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Volume 8 - Opinions of Counsel SBEA No. 123

Opinions of Counsel index

Refunds (judicial) (mortgagors and mortgagees) - Real Property Tax Law, §§ 726, 734:

A refund of taxes due as the result of a judicially ordered reduction in assessed value should be paid to a mortgagor rather than a mortgagee holding an escrow account, unless the mortgagor has defaulted on the mortgage.

We have been asked whether refunds of taxes due as a result of small claims assessment review (Real Property Tax Law [RPTL], Art. 7, title 1-A) decisions are required by State law to be paid to mortgagees which hold tax escrows, rather than to the owners of the affected parcels.

Subdivision one of section 734 of the RPTL provides that refunds due in a small claims assessment review proceeding “shall be [paid] in the same manner as provided for in section [726] of this chapter [RPTL] or as is otherwise provided by law with respect to Nassau and Suffolk counties”. {*}  Section 726 provides that in the case of a court ordered reduction in assessed value “there shall be . . . paid to the petitioner or other person paying such tax, . . . the amount paid in excess . . .” (§ 726(1)(a), (b) (emphasis added)).

The person who “paid” a tax is that person whose money was used to satisfy the obligation. The fact that a mortgagee acts as agent for a mortgagor in paying, out of escrow, current taxes does not make the mortgagee the payor of such taxes. This is the general rule in New York and the only exception is where there has been a default in the mortgage agreement as a result of which the mortgagee makes a payment of taxes out of its own money and on its own account (i.e., to protect its mortgage interest from being extinguished in a tax enforcement proceeding) (See, Adam Jay Associates v. Board of Assessors of Nassau County, 62 N.Y.2d 880, 467 N.E.2d 514, 478 N.Y.S.2d 850 (1984); People ex rel. 342 East 57th Street Corp. v. Miller, 262 App. Div. 132, 28 N.Y.S.2d 258 (1st Dept. 1941), aff’d 287 N.Y. 682, 39 N.E.2d 297 (1942); People ex rel. Balbrook Realty Corporation v. Mills, 295 N.Y. 190, 66 N.E.2d 50 (1946); Longwood Associates v. Board of Assessors, 88 Misc.2d 35, 387 N.Y.S.2d 973 (S.Ct. Nassau Co., 1976), aff’d 58 A.D.2d 581, 394 N.Y.S.2d 907 (2d Dept. 1977)).

Finally, where a refund due in a small claims proceeding is not made within 90 days of the receipt of the decision, interest of one percent per month “shall be added to the amount to beg refunded . . . and paid to the petitioner” (RPTL, § 734(1)). Even if this language is read as referring only to the payment of interest, it is self-evident that interest follows the principal and if the former must be “paid to the petitioner”, so too must the latter.

March 26, 1987

{*}  Section 3 of the Suffolk County Tax Act [SCTA] (L.1920, c.311, as amended by L.1980, c.837 and L.1983, c.1018) makes special provision for payment of school tax refunds by the county, with charge-backs to the town and, in one case, the school district. Otherwise, section 726 of the RPTL applies to Suffolk County (see, SCTA, § 32). Although section 32 of the SCTA declares that the “Tax Law” applies to the County, to the extent not inconsistent with the SCTA, that reference is deemed to be a reference to the corresponding provisions of the RPTL (see, RPTL, § 2008(2)).