Basics of Property Taxes and Tax Lien Foreclosures Glossary Articles
The property tax (including school tax) is an important part of any well-balanced revenue system for a community. Property taxes fund such things as schools, fire and police protection, streets, libraries and other public benefits. The property tax allows these services to be funded in proportion to the amount of money individual properties are worth. Arguably, the property tax is also a more stable source of money compared to sales and income taxes because it does not fluctuate when communities have recessions or for other reasons an individual's income might fluctuate. (There is a valid argument to have these services paid by income, instead of property taxes, which is something to consider when reading about tax lien foreclosures.) In general, when a community spends more tax dollars on better schools, parks, streets and other public benefits and services, the property values rise and community members will ultimately benefit. Read A Brief History of the Property Tax for more information on the history of this tax.
NYS Property Tax Calendar (NYS Department of Taxation & Finance)
New York state law requires all properties in each municipality (except in New York City and Nassau County) to be assessed at a uniform percentage of market value each year. It means that an assessment will be equal to some set percentage of market value as determined by the local assessor's office and that the subject property will be re-assessed every year. See Reassessment Questions and Answers (NYS Department of Taxation & Finance.
If someone disagrees with an assessment, there are ways to protest it. The New York State Unified Court System provides instructions for the Small Claims Assessment Review (SCAR).
Notes on Assessments and Contesting Them.
A property tax bill equals the final assessment amount multiplied by the local property tax rate. New York property tax rates are set by local governments and therefore vary by location. The New York State Department of Taxation & Finance's website explains it.
Exemptions can reduce the amount of the property's value that is taxed. The most popular exemption in New York State is the School Tax Relief (STAR) exemption (Real Property Tax Law §425), which began in 1997. New Yorkers who own a one, two, or three-family home, condo, cooperative apartment, manufactured home, or farm dwelling are eligible for a STAR exemption, provided it is their primary residence, if they signed up for the STAR exemption before 2016. Since 2016, New Yorkers who did not already have a STAR exemption on their primary residence can only apply for a STAR credit. The amount is the same, but the difference is that with the exemption, the property owner received a reduced school tax bill, while with the credit, the property owner has to pay the full tax upfront and wait for a refund check to be issued in return. The basic STAR exemption is equal to $30,000 off the full value of a home for school taxes only. There are also enhanced STAR exemptions for senior citizens who meet income limitations. More information is available in the NYS Department of Taxation and Finance's Assessor's Guide.
Importantly, for the purpose of STAR and other exemptions, New York State considers life tenants, those holdings a "life estate" in the real property, to be the "owners." Thus, when parents, for example, transfer their primary residence to their children, but retain a life estate, the parents do not lose their exemptions.
Each locality decides whether or not to offer the following exemptions, so they may not be available everywhere in the state:
• Senior Citizen Exemptions: New York State law allows local governments and school districts to give qualifying senior citizens up to a 50% reduction in the assessed value of their residential property. To qualify, you must be 65 or older and meet certain income limitations and other requirements. Localities also have the option of granting an exemption of less than 50% to senior citizens whose incomes exceed the income limits. Localities can do this by creating a system where the exemption slowly fades out as income increases. • Veterans who purchase their property using money from their pensions, insurance settlements or bonuses can receive an exemption that reduces their assessments. The amount of the exemption is determined by each locality. Local governments are also allowed to give exemptions to veterans who served during wartime or received an expeditionary medal. A third exemption is allowed specifically for Cold War veterans. Click for more information. • Exemptions for the Disabled: State law allows exemptions for disabled persons who have documented evidence of their disability and meet certain income limitations and other requirements as determined by each locality. The basic exemption is equal to 50% off the value of the property. Localities can also offer exemptions of less than 50% for people whose income exceeds the set limits.
For a review of the use of exemptions throughout New York State, see the State Comptroller's Research Brief.
Form RP-467: Application for Partial Tax Exemptions for Real Property of Senior Citizens (NYS Department of Taxation & Finance) Instructions for Form RP-467 (NYS Department of Taxation & Finance)
Many property owners have mortgages that require, and thus have, escrow accounts. The mortgagees (financial institutions holding mortgages) collect 1/12 of the annual amounts for their property and school taxes each month. Property owners who own their properties outright, or have mortgages without escrow accounts, have to make sure they budget so that they can pay the tax bills when they become due. The county tax bills (which may include town or village taxes) are issued in January of each year, and cover the period from January 1st to December 31st. School tax bills are issued in September of each year, and cover the period from July 1st to June 30th. Some counties have begun offering payment plans that are similar to escrow accounts, for the payment of taxes.
