This paper recently reported that the new Otsego County treasurer, Allen Ruffles, wants the Otsego County Board to shorten the time for property owners to pay delinquent taxes.
In my opinion, not only should the board not shorten the time, but it should take a hard look at the law it has been enforcing, the Uniform Delinquent Tax Enforcement Act, found in Article 11 of the Real Property Tax Law, Sections 1100-1194.
The law has a greater impact on the delinquent property owners who own their properties outright, deviates from the financial norm that payments go toward the oldest debt first, and fails to address the repercussions of rendering owners homeless.
Understanding the law should make property owners wary of having any more tax increases, as the taxes may one day render them homeless.
There are property owners who have inherited or purchased their properties outright, or have paid off their mortgages. Then there are those property owners who still owe on a mortgage (”mortgagors”). The banks/mortgage companies (”mortgagees”) make sure that property and school taxes are paid, even when a property owner defaults in making payments, and even when there never was an escrow account with the mortgage. This is because they protect their investments. Tax lien foreclosures do not just wipe out a property owner’s ownership of the property; it also wipes out the mortgage against it. Thus, most mortgaged properties do not wind up in tax lien foreclosures. They wind up in mortgage foreclosures, and then if not sold there (where the mortgagee can set a minimal acceptable bid up to the amount of the mortgage), are sold through real estate agents.
Property tax lien foreclosures do not produce any revenue for property owners or mortgagees or any other parties with interests in the properties. Property tax lien foreclosures produce revenue only for the tax districts. This is unlike mortgage foreclosures, where any money received at a foreclosure sale over and above the mortgage, may be claimed by the property owner or another lien holder. This comes as a major surprise to property owners in New York.
If they had a $50,000 mortgage, but their property sells at a mortgage foreclosure sale for $200,000, they can get the $150,000 difference. But if it is a tax lien foreclosure with a $50,000 tax bill and the property sells at the tax lien foreclosure sale for $200,000, the tax district gets the $150,0000 difference. That is the law. And that is something to think about.
Properties that reap more than what is owed at tax lien foreclosures help offset the losses that come from properties selling for less than what is owed, and that benefits the tax districts’ bottom lines.
However, consider that a criminal can be ordered to pay restitution only up to the amount of the financial loss of his/her victim. Here, in property tax lien foreclosures, which is a civil — and not a criminal — matter, the property owner is paying an amount that exceeds the amount owed. They are paying a penalty for other people’s failure to pay their taxes. How is that fair?
And in mortgage foreclosures, property owners can redeem their properties up to the acceptance of a bid at auction, by paying the full amount owed. Not so with tax lien foreclosures in Otsego County, where the right of redemption is lost weeks to months before the auction.
Under the law, the right of redemption can be extended to four years from the lien date on residential and farm properties. Apparently, Delaware County times its auctions so that property owners can redeem their properties up to the sale.
Here is something else that most people do not know until they get behind in paying their tax bills: the most recent tax bill has to be paid before an earlier tax bill can be paid. Mortgages, credit cards and other loans all credit payments against older debt first, but the most recent property taxes must be paid first.
Why? To keep the clock ticking for a tax lien foreclosure on the older taxes. How is that fair? And the taxing authorities do not accept partial payments on a previous year’s tax bill. Can you imagine any other creditor rejecting a payment? (An installment agreement may be available for current-year taxes.) On top of which, the 12 percent interest plus penalties keeps increasing the amount owed.
You may have read about some people who lost their properties in recent tax sales. There are many more stories that could be told, including of those who narrowly missed losing their homes. Imagine the stress in all those situations. There was a family who owed only a couple of thousand dollars on their home (which is a reflection of the low assessed value of the property), but were it not for a good Samaritan who offered the funds, all members of the family would have been rendered homeless. Had they become homeless, the county would have been paying to put up those family members in hotels or shelters. How is that fiscally responsible?
The treasurer wants his and his staff’s jobs to be easier. Then maybe he should be advocating for changes in the law, so that there are fewer tax lien foreclosures.
Wouldn’t it be easier to accept payments that go to the earliest debt first, and accept partial payments, than it is to do tax lien foreclosures? Wouldn’t that get funds sooner to the municipalities and school districts awaiting payment? Computer programs can handle all this accounting. The treasurer already has to accept partial payments when a property owner is paying delinquent taxes through a Chapter 12 or 13 bankruptcy case.
The fear of being unable to pay one’s property taxes and losing one’s home is one of the drivers of the movements to have property and school taxes income-based instead of property-based. That is, part of the income tax system.
People should not be so easily kicked out of their homes and cast out of their communities.
Yes, property owners shouldn’t fall behind in paying their property and school taxes. Those districts have employees and bills to pay. But situations arise in people’s lives that property owners are not immune to, and our laws should make it easier, not harder, to catch up.
Carol Malz, is a lawyer who practices real estate and bankruptcy law, who lives in Davenport Center.