Tax Foreclosure Sales: What Notice Is Due?

To what extent does the increasing availability of information change statutory or constitutional obligations to provide notice of tax foreclosure proceedings? In Kennedy v. Mossafa (infra, page '), decided last month, the Court of Appeals did not recognize any significant change in law, despite the greater ease with which a municipality makes efforts to locate absent property owners. Whether intervening technological advances, or the Supreme Court, will bring changes to this area of law remains to be seen.

The basic problem is simple. A landowner fails to pay taxes. The municipality seeks to foreclose. What efforts must the municipality make to apprise the owner of the foreclosure proceedings? Historically, courts treated notice by publication as adequate, because the proceeding was “in rem“. The Supreme Court's opinion in Mennonite Board of Missions v. Adams, 462 US 791, together with the Court of Appeals' opinion in McCann v. Scaduto, 71 NY2d 164, marked the end of the traditional approach. As the Court of Appeals put it in holding unconstitutional an already repealed “notice by publication” scheme, “where the interest of a property owner will be substantially affected by an act of government, and where the owner's name and address are known, due process requires that actual notice be given.” McCann v. Scaduto, 71 NY2d at 176. Actual notice, in this context, means notice “by letter.” Id. at 178.

Who Gets the Letter?

To whom, then, did the municipality have to send the letter? In Matter of Isca Enterprises, 77 NY2d 688, the Court of Appeals upheld against constitutional attack a statutory scheme that provided for notice to be sent to all owners who had filed “owner's registration” cards, or, if no cards were on file, to the name and address listed on the latest annual record of assessed valuation. The court noted the substantial burden that would face a municipality if it were required to search all property records to discover addresses of owners who had not completed registration cards, and emphasized that “[s]ome responsibility for maintaining current records is reasonably assigned to the owners … ” That is, the court suggested that the municipality had no constitutional duty to look beyond the registration cards and the assessment records when determining where to mail notice of a tax foreclosure action.

Two Questions

Kennedy v. Mossafa, however, raises two questions the Court of Appeals has not previously addressed. First, does the municipality's obligation change when the municipality knows that its initial notice did not reach the affected landowner, and second, if the municipality must make additional efforts to notify the landowner, how far must those efforts extend.

The Court of Appeals had little difficulty with the first question. Judge Smith wrote: “We reject the view that the enforcing officer's obligation is always satisfied by sending the notice to the address listed in the tax roll, even where the notice is returned as undeliverable.” That is, when municipal officials know that the owner did not receive the initial notice, they cannot simply rely on the fact that they sent notice to the address in the tax roll. Reasonable notice in this circumstance requires a further search.

But how far must that search go? Judge Smith's opinion indicates that the officials must conduct a “reasonable search of the public record.” The public record, however, could include motor vehicle records, voting records, and a variety of other records kept (and often computerized) by government agencies for a variety of purposes.

The Court of Appeals, however, rejected such a broad view of the public record. It did indicate that a reasonable search would include a search of records in the surrogate's office, but did not provide any further specification. Apparently, the court singled out the surrogate's office because section 1125 of the Real Property Tax Law explicitly required that notice be sent to owners ” whose name and address are reasonably ascertainable from the public record, including the records in the office of the surrogate of the county.”

At a time when a search of all public records would have required trips to multiple government offices, the court's conclusions would have been unassailable. But as computers and the Internet make it increasingly feasible to locate a property owner with a few clicks of a mouse, notice “reasonably calculated, under all the circumstances” may require more than just a mailing to the address found in the public records ' at least where, as in Kennedy v. Mossafa, it is apparent that mailing to that address did not reach the landowner. The Court of Appeals was not ready to reach that conclusion in 2003, but whether the municipality's duties will be the same five or ten years from now remains an open question, and one that could be pre-empted either by legislative action or by the United States Supreme Court.

Finally, the Court of Appeals rejected owner's argument that the municipality was on notice of her current address because the checks and envelopes she had sent to the town with tax payments had included her current address. On this point, information technology is less likely to alter the court's conclusion. The court was understandably reluctant to require municipal officials to examine carefully all envelopes and checks to garner information that might be relevant in an infinitesimally small percentage of cases.

Conclusion

Ultimately, then, the landowner still bears some responsibility for assuring that the municipality's records remain up-to-date. Of course, the issue will almost never arise if landowner makes all tax payments promptly. Once the landowner becomes delinquent ' even for a relatively small amount ' landowner takes significant risks if he or she has not updated his current address.

Stewart E. Sterk is the Editor-in-Chief of this newsletter.

