New York State bill would put moratorium on property tax foreclosures

A bill that recently passed the State Legislature would keep Nassau and Suffolk counties from foreclosing on properties when homeowners fail to pay their taxes.

The bill, which is focused on so-called in rem tax foreclosure, still needs to be signed by Gov. Kathy Hochul before it becomes law. A spokesman for Hochul said she is reviewing the legislation.

The bill was introduced after the U.S. Supreme Court ruled in May that a Minnesota county violated the Fifth Amendment’s Takings Clause during a foreclosure process for failure to pay property taxes. In deciding Tyler v. Hennepin County, Minnesota, Chief Justice John Roberts wrote that the county could not keep all $40,000 it received by selling the condo of 94-year-old Geraldine Taylor at auction. Taylor, who had moved out of the condo and was living in a senior community, was only behind $15,000 on her taxes. The county had kept the remaining $25,000.

“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed,” Roberts wrote in his majority  opinion for the court, which decided in favor of Tyler, 9-0. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

In response, the New York State Senate and Assembly passed a bill in late June that would declare a moratorium on this type of foreclosure until June 30. Foreclosures initiated by mortgage lenders are not affected by the bill.

“The situation here is we have a vulnerable population — senior citizens, veterans — who were unfairly foreclosed on, and excess funds not returned,” said State Sen. Kevin Thomas (D-Levittown), the lead sponsor of the bill in that chamber. “The bill that passed both houses addresses the issue.”

The moratorium is meant to give local governments time to develop a way to reimburse homeowners for any excess proceeds if they lack one. 

“I’m hoping, for the municipalities that do not have a plan in place, within the next year they will because this isn’t that hard,” Thomas said. “This doesn’t take a rocket scientist to figure out how to return excess funds.”

Justin Pane, a Bohemia-based attorney who frequently represents homeowners at risk of losing their homes, said in rem foreclosures make up a small fraction of cases compared with lender foreclosures when a person has stopped making mortgage payments. In the latter situation, banks typically keep paying a home’s property taxes to protect their ownership interest in the home.

One instance in which an in rem foreclosure might arise, Pane said, is when a house without a mortgage passes from one family member to another after a property owner’s death and the new owner fails to pay the taxes. In that case, the local government could foreclose on the house. He estimated about 1 in 100 cases he has handled have involved this type of foreclosure. In some cases, people have avoided losing their home by getting money from family to pay their overdue taxes and penalties.    

“This is a very small scope,” Pane said.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.