning the disposal of property acquired by a County for unpaid taxes. Pursuant to the plan, the County Treasurer would issue “redemption certificates” to former owners who agree to pay the County, in installments, the amount of unpaid taxes, interest, etc. Where conveyance is made to someone other than the former owner, the County would issue a tax deed which would include a reverter clause, restricting the alienability of the property for a period of five years after purchase.

This proposal raises several interesting questions. The first is whether a county may sell property acquired by tax deed for a price equal to the amount of unpaid taxes, interest, and other related charges. Assuming that to be permissible, may former owners be granted a preference when the county offers the parcel for sale? Finally, is there any prohibition against permitting installment payments under these circumstances?

The general requirement that county real property be sold “only to the highest bidder after public advertisement” (County Law, § 215(6)) does not apply to property acquired by tax deed. However, a county may not reconvey such real property to a former owner, who was given but waived the opportunity to repurchase for the amount of unpaid taxes, when a higher bid has been received by the county from a third party (see, 7 Op.Counsel SBEA No. 62). Otherwise, the county is free to grant a preference to former owners when disposing of such property (id.).

It has been suggested that the use of an installment payment plan is illegal as being the equivalent of partial payment of taxes. While this County is not one of those authorized by section 1500 of the Real Property Tax Law to permit partial payment of taxes, this should not be of concern. Although the proposal is to have the County Treasurer issue a “redemption certificate” upon the buyer’s final installment payment, this is not a true case of redemption (see, e.g., RPTL, § 1010). Rather, the County Treasurer should issue a deed, transferring title from the County to the buyer. A similar issue was considered in Old Dutch Lands, Inc. v. City of New York, 55 Misc.2d 384, 286 N.Y.S.2d 86 (S.Ct., Kings Co., 1967), mod., 32 A.D.2d 649, 301 N.Y.S.2d 437 (2d Dept., 1969), aff’d, 26 N.Y.2d 984, 259 N.E.2d 492, 311 N.Y.S.2d 25 (1970)), and was disposed of in the following manner:

The statute is not a “redemption” statute as that term is used in foreclosure proceedings-redemption in the course of the proceedings or during a stated period thereafter before title vests. It is instead a “reconveyance” statute. . . . Having wiped out all rights, the new statute could only provide for a reconveyance (not redemption) to persons unfairly deprived of their property. (286 N.Y.S.2d, at 90).

Accordingly, statutory limitations applicable to partial payment or installment payment of delinquent taxes (see, e.g., § 1122(2)) do not apply to a proposal such as this, since this is actually a contract for the purchase of county-owned land, rather than an agreement to redeem privately-owned property from the lien of an unpaid tax.

As to the general propriety of an installment payment contract of sale between the county and a taxpayer, the State Comptroller is of the opinion that, under certain circumstances, an installment contract for the purchase of tax delinquent property would be permissible (Op.State Compt. 77-272). Note that in the case presented to the Comptroller, however, the purchasers were also required to pay all current taxes, contemporaneous with their installment repurchase payments.

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A question has also been raised concerning the validity of the proposed reverter clause, mentioned at the outset of this Opinion. This clause would be inserted in all tax deeds to purchasers who are not the former owners, and would restrict alienability of the property for a period of five years after purchase. Section 1020 of the Real Property Tax Law provides that conveyance by the county treasurer shall vest in the grantee an absolute estate in fee subject only to: (1) specified tax claims, (2) redemption, and (3) cancellation. The conveyance may be subject to cancellation by reason of prior payment of taxes, illegal levy, or jurisdictional defects, if an action is brought within five years from the expiration of the redemption period.

As a general principle, a fee simple estate should be fully and completely alienable. It is the accepted rule in New York that a clause in a deed which purports to restrain alienability by the owner of the property is an illegal restriction; void, unless the grantor retains a reversionary interest therein (Edib v. Edib, 63 A.D.2d 643, 404 N.Y.S.2d 375 (2d Dept., 1978); Weisenthal v. Young, 280 App. Div. 690, 116 N.Y.S.2d 449 (1st Dept., 1952); Continental Ins. Co. v. N.Y. & H.R.R. Co., 187 N.Y. 255, 79 N.E. 1026 (1907); DePeyster v. Michael, 6 N.Y. 467 (1852)). A question which must be answered, then, is whether the county, as grantor, has a reversionary interest in the estate. Section 6-4.4 of the Estates, Powers and Trusts Law defines a reversion as: “The future estate, other than a possibility of reverter and a right of reacquisition, left in the creator or in his successors in interest upon the simultaneous creation of one or more lesser estates than the creator originally owned.” Simply stated a reversion exists when the grantor retains a vested interest in the realty because that which is conveyed is a lesser estate than the grantor possessed.

It is our opinion that section 1020, which requires conveyances by a county treasurer to vest in the grantee an absolute title to the land (subject to the exceptions noted above), would bar the simultaneous retention of a reversionary interest by the county. Accordingly, it is our opinion that the proposed restriction on the right of alienability would be illegal and void.

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Whether the County should adopt the proposal is another matter entirely. A plan to grant an across-the-board reconveyance preference to former owner-occupants may not be well received by persons who have made timely payments of their tax bills. Conversely, there may be excellent policy reasons for granting such preference (quick restoration to tax rolls of county acquired properties; relief in true hardship cases; etc.). The County’s goal at all times should be to maintain fairness among all taxpayers, to the extent reasonably possible, while returning property to the tax rolls as expeditiously as possible.

September 16, 1981