To what extent does the increasing availability of information change statutory or constitutional obligations to provide notice of tax foreclosure proceedings? In Kennedy v. Mossafa (infra, page '), decided last month, the Court of Appeals did not recognize any significant change in law, despite the greater ease with which a municipality makes efforts to locate absent property owners. Whether intervening technological advances, or the Supreme Court, will bring changes to this area of law remains to be seen.

The basic problem is simple. A landowner fails to pay taxes. The municipality seeks to foreclose. What efforts must the municipality make to apprise the owner of the foreclosure proceedings? Historically, courts treated notice by publication as adequate, because the proceeding was “in rem“. The Supreme Court's opinion in Mennonite Board of Missions v. Adams , 462 US 791, together with the Court of Appeals' opinion in McCann v. Scaduto , 71 NY2d 164, marked the end of the traditional approach. As the Court of Appeals put it in holding unconstitutional an already repealed “notice by publication” scheme, “where the interest of a property owner will be substantially affected by an act of government, and where the owner's name and address are known, due process requires that actual notice be given.” McCann v. Scaduto , 71 NY2d at 176. Actual notice, in this context, means notice “by letter.” Id. at 178.

Who Gets the Letter?

To whom, then, did the municipality have to send the letter? In Matter of Isca Enterprises, 77 NY2d 688, the Court of Appeals upheld against constitutional attack a statutory scheme that provided for notice to be sent to all owners who had filed “owner's registration” cards, or, if no cards were on file, to the name and address listed on the latest annual record of assessed valuation. The court noted the substantial burden that would face a municipality if it were required to search all property records to discover addresses of owners who had not completed registration cards, and emphasized that “[s]ome responsibility for maintaining current records is reasonably assigned to the owners … ” That is, the court suggested that the municipality had no constitutional duty to look beyond the registration cards and the assessment records when determining where to mail notice of a tax foreclosure action.

Two Questions

Kennedy v. Mossafa, however, raises two questions the Court of Appeals has not previously addressed. First, does the municipality's obligation change when the municipality knows that its initial notice did not reach the affected landowner, and second, if the municipality must make additional efforts to notify the landowner, how far must those efforts extend.

The Court of Appeals had little difficulty with the first question. Judge Smith wrote: “We reject the view that the enforcing officer's obligation is always satisfied by sending the notice to the address listed in the tax roll, even where the notice is returned as undeliverable.” That is, when municipal officials know that the owner did not receive the initial notice, they cannot simply rely on the fact that they sent notice to the address in the tax roll. Reasonable notice in this circumstance requires a further search.

But how far must that search go? Judge Smith's opinion indicates that the officials must conduct a “reasonable search of the public record.” The public record, however, could include motor vehicle records, voting records, and a variety of other records kept (and often computerized) by government agencies for a variety of purposes.

The Court of Appeals, however, rejected such a broad view of the public record. It did indicate that a reasonable search would include a search of records in the surrogate's office, but did not provide any further specification. Apparently, the court singled out the surrogate's office because section 1125 of the Real Property Tax Law explicitly required that notice be sent to owners ” whose name and address are reasonably ascertainable from the public record, including the records in the office of the surrogate of the county.”

At a time when a search of all public records would have required trips to multiple government offices, the court's conclusions would have been unassailable. But as computers and the Internet make it increasingly feasible to locate a property owner with a few clicks of a mouse, notice “reasonably calculated, under all the circumstances” may require more than just a mailing to the address found in the public records ' at least where, as in Kennedy v. Mossafa, it is apparent that mailing to that address did not reach the landowner. The Court of Appeals was not ready to reach that conclusion in 2003, but whether the municipality's duties will be the same five or ten years from now remains an open question, and one that could be pre-empted either by legislative action or by the United States Supreme Court.

Finally, the Court of Appeals rejected owner's argument that the municipality was on notice of her current address because the checks and envelopes she had sent to the town with tax payments had included her current address. On this point, information technology is less likely to alter the court's conclusion. The court was understandably reluctant to require municipal officials to examine carefully all envelopes and checks to garner information that might be relevant in an infinitesimally small percentage of cases.

Conclusion

Ultimately, then, the landowner still bears some responsibility for assuring that the municipality's records remain up-to-date. Of course, the issue will almost never arise if landowner makes all tax payments promptly. Once the landowner becomes delinquent ' even for a relatively small amount ' landowner takes significant risks if he or she has not updated his current address.

Stewart E. Sterk is the Editor-in-Chief of this newsletter.