A tax lien is automatically created when the tax or other legal charges become a claim against the real property. The tax lien is secured by the real property and is not personal against the owner. It remains a lien upon the property regardless of the individual or entity in ownership. Tax liens take priority over other liens and must be paid when the real property is transferred (unless the new owner is agreeing to pay them). Such liens are not subject to a statute of limitation and remain valid until paid.
Before purchasing a property, a person looks into the property and school taxes that he/she will be expected to pay each year as that is a factor in determining whether or not he/she can afford to purchase the property. Tax assessors and realtors readily state what exemptions are available and how to apply for them. In that regard, purchasers are generally well-educated. However, what a purchaser generally does not know when purchasing a property, is what happens when one does not pay the property and/or school taxes, as that is not a possibility he/she is thinking of. So that generally does not become an education until a property owner is facing a tax lien foreclosure. And almost always, someone facing a tax lien foreclosure is someone who does not have a mortgage on the property. Why?
With limited exceptions, mortgagees make sure that property and school taxes are paid, even when a property owner defaults in making mortgage payments, and even when there never was an escrow account with the mortgage. This is because mortgages usually have a provision that allows the mortgagee to pay the taxes, add it to the mortgage balance, and declare a default on the mortgage. In doing so, the mortgagees 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 balance owed on the mortgage), are sold through realtors.
A few municipalities in New York State sell tax lien certificates, which means they sell the tax lien that exists on the real property rather than foreclosing in order to collect the delinquent taxes.
The majority of municipalities commence tax lien foreclosures to collect on delinquent taxes (which increase daily with interest and penalties). The duration of each tax lien foreclosure action from inception to conclusion can vary on a case by case basis depending on the jurisdiction and the circumstances of each matter. It involves several steps. A petition (lawsuit) is filed in court in Supreme or County Court in the county in which the property is located, twenty-one months after the lien date, or as soon thereafter as is practicable. RPTL §1120, 1123. Sample Petition, Ulster County. Additionally, a notice of foreclosure must be published in a newspaper. RPTL §1124. On or before the first date of publication, the enforcing officer must send to all those whose interests in the property is of public record (such as title owners, life tenants, and mortgagees of public record), a notice by certified and first-class mail stating that the foreclosure has started. RPTL §1125. Posting may also be required. If the mailings get returned and there is no alternate address to send them to, the notice must be posted on the property. RPTL §1125. The notice will specify, among other things, the last day that the property can be redeemed. RPTL §1125. Redemption is accomplished by paying all delinquent taxes and other charges to stop the foreclosure. Charges include court fees and costs of mailings and postings. Generally, the redemption period expires two years after the lien date. However, local law may provide a longer redemption period. RPTL §1110. The foreclosure proceeding generally starts around three months before the redemption period expires. RPTL §1124.
If the owner(s) does not respond to the lawsuit by filing an answer that lists his/her objections to the case, the court will enter a default judgment against the property. (A default judgment means the owner automatically loses since he/she did not answer the suit.) Then, if the property has not been redeemed and the last day to do so has passed, the tax district title (ownership) to the property and a tax lien foreclosure auction is held to sell it to the highest bidder. RPTL §§1120, 1136. (The tax district may also provide a period in which the now-previous owner may "repurchase" the property by paying all costs and charges, and that may be up to an actual sale at the foreclosure auction.)
Requirements for an answer:
An answer to a petition of foreclosure shall be duly verified by the respondent and shall set forth in detail the nature and amount of his or her interest and any defense or objections to the foreclosure of the tax lien. Such answer shall be filed in the office of the county clerk and served on the attorney for the tax district foreclosing on or before the last day for redemption, as specified in the notice of petition. Whenever an answer has been interposed as herein provided, either party shall have an absolute right to a severance of the proceeding as to the parcel or parcels to which the answer relates.RPTL §1123. Proof that the tax was paid, together with all interest, penalties and other charges which may have been due, or that the property was not subject to tax shall constitute a complete defense. RPTL §1130. RPTL §1134 provides a presumption in favor of the tax district:
Presumption of validity. It shall not be necessary for the tax district to plead or prove the various steps, procedures and notices for the assessment and levy of the taxes or other lawful charges against the parcels of real property set forth in the petition and all such taxes or other lawful charges and the lien thereof shall be presumed to be valid. 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 provisions of this article shall apply to and be valid and effective with respect to all respondents even though one or more of them be infants, incompetents, absentees or non-residents of the state.
