Proceeds most now go to previous owners

The decades-old ability of New York counties to keep money from the auction of tax-delinquent properties is in limbo after a U.S. Supreme Court decision last year in a Minnesota case found that the previous owners are entitled to the proceeds. 

Dutchess, Putnam and other counties are awaiting the fate of legislation proposed by Gov. Kathy Hochul in response to the Supreme Court’s unanimous ruling in May. The court found that, although Hennepin County had the right to sell for $40,000 a house it took title to for $15,000 in unpaid taxes, keeping the extra $25,000 violated the “takings” clause in the Fifth Amendment.

Hochul has proposed requiring that any proceeds remaining after overdue taxes are paid be turned over to the former owner and any lienholders. 

This is 32 Dorn Road in Beckman in 2022, when Dutchess County sold it for $165,000.
This is 32 Dorn Road in Beekman in 2022, when Dutchess County sold it for $165,000.

According to the New York State Association of Counties, the legislation would give counties six months to turn over the proceeds of foreclosed properties sold between May 25, 2023 (when the Supreme Court issued its decision) and the effective date of the new rules. For sales made before the ruling, a county would only be liable if a property owner had sued for the proceeds within four months. 

Protecting counties from claims by owners from previous sales is justified because they were “upholding state laws at the time,” said Mark LaVigne, the deputy director for NYSAC. Hochul’s proposal is “checking all the boxes in terms of meeting the requirements set forth in the Supreme Court decision,” he said. 

“We’re trying to make sure that all parties who are negotiating the final terms of this budget understand the process and understand the county impact because, inevitably, no matter what, there will be a county impact,” said LaVigne. 

Under existing law, counties relieve school districts, towns and villages of the shortfalls from uncollected taxes by paying them the amounts that delinquent properties owe. If the owners of those properties fail to repay, counties can petition the state court to grant them title. Many sell these properties at annual auctions. 

Dutchess, which made $950,000 from its last auction in November 2022, did not hold one last year because of the Supreme Court ruling, and may also forgo one this year as it waits to see what the Legislature passes, said Heidi Seelbach, the county finance commissioner. 

Absolute Auctions and Realty facilitated the 2022 auction, which included 46 vacant properties and six single-family homes. 

One home, a four-bedroom, 2½-bath residence on 2 acres in Beekman with $5,550 in unpaid school taxes, sold for $165,000, less than half its market value. A Cape Cod in East Fishkill with four bedrooms and one bath sold for $161,000 after being foreclosed on for $3,072 in unpaid school taxes. 

This is how 46 Elk Road in East Fishkill looked in 2022 when Dutchess County sold it at auction for $161,000.
This is how 46 Elk Road in East Fishkill looked in 2022 when Dutchess County sold it at auction for $161,000.

Putnam has not held an auction since 2020 in the wake of a pandemic-inspired moratorium on foreclosures that lasted until January 2022, and now the Supreme Court’s ruling, said Christopher Formisano, a county representative. 

Michael Lewis, Putnam’s finance commissioner, is seeking title to 38 properties the county began foreclosure proceedings against in April 2023, a month before the Supreme Court ruling. None of those properties is in Philipstown, but the county acquired title in August to six vacant properties in the town. 

Beacon, which makes its school district whole, usually reaches repayment agreements with property owners who owe taxes, said City Administrator Chris White. The city forecloses on a small number of properties, he said. 

Most of the state’s counties either suspended foreclosures last year, like Dutchess, or, if they sold properties, held the surplus funds in escrow in anticipation of a change in the law, said LaVigne. 

“Some of them were in the process already of doing a foreclosure, so they just completed the foreclosure,” he said.

Behind The Story

Type: News

News: Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.

The Peekskill resident is a former reporter for the Times Herald-Record in Middletown, where he covered Sullivan County and later Newburgh. He holds a bachelor’s degree in English from Morgan State University and a master’s degree in journalism from the University of Maryland. Location: Cold Spring. Languages: English. Area of Expertise: General.

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