Key Features of NYC Tax Lien System that Other Cities Should Borrow

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Presentation transcript:

Key Features of NYC Tax Lien System that Other Cities Should Borrow

Case 1: The Price is Right PO calls 15 minutes before sale looking for IPP $1,500.00 lien I hear kids and the Price is Right on tv in the background Adjourn sale to allow IPP

Case 2:  The Rogue Pastor Pastor of Church sells the Church property without telling the Church members Purchaser immediately flips the property to 3rd party Since property no longer owned by Church, City removes exemption During foreclosure, Church brings their own action to void the fraudulent deed City restores exemption retroactively after Church gets property back

Case 3:  The Water Leak Lawyer files OSC post-sale claiming his client had no idea how he accrued the water charges which comprised the lien In reviewing the file to prepare the opposition, in a prior motion sequence, the owner, who was not represented at the time, wrote a 2 page explanation how a pipe burst at the property causing the water charges After showing the lawyer his client’s prior Affidavit, he withdrew the OSC and went after the surplus instead

Administrative Protections NYC notifies delinquent taxpayers (90-Day Notice, 60-Day Notice, 30-Day Notice, 10-Day Notice) NYC publishes the notice NYC Tax Lien Ombudsman office   NYC Law Department oversight Servicer hello letter and notices  Waiting period prior to commencement of foreclosure

Legal Protections NYC Tax Lien foreclosure closely follows mortgage foreclosure process Complaint is filed in the County where property is located Service on homeowner required Owner opportunity to present defenses to the Court Court appoints GAL’s protect incapacitated defendants Court appoints TA’s represent deceased defendant’s estates

Strict Judicial Oversight of the Tax Lien Program Owner gets copies of all orders and judgments Court appoints Referee Judge reviews and confirms Referee’s report Notice of Sale sent to owner The courts view preservation of home ownership as important objective  The courts treat homeowners with leniency The courts push to facilitate settlements Owners can seek surplus funds after foreclosure sale

Role of Servicers and their Counsel Tax lien Servicers well vetted rated Choosing a high-quality servicer is key to maximizing Advance Rate and Residual proceeds to NYC Key goal is to collect money due to Trusts, and not to take properties from homeowners Servicers offer varied and affordable payment plans Attorneys implement servicers’ goals and are authorized to negotiate with homeowners and settle cases Attorneys shape legal strategies to permit owners time and opportunity, when necessary, to set up redemption  Attorneys offer capped fee plans to servicers to permit them control legal expenses

Legal Protection of Tax Lien Holders Municipality wishing to attract tax lien investors must offer them broad legal protection There must be state-wide statutory presumption of the validity of sold tax liens Tax liens must enjoy statutory priority over private liens and mortgages Municipality must lend its support in unavoidable litigation until statutory interest rates, investors ‘ legal standing and other important issues are settled by the courts

Transparent Assignment and Bidding Process A municipality should choose a clear and consistent path regarding sale of liens While NYC sales liens in bulk to the trusts, a retail sale program is possible The assignment process must be clear to investors and result in a legal instrument confirming lien ownership Tax lien holders must be permitted to record and perfect liens without cumbersome procedures

Notice to Owners and Redemption Period Municipality must establish a due-process compliant process of notifying owners of impending sales All notices must be given by municipality, not lien holders Tax lien holders must be freed from burden of any pre-foreclosure notices Municipality must establish a clearly delineated period of redemption by the owner

Pre-Foreclosure Redemption and Collection If possible, municipality should permit tax lien holders to collect redemption amounts directly immediately following assignment amounts After assignment, direct collection by tax lien holders is preferable to collection by city’s agencies Tax lien holders should stand in the same position as the municipality and have powers akin to tax collectors Under federal law, tax liens are not consumer debt and lien holders should not be treated as consumer debt collectors

Mitigation Defection of liens sold in error is important to success of entire program Municipality and tax lien holders should establish a tax lien ombudsman office (or similar) to respond to complaints, investigate errors in sale and notice process, and defect liens when warranted Continued communication between municipality and tax lien holders (servicers) is important for myriad compliance issues

Litigation NY has simplified (compared to mortgages) foreclosure procedure In tax lien cases, NY law does not permit challenges by owners after their time to answer complaint expired In NYC, tax lien holders have the right to retain private attorneys to foreclose liens Right to recover legal fees is statutorily recognized and fees are part and parcel of liens No monetary caps on recovery of fees No government “approval” of the amount due In NYC, tax lien holders “bid-in” not just tax lien but subsequent taxes owed