Again, if the taxes are not paid within the redemption period, the owner and any lienholders lose their interests in the property. (This assumes the owner(s) and all lienholders were properly notified of the proceeding.) In this regard, the redemption period is key. Sometimes, people continue to reside in properties after the redemption period has expired. They may think they still own the property simply because they continue to reside there. But usually that is an issue of not having yet been evicted. The tax district may leave it to the successful bidder to evict the prior owner.
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 lienholder. This comes as a major surprise to property owners in New York. If they had a fifty thousand dollar mortgage, but their property sells at a mortgage foreclosure sale for two hundred thousand dollars, they can get the one hundred fifty thousand dollar difference. But if it is a tax lien foreclosure with a fifty thousand dollar tax bill and the property sells at the tax lien foreclosure sale for two hundred thousand dollars, the tax district gets the one hundred fifty thousand dollar difference. That is the law.
At the tax lien foreclosure sale, each property is sold to the highest bidder, regardless of the amount of taxes owed. If the sale is for less than is owed, the tax district must wipe out the remaining balance so that the successful bidder is obtaining clear title in regards to taxes. (As to clear title in regards to possible claims of all other parties, RPTL §1137 provides that title is presumptively clear at the time the deed is given, and conclusively clear after two years from the recording of the deed. Thus, if a party was not notified of the foreclosure proceeding, that party cannot file suit and challenge the foreclosure, if more than two years have passed since the recording of the deed.)
Properties that reap more than what is owed at tax lien foreclosures help set off the losses that come from properties selling for less than what is owed, and that benefits the tax district's bottom line. 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 a penalty that exceeds the taxes owed. How is that fair? Arguably, it may fall into the category of "excessive fines" in civil forfeitures under the Eighth Amendment to the U.S. Constitution. The U.S. Supreme Court ruled in Timbs v. Indiana that the Eighth Amendment’s Excessive Fines Clause is an incorporated protection applicable to the States under the Fourteenth Amendment’s Due Process Clause. By taking property worth much more than the taxes owed, isn't a tax district imposing an excessive fine for paying taxes late? Until the law changes, maddening stories of people unjustly losing their homes will continue to be told.
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. And the taxing authorities do not accept partial payments on delinquent tax bills other than perhaps the current year's taxes. This is so unlike the world of credit that people know. And the twelve percent (12%) interest keeps increasing the amount owed.
Maybe decades ago, when bookkeeping was done by an individual with pencil, paper, and an adding machine, it might have been onerous for the tax collector to accept partial payments, and payments to any year the taxpayer chose. But with computers, there is no such excuse. A computer can be programmed to keep accurate count of all sorts of calculations.
Filing a Chapter 12 (farmers), Chapter 13 (individuals), or Chapter 11 (businesses) bankruptcy can stay a tax lien foreclosure, provided that it is filed prior to the expiration of the redemption period (that is, before the tax district is the owner of the property). The tax district must accept partial payments on the delinquent taxes through the bankruptcy plan. RPTL §1140. To learn about bankruptcy, visit the Bankruptcy Basics Page. But remember, bankruptcy comes at a price. A Trustee's commission in Chapter 13, for example, is usually ten percent. So, not only will the interest on the taxes continue to accrue as it is being paid off through the bankruptcy plan, the Trustee will also be collecting a 10% commission on top of that.
Suggestions for changes in the law: (1) provide an information sheet on exactly how the law works to each taxpayer with a delinquent bill; (2) allow a taxpayer to make payments and partial payments on any tax bill he/she chooses, and if not chosen by the taxpayer, on the oldest bill; (3) keep the clock from ticking on any delinquent tax bill unless the unpaid amount is greater than a certain percentage; and (4) prohibit a tax district from cutting off the right of redemption prior to an actual sale at a foreclosure auction. And, if this taking of people's properties has to continue, the property owners should at least be entitled to the surplus funds (with the homestead exemption covering those funds in cases of residences).
