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Volume 7 - Opinions of Counsel SBEA No. 62

Opinions of Counsel index

Taxes, enforcement (property acquired by tax deed) (right of reconveyance) (high bidder) - New York State Const., Art.8, § 1; County Law, § 215; Real Property Tax Law, §§ 1018(4), 1166:

A county which has acquired title by tax deed may not reconvey real property to a former owner who was given but waived the opportunity to repurchase/or the amount of unpaid taxes, when a higher bid has been received by the county from a third party.

May a county, after receiving a bid of $24,000 for real property acquired by tax deed, sell the property instead to the former owner for just the amount in arrears (some $10,000), given the knowledge that: (1) this will result in a loss to the county of approximately $14,000; and (2) the former owner would then convey the reacquired property to the aforementioned high bidder for the same $24,000?

Tax titles generally result from proceedings under Article 10 or Article 11 of the Real Property Tax Law to enforce the collection of delinquent property taxes. If a county proceeds in accordance with statutory requirements and the property owner, after receiving due notice, fails to redeem within the appropriate time, title to the property will then vest in the county (Real Property Tax Law, §§ 1020, 1116, 1136).

Once title to tax delinquent property has vested in a county, there are few statutory restrictions on the county’s power to dispose of the property. A county which has taken title under Article 10 may dispose of the property so acquired “at such time and upon such terms as shall be determined by a majority of the board of supervisors at any meeting thereof” (Real Property Tax Law, § 1018(4)). If the county has taken title under Article 11, it may sell the property “either with or without advertising for bids, notwithstanding the provisions of any general, special, or local law” (id., § 1166(1)), subject only to approval of the sale by the board of supervisors (id., § 1166(2)). Moreover, the rule that county real property may be sold “only to the highest responsible bidder after public advertisement” (County Law, § 215(6)), does not apply to county property acquired by tax title (id., § 215(8)).

Notwithstanding this generally broad statutory discretion, it is our opinion that the County in question would not have the authority to sell the property to the former owner under the circumstances described above.

First, the County has adopted a resolution establishing local procedures for the disposal of property acquired by tax deed. Under this resolution, after the county records a tax deed, the former owner is given an opportunity to purchase his or her former property at a private sale. If he or she fails to do so within the allotted time, the property is then to be sold at public auction to the “successful bidder”, subject to the approval of the County Board. In Magnotta v. Gerlach, 301 N.Y. 143, 93 N.E.2d 569 (1950), the Westchester County Board of Supervisors had established a local procedure for selling county-owned real estate to the “highest” bidder. The Court of Appeals stated that when conducting sales in accordance with this procedure, “the Board had the duty of obtaining the highest possible net return to the county for the property” (301 N.Y., at 148).

The County procedure has been followed to the point that the “successful” bid is now awaiting approval by the Board. The Board has the authority to reject such a bid, but it may not do so in order to sell the property to someone else at a lower bid (Klevens v. City of Yonkers, 15 Misc.2d 1040, 182 N.Y.S.2d 720 (S.Ct., Westchester Co., 1959)).

Even in the absence of an express duty (self-imposed or otherwise) to sell property for the highest possible price, municipalities have an implicit obligation to do so. The leading New York case on this subject is Ross v. Wilson, 308 N.Y. 605, 127 N.E.2d 697 (1955), which involved a sale of school district property pursuant to then subdivision 6 of section 1804 of the Education Law. That Law established no specific method for the sale of real property by school districts, so it did not expressly require that property be sold to the highest bidder. The school district, at a duly authorized meeting of its electors, had ignored an offer of $3,000 (from a grange) for a schoolhouse it no longer needed and accepted the offer of $2,000 from a church, without ever placing the property for auction.

The Court of Appeals held that since subdivision 6 of section 1804 of the Education Law did not mandate a method of sale, “it was not necessary to sell this property at auction,. . . [but] it was their duty to sell at the best price which it brought, not deliberately to select and to favor a buyer at a lower price than was otherwise obtainable” (308 N.Y., at 613). The Court reached this conclusion after considering section 402 of the Education Law, which provided that when a schoolhouse site changes, the district electors may sell the former site “at such price and upon such terms as they shall deem proper” (emphasis added). (It should be noted that the relevant language of Education Law, section 402 is even broader than that of Real Property Tax Law, section 1018(4)). The Court stated:

[I]f the Legislature does not require a schoolhouse to be sold at public auction, it by no means follows from that circumstance that the Legislature intended to authorize the public officials charged with the administration of school property, or even the majority of qualified electors voting at a school district meeting, to sell the property for a smaller amount than has been offered with due formality by a proper-purchaser for a lawful use. . . . Sections 402 and 1804 (subd. 6) of the Education Law contemplate that the electors may exercise their judgment and discretion in good faith concerning what is the best price at which a school-house can be sold, but where a higher offer from a responsible bidder is already in their hands, there is not room for the exercise of discretion concerning it. The higher offer must be accepted if it is for a use that may be conducted pursuant to law. 308 N.Y., at 610-611 (emphasis added).

Although the Ross case involved a school district rather than a county, the Court of Appeals did cite with approval a Pennsylvania Supreme Court case which applied these principles to county commissioners. (308 N.Y., at 613-614).

It may be that, despite its broad language, Ross was not intended to be applicable to every conceivable sale of municipal property and that there are at least some instances wherein a public policy would justify a sale for less than the best possible price (see, e.g., Berkey v. Downing, 68 Misc.2d 595, 327 N.Y.S.2d 921 (S.Ct., Tompkins Co., 1972)). Thus, it may be appropriate for a county to give a former owner an opportunity to repurchase the property upon payment of arrears, regardless of its market value. However, where the former owner has been given such an opportunity, which he or she has failed to exercise and has displayed no interest in paying the delinquency, the county’s duty to obtain the best possible price for the property would clearly override any preference ordinarily given to the former owner.

There is no support for the proposition that former owners should be given a broader preference. On the contrary, the courts have not been generous in viewing public policy justifications for sales to low bidders. In Wekando, Inc. v. City of Yonkers, 195 Misc. 102, 91 N.Y.S.2d 193 (S.Ct., Westchester Co., 1949), the City of Yonkers sought to sell property acquired by in rem tax foreclosure to the owner of improved adjacent property, although it had received a higher bid from the plaintiff. The Court found “no authority” on the part of the city to reject the higher bid. It asserted that city officials had a duty “to obtain the best price for the benefit of the taxpayers and while they are not required to advertise for bids on such property we find nothing in the law or in sound public policy that allows them to reject a higher bid merely because it is not made by an adjoining owner” (91 N.Y.S.2d, at 194).

Finally, any policy relating to the disposition of county property is subject; to Article 8, section 1 of the New York State Constitution which prohibits gifts of county money or property to private individuals. This provision is not offended by a policy giving a right of reconveyance to former owners (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, 311 N.Y.S.2d 25 (1970)).

But here, a former owner has been given and waived a right of reconveyance and the county has since received evidence (i.e., the bid) that the value of the property greatly exceeded the amount in arrears. Accordingly, a conveyance of the property for only the amount in arrears would appear to constitute a “gift” in violation of the Constitution.

This is especially true where the former owner has contracted to convey the property, if he or she reacquires it, to the successful high bidder for the amount that had been offered to the county. The county would thus effectively be transferring to the former owner the profit to be realized on this transaction. It would be unconstitutional for a county board of supervisors to pay directly to a former owner the profit realized upon the resale of property acquired by the county at a tax sale (1978 Op.Atty. Gen 258 (Informal) (Sept. 5, 1978)). The transaction here contemplated would differ from this only in form, not in effect.

November 12, 1981