McCann v. Scaduto

• Decision Date: 23 December 1987
• Citation: 519 N.E.2d 309,524 N.Y.S.2d 398,71 N.Y.2d 164
• Parties: , 519 N.E.2d 309 In the Matter of Helene E. McCANN et al., Appellants, v. John V. SCADUTO, as Treasurer of Nassau County, et al., Respondents. In the Matter of Harriet D. RINALDO, Individually and as Executrix of Agnes M. Ahman, Deceased, Appellant, v. Shirley STONE et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 398

524 N.Y.S.2d 398

71 N.Y.2d 164, 519 N.E.2d 309

In the Matter of Helene E. McCANN et al., Appellants, v. John V. SCADUTO, as Treasurer of Nassau County, et al., Respondents.

In the Matter of Harriet D. RINALDO, Individually and as

Executrix of Agnes M. Ahman, Deceased, Appellant, v. Shirley STONE et al., Respondents.

Court of Appeals of New York.

Dec. 23, 1987.

Bernard S. Meyer, Michael A. Ciaffa and Kenneth L. Gartner, Mineola, for Helene E. McCann, appellant in the first above-entitled proceeding

Edward T. O'Brien, Co. Atty. (Joshua A. Elkin, Mineola, of counsel), for John V. Scaduto, respondent in the first above-entitled proceeding.

Steven Wimpfheimer, for Shirley Stone, respondent in the first above-entitled proceeding.

Bernard S. Meyer and Kenneth L. Gartner, Mineola, for appellant in the second above-entitled proceeding.

Edward T. O'Brien, Co. Atty. (Joshua A. Elkin, of counsel), for John V. Scaduto and another, respondents in the second above-entitled proceeding.

Eugene R. Hurley, Jr., Mineola, for Shirley Stone, respondent in the second above-entitled proceeding.

OPINION OF THE COURT

KAYE, Judge.

Each of these article 78 proceedings challenges the forfeiture of petitioner's home under the former real estate tax collection enforcement provisions of the Nassau County Administrative Code (the Code) ¹ on the ground that the Code's procedures violated the Federal constitutional guarantee of due process of law. We agree with petitioners that the Code's failure to provide property owners with actual notice of tax lien sales was a deprivation of due process.

Summary of the Relevant Code Provisions

At the core of both proceedings are the former provisions of the Nassau County Administrative Code pertaining to real estate tax collection enforcement procedures.

The Code provided that each year the Nassau County Treasurer would compile a list of properties for which taxes had not been paid in the previous year. These taxes became a tax lien against each property (Code § 5-24.0 ). The County Treasurer then set a date for a sale of these tax liens (Code §§ 5-37.0, 5-39.0 ). The list of tax liens, together with a notice to property owners that the liens would be sold unless the outstanding charges were paid by a certain date, had to be published three times in a newspaper of general circulation (Code § 5-37.0 ). The only provision in the Code for notice to the property owner of the tax lien sale was by publication; there was no provision for actual notice. The tax liens for which payment was not made by the date specified in the published notice were then sold at public auction to the bidders willing to accept the lowest rate of interest on the outstanding balance (Code § 5-37.0 § 5-39.0 § 5-40.0).

The sale triggered a two-year redemption period. During that time a property owner could satisfy the lien by making payment to the County Treasurer of the outstanding taxes, together with interest, penalties and expenses (Code §§ 5-48.0, 5-50.0). Prior to the tax lien sale, the annual interest rate was 12% on overdue taxes. After the sale, however, the Code provided the following maximum interest and penalties. To satisfy the lien in the first six months after the tax lien sale, a property owner had to pay the overdue taxes and accrued interest plus a penalty equivalent to a percentage of the lien purchase price (the lesser of 10% or the interest rate agreed to by the purchaser). To redeem in the second six-month period, a second identical penalty was imposed; a third and fourth penalty were added for successive periods (Code § 5-40.0). In addition to satisfying the back taxes, interest and penalties, the owner had to reimburse the County and the lien purchaser for their expenses (Code § 5-50.0).

At any time after the expiration of 21 months from the tax lien sale, the purchaser of the tax lien had to serve a three-month notice to redeem by certified mail, return receipt requested, upon the record owner and other specified parties (Code § 5-51.0). The notice informed the recipient that title to the property was to be conveyed to the lienholder unless the lien was redeemed by the end of the redemption period (Code § 5-51.0 ). If the owner failed to redeem in the specified period, the lienholder either had to commence a foreclosure proceeding to obtain title, or simply apply to the County Treasurer for a deed of conveyance (Code § 5-51.0 ). If the lienholder chose the latter option, the County Treasurer, upon receipt of the notice to redeem and proof of service, simply issued a deed of conveyance to the lienholder (Code § 5-51.0 § 5-53.0), vesting absolute title in the lienholder (Code §§ 5-53.0, 5-54.0 ).

