Wednesday, April 12, 2023

FYI: NY High Court Rules Mortgagee Could Challenge Proper Notice of Tax Foreclosure

The New York Court of Appeals recently held that the plaintiff mortgagee was permitted to dispute and contradict whether a taxing authority complied with the statutory tax foreclosure mailing and notice requirements contained in N.Y. Real Prop. Law (RPTL) 1125(1)(b), and thereby challenge the validity of a tax foreclosure.


A copy of the opinion is available at:   Link to Opinion


A New York county allegedly mailed, via certified and first class mail, a notice of foreclosure and a notice of commencement of tax foreclosure proceedings to a lender's office regarding a property securing one of the lender's mortgage loans. Later, a default judgment was entered in favor of the county. After foreclosure, the county sold the property at auction.


The lender eventually brought an action seeking vacatur of the default judgment and the deeds conveying the property, alleging that the county failed to serve upon it the tax foreclosure petition, in violation of RPTL 1125. The New York Supreme Court granted summary judgment for the county, and the Appellate Division affirmed. The lender timely appealed to the Court of Appeals, the state's highest court.


New York RPTL 1125(1)(b)(i) states that the required "notice shall be sent to each [interested] party both by certified mail and ordinary first class mail" and "shall be deemed received unless both the certified mailing and the ordinary first class mailing are returned by the United States postal service within [45] days after being mailed."


Here, the lender argued that the county failed to comply with the mailing requirements set forth in RPTL 1125(1)(b)(i). In this regard, the Court of Appeals noted, contrary to the Appellate Court's ruling, that RPTL 1125(1)(b)(i) contains no presumption of service, nor does it bar an interested party from submitting evidence that would call the taxing authority's compliance with its requirements into issue.


Thus, although the statute contains no requirement of actual notice and evidence of the failure to receive notice is, by itself, insufficient to demonstrate noncompliance (see RPTL 1125[3][b]), the Court determined that an interested party may create a factual issue as to whether the taxing authority has complied with the requirements of RPTL 1125(1)(b) by other relevant proof, despite the taxing authority's submission of the "affidavit[s] of mailing" mandated by section 1125(3)(a) and evidence that no mailings were returned.


The Court of Appeals pointed to RPTL 1134 and 1137 as providing opportunities to challenge the validity of a taxing authority's RPTL 1125 notice. RPTL 1134 states that "[a] respondent alleging any jurisdictional defect or invalidity in the tax, or in the proceeding for the enforcement thereof, must particularly specify in his or her answer such jurisdictional defect or invalidity and must affirmatively establish such defense." The Court reasoned that it would not be necessary for RPTL 1134 to set forth the burdens of proof or provide that invalidity of notice is an affirmative defense if there was no opportunity to challenge compliance with the statutory mailing requirements.


RPTL 1137 further provides that "[e]very deed given pursuant to the provisions of this article shall be presumptive evidence that the proceeding and all proceedings therein and all proceedings prior thereto from and including the assessment of the real property affected and all notices required by law were regular and in accordance with all provisions of law relating thereto." That presumption does not become "conclusive" until two years after the recording of deed (id.).


The Court of Appeals determined that, on its face, RPTL 1137 acknowledges the existence of a presumption that all notices required by law were provided in accordance with the statute. However, the Court also noted that section 1137 makes clear that the presumption of compliance does not become "conclusive" for two years.


When the Court of Appeals read RPTL 1125, 1134 and 1137 together, it concluded that compliance with the statutory mailing and notice requirements may be challenged during the two-year period following the recording of the deed after the tax sale.


Accordingly, the Court of Appeals held that an interested party is permitted to establish that a taxing authority failed to comply with the notice requirements set forth in RPTL 1125(1)(b), even when the taxing authority submits proof that the notice that was allegedly sent by both certified and first class mail was not returned.


The Appellate Division did not previously address the question of whether a triable issue of fact existed as to the county's compliance with the requirements of RPTL 1125(1)(b) because the court concluded that a review of the issue was barred in the absence of evidence that the certified and first class mailings were returned. Therefore, the Court of Appeals reversed the ruling of the Appellate Division and remitted the case back to the Appellate Division for consideration of issues raised but not determined on the appeal to that court.




Ralph T. Wutscher
Maurice Wutscher LLP
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