Owner loses home after tax shortfall

Law of the Land

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 22, 2010

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Law of the Land

Tara-Nicholle Nelson
Inman News™

Property owner 573 Jackson Ave. Realty Corp. failed to pay property taxes on real estate located in Bronx, N.Y. Soon thereafter, NYCTL 1999-1 Trust bought a tax lien against the property from the city of New York, in the amount of $2,412.75.

When, several years later, Jackson paid the Trust the $2,412.75 principal amount of the lien, the lien was not extinguished because the statutory interest that had accrued remained unpaid.

The Trust filed suit against Jackson to collect the monies owed under the lien.

At trial, the court granted summary judgment in favor of the trust and calculated the amount owed, including more than $9,000 in attorney fees incurred "only after (573 Jackson Ave. Realty Corp.) chose to advance and repeat its unavailing arguments which had been decided by the court in its previous Orders."

The trust moved to foreclose on the lien and the court granted a foreclosure order, which Jackson appealed. The property was scheduled to be sold in foreclosure on Aug. 24, 2007; about a week before the scheduled sale, the trust forwarded a payoff letter to Jackson Ave., explaining that the property could be redeemed and the foreclosure could be avoided if Jackson Ave. paid the outstanding $19,070.74.

Jackson did not pay this sum to the Trust. Instead, he deposited more than $19,500 with the Bronx County Clerk, where the deposit receipt indicated that both the purpose and the end recipient of the deposit were "to be determined." The day before the scheduled sale, Jackson informed the trust that it had "filed an undertaking with the court that had 'stayed' the sale"; nevertheless, the property was sold for $160,000 the next day, as planned.

Jackson moved to cancel the sale and asked the court to block the property's title from being transferred. The trial court denied the motion by Jackson Ave.; on appeal, the foreclosure order and the lower court's denial of the motion by Jackson Ave. to cancel the sale were affirmed.

Jackson again appealed to the state's highest court, on grounds that its original appeal of the foreclosure, in conjunction with its deposit to the Bronx County Court, resulted in a statutory stay of the foreclosure under New York's Civil Practice Law and Rules 5519(a)(2) and (6), and Real Property Actions and Proceedings Law Section 1341.

In upholding the lower court rulings, the Court of Appeals of New York rejected all three of Jackson's arguments. CPLR 5519(a)(2) was inapplicable, the opinion explained, because it governs only in situations where "the judgment or order directs the payment of a sum of money" -- not court orders directing foreclosure or sale.

The court found Jackson's argument that the foreclosure was stayed under CPLR 5519(a)(6) to be "unavailing given that its undertaking was not 'in a sum fixed by the court' as required by that provision."

Finally, the court found that the actions by Jackson Ave. failed to obtain a stay under the invoked provision of RPAPL Section 1341: "Where an action is brought to foreclose a mortgage upon real property upon which any part of the principal or interest is due, and another portion of either is to become due, and the defendant pays into court the amount due for principal and interest and the costs of the action, together with the expenses of the proceedings to sell, if any, the court shall: ... 2. Stay all proceedings upon judgment, if the payment is made after judgment directing sale and before sale."

RPAPL Section 1341 expressly limits its own application to actions in which only part of the principal or interest is currently due, and another part will come due in the future; in essence, partial foreclosure proceedings. The court went on to point out that in "typical mortgage foreclosure cases, after a default the entire balance is accelerated and immediately due. No portion 'is to become due' in the future."

Further, the court expressly rejected as incorrect applications of Section 1341 a line of recent New York state appellate opinions in non-partial foreclosure cases, which did require the property owner to deposit the amount due with the court, rather than tendering it to the lien holder.

In sum, the court found that the only way Jackson Ave. could have redeemed its property prior to the sale was to unconditionally tender the amount due directly to the trust. Because it had not done so, Jackson's appeal was rejected, and the foreclosure, sale and transfer of title to the purchaser at the foreclosure sale were all affirmed.

Jackson Ave. later appealed the case to the U.S. Supreme Court, which declined to hear the matter.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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