The Code Provisions as They Were Applied to Petitioners

Petitioner Helene McCann lost her 30-year residence worth approximately $175,000 for a tax debt of $864.50; in Rinaldo a home worth more than $90,000 was sold because of unpaid taxes of $463.92. In both cases the tax lien sales--at which respondent Shirley Stone acquired her interest in each property--set in motion the process ending two years later in the transfer by respondent John Scaduto, Nassau County Treasurer, of absolute title to both homes to respondent Stone, upon her demand. No actual notice of the tax lien sale was shown to have been furnished to either owner, ² although at all times their names and addresses were known to the County. Instead, in accordance with the Code, notice of the tax lien sale was published in a newspaper of general circulation. The only actual notice provided to each petitioner before the conveyance of title to her home was a notice to redeem served by certified mail three months before the redemption period expired. There was no foreclosure proceeding; the property owners were afforded no right to a hearing and no right to return of the very substantial surplus over their indebtedness.

In both cases, the lien was not redeemed within the two-year period and the property was conveyed to respondent Stone. Each homeowner then instituted an article 78 proceeding seeking an order vacating the deed and directing the County to accept payment necessary to satisfy the tax liens. They contended that they had been denied due process because they had not received actual notice of the tax lien sales, because they had been denied any hearing before conveyance of the property, and because the notice they did receive was inadequate to inform them of the situation. In McCann, Special Term dismissed the petition and the Appellate Division affirmed. In Rinaldo, Special Term granted the petition and the Appellate Division reversed, 120 A.D.2d 530, 501 N.Y.S.2d 768. Upon reargument the Appellate Division adhered to its dispositions.

Concluding that the failure to provide petitioners with actual notice of the tax lien sales in the circumstances deprived them of due process of law, we now reverse the Appellate division orders. In view of this disposition, we do not reach the additional two grounds tendered in support of reversal.

Development of the Concept of Due Notice in Proceedings

Affecting Property

The central meaning of procedural due process has long been clear. "Parties whose rights are to be affected are entitled to be heard; and in order that they may enjoy that right they must first be notified" at a reasonable time and in a reasonable manner (Baldwin v. Hale, 1 Wall U.S.] 223, 233, 17 L.Ed. 531, quoted in Fuentes v. Shevin, 407 U.S. 67, 80, 92 S.Ct. 1983, 1994, 32 L.Ed.2d 556). But the actual requisites of proper notice have not been static. Historically, the reasonableness of notice depended on whether a proceeding was characterized as in personam or in rem. Generally, if in personam, due process required personal service or its equivalent ( see, e.g., Hamilton v. Brown, 161 U.S. 256, 16 S.Ct. 585, 40 L.Ed. 691; Pennoyer iv. Neff, 95 U.S. (5 Otto) 714, 24 L.Ed. 565); but if in rem, notice by publication was good enough (see, e.g., Longyear v. Toolan, 209 U.S. 414, 28 S.Ct. 506, 52 L.Ed. 859, Ballard v. Hunter, 204 U.S. 241, 27 S.Ct. 261, 51 L.Ed. 461, Leigh v. Green, 193 U.S. 79, 27 S.Ct. 261, 51 L.Ed. 461).

Several justifications were commonly advanced for the sufficiency of constructive notice in in rem proceedings. First, nonresident landowners--who themselves could not be served--often had local caretakers to watch over their land and advise them of published notices affecting their property ( see, e.g., Ballard v. Hunter, 204 U.S. 241, 254-255, 27 S.Ct. 261, 265-66, 51 L.Ed. 461, supra; Huling v. Kaw Val. Ry., 130 U.S. 559, 563-564, 9 S.Ct. 603, 605-06, 32 L.Ed. 1045). Second, all landowners were charged with a duty to keep informed about the status of their land and presumed to know the consequences of nonpayment of taxes ( see, e.g., Longyear v. Toolan, 209 U.S. 414, 418, 28 S.Ct. 508, supra ). Third, in in rem proceedings, only "the land itself" was in issue; affected individuals did not have to be present ( see, e.g., Ballard v. Hunter, 204 U.S. 241, 258, 27 S.Ct. 267, supra). Finally, costly notice requirements impeded the State's vital interest in collecting its revenues quickly and inexpensively, making constructive notice a reasonable balance of the competing interests ( see, e.g., Leigh v. Green, 193 U.S. 79, 89, 24 S.Ct. 390, 392, 48 L.Ed. 623, supra; see also, Comment, Mennonite Board of Missions v. Adams: Insufficient Notice Under the New York In Rem Statutes, 33 Buffalo L.Rev. 389, 392-393).

While continuing to retain some validity today, the concept that publication affords due notice in all in rem proceedings has been markedly eroded over time.

In Mullane v. Central Hanover Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865--decided nearly 40 years ago--the Supreme Court concluded that the rigid distinction between in personam and in rem proceedings could no longer be justified as a basis for denying property owners meaningful notice of proceedings affecting their property interests....