Yes, the tax districts need the funds to run the government. But property owners also need to be protected from unjust takings, when owners can lose all their life savings because those savings are in their properties. These tax foreclosures also affect more than just the property owners subjected to them; the community is affected. This was recognized with mortgage foreclosures, yet the government has not given tax foreclosures the same attention. And what about the trust between the government and the People? The People's willingness to pay taxes is all based on that trust. Look at the population which is most affected by these tax foreclosures: those who do not have mortgages, either because they purchased the property with cash, paid off the mortgage, or inherited the property. Note that the last two categories indicate owners who have lived in the property, and thus the community, for a long time. They or their family have paid property or school taxes for a long time. How easily the law disposes of them.
Glossary
| Term | Meaning under Real Property Tax Law §1102 |
|---|---|
| Charges or Legal Charges | (a) the cost of the mailing or service of notices required or authorized by this article; (b) the cost of publication of notices required or authorized by this title; (c) the amount of any interest and penalties imposed by law; (d) the cost of recording or filing legal documents required or authorized by this article; and (e) the reasonable and necessary cost of any search of the public record required or authorized to satisfy the notice requirements of this article, and the reasonable and necessary expenses for legal services of a tax district in connection with a proceeding to foreclose a tax lien; provided, that: (i) a charge of up to one hundred fifty dollars perparcel shall be deemed reasonable and necessary to cover the combined costs of such searches and legal expenses, and such an amount may be charged without substantiation, even if salaried employees of the tax district performed the search or legal services; and (ii) a tax district may charge a greater amount with respect to one or more parcels upon demonstration to the satisfaction of the court having jurisdiction that such greater amount was reasonable and necessary. (f) Charges shall be deemed a part of the delinquent tax for purposes of redemption. |
| Delinquent Tax | an unpaid tax, special ad valorem levy, special assessment or other charge imposed upon real property by or on behalf of a municipal corporation or special district, plus all applicable charges, relating to any parcel which is included in the return of unpaid delinquent taxes prepared pursuant to section nine hundred thirty-six of this chapter or such other general, special, or local law as may be applicable. In no event, however, shall "delinquent tax" include any unpaid tax or other charge against lands owned by the state. |
| Enforcing Officer | any elected or appointed officer of any tax district empowered or charged by law to enforce the collection of tax liens on real property; provided, however, that (a) where no law provides otherwise, the enforcing officer shall be (i) in a county which is a tax district, the county treasurer or commissioner of finance, (ii) in a city which is a tax district, the official so empowered or charged by the city charter, (iii) in a village which is a tax district, the village treasurer, and (iv) in a town which is a tax district, the town supervisor; and (b) when the duties and powers of an "enforcing officer" are vested in two or more elected or appointed officials, the governing body of the tax district shall designate which of such officials shall act as enforcing officer for the purposes set forth in this article. The enforcing officer and other officials of the tax district who have responsibilities affecting the enforcement process shall work cooperatively to facilitate the enforcement process. |
| Lien Date | the date on which the tax or other legal charges represented thereby became a lien, as provided by section nine hundred two of this chapter or such other general, special or local law as may be applicable, provided, that when the taxes of a school district are enforced by a tax district without being relevied by the tax district, and the lien date of the school district taxes differs from the lien date of the taxes of the tax district which are levied upon the same assessment roll, the later of the two such dates shall be deemed to be the lien date for purposes of this article. |
| Person | an individual, a corporation (including a foreign corporation and a municipal corporation), a joint stock association, a partnership, the state, and any other organization, state, government or county which may lawfully own property in the state. |
| Tax District | (a) a county, other than (i) a county for which the cities and towns enforce delinquent taxes pursuant to the county administrative code, or (ii) a county wholly contained within a city; (b) a city, other than a city for which the county enforces delinquent taxes pursuant to the city charter; (c) a village, other than a village for which the county enforces delinquent taxes pursuant to section fourteen hundred forty-two of this chapter; or (d) a town in a county in which towns enforce delinquent taxes pursuant to the county administrative code. |
Articles
| Author | Article |
|---|---|
| Romano, Jay | Your Home: When Taxes On A Home Are Overdue, New York Times, March 30, 2003 |