Old Dutch Lands, Inc. v. City of New York

• Decision Date: 29 December 1967
• Citation: Old Dutch Lands, Inc. v. City of New York, 286 N.Y.S.2d 86, 55 Misc.2d 384 (N.Y. Sup. Ct. 1967)
• Parties: OLD DUTCH LANDS, INC., Plaintiffs, v. The CITY OF NEW YORK et al., Defendants.
• Court: New York Supreme Court

Page 86

286 N.Y.S.2d 86

55 Misc.2d 384

OLD DUTCH LANDS, INC., Plaintiffs, v. The CITY OF NEW YORK et al., Defendants.

Supreme Court, Special Term, Kings County, Part I.

Dec. 29, 1967.

Rene H. Karsten, New York City, for plaintiffs.

J. Lee Rankin, New York City (Joachim Titolo, Jamaica, Frank W. Porcaro, Donald E. Biederman, New York City, Alan Brutten, Flushing, of counsel), for defendant, City of New York.

Louis J. Lefkowitz, Atty. Gen., Albany (Philip Weinberg, New York City, of counsel), for defendant, State of New York.

Permut & Permut, New York City (Michael Permut, Morris Permut, New York City, Richard J. Maloney, Brooklyn, of counsel), for defendants, Astoria Holding Corp. and Chase Manhattan Bank.

MEMORANDUM

NATHAN R. SOBEL, Justice.

These are cross motions for summary judgment (Rule 3212) in an action for a declaratory judgment which attacks as unconstitutional section D17--25.0 of the New York City Annotated Code. Issues of law only are presented.

The section in issue was added to Title D of Chapter 17 of the Code in 1956 (L.1956, c. 481, eff. 4/9/56). Title D, the In rem foreclosure statute was added to the Code in 1948 (L.1948, c. 411). The latter provided an alternative method for collecting City taxes on real property--alternative to foreclosure of tax liens (see Real Property Tax Law, § 1110 et seq.) and the sale of tax liens (see N.Y.C. Ann.Code § 415(1)--23.0 et seq.) by an In rem foreclosure action.

The In rem procedure is 'quick' and 'cheap' but it is also summary in that owners and lienors are not necessary parties and are not personally served in the action. The action is directed against the property In rem. Due process is observed by Mailing notice of the action to the registered owners of the property and by publication (cf. Nelson v. City of New York, 352 U.S. 103, 77 S.Ct. 195, 1 L.Ed.2d 171).

In rem tax foreclosure proceedings have been held constitutional in this and other states, the theory being that there exists an affirmative duty on owners (and lienors) to pay their property taxes and that failure to do so for an extended period (4 years under the In rem foreclosure statute) is rarely inadvertent. A minimum of 'notice' therefore suffices. And, when an owner is 'unable' to pay, he may preserve his equity in the property by requesting a tax sale and the establishment of a surplus (City of New York v. Chapman Docks Co., 1 A.D.2d 895, 149 N.Y.S.2d 679).

No issue is raised in this action as to the In rem foreclosure statute Per se. The attack on constitutional grounds is directed rather to the provision (§ D17--25.0) Added to that statute for the purpose of preventing even occasional injustice. The statute has a 'history.'

The Justices of the Supreme Court were requested to make recommendations to the Temporary Commission on the Courts (Tweed Commission) for need 'reforms.' Among several dozen was one which suggested:

'Foreclosure in rem by the City of New York. The provisions of the Administrative Code with respect to the right of the owner to redeem should be liberalized in order to prevent injustices which frequently result from the ignorance of the owner of the pendency of the foreclosure proceeding.'

Evidently the recommendation was based on some 'experience.' But the Corporation Counsel replied that 'less than one-one thousandth of the property owners affected by foreclosure by action In rem felt sufficiently aggrieved to bring proceedings in the courts to effect redemption.'

Ultimately, however, the City yielded and D17--25.0 was added to the Code by the Legislature on recommendation of the City authorities.

That Code section is much too long to be set forth in any detail--instead the relevant provisions under attack are discussed:

(1) The statute is not a 'redemption' statute as that term is used in foreclosure proceedings--redemption in the course of the proceedings or during a stated period thereafter Before title vests. It is instead a 'reconveyance' statute--necessarily so because in the In rem foreclosure proceedings the City receives in the judgment 'an estate In fee simple absolute in such land and all persons, including the state of New York, infants, incompetents, absentees and non-residents who may have had any right, title, interest, claim, lien or Equity of redemption in or upon such lands shall be barred and forever foreclosed of all such right, title, interest, claim, lien or Equity of redemption' (D17--12.0, subd. d). Having wiped out all rights, the new statute could Only provide for a Reconveyance (not redemption) to persons unfairly deprived of their property.

(2) The statute provided that the Board of Estimate could, in its discretion, reconvey to Two classes of persons--(1) former 'owners,' and (2) former 'lienors' which would include mortgagors and persons purchasing transfer of tax liens (under the old procedure).

The basic claim of unconstitutionality arises because of the conflict between these two groups.

Both groups are divested of any claim against the land by the In rem foreclosure. The new statute provided, however, that the owner should receive a preference in the right to petition for reconveyance. If he fails to do so within two months (short statute of limitations, discussed infra), then the Board could consider a pending application from a lienor.

Both owners and lienors are required to pay all 'back' taxes Owed to the City the certain costs, etc. But instead of receiving on the reconveyance the 'estate in fee simple absolute' acquired by the City, the title conveyed back is 'the title which was vested in the owner (before the foreclosure) subject to any and all liens, encumbrances and defects which existed on said date.'

This provision, it should be observed, is just and fair as regards a reconveyance to an Owner. He should not, by merely paying 'back' taxes, obtain a title free and clear of the mortgage or a transfer tax lien. (The latter under the old procedure is bought from the City for the price of the City's tax lien; since the City has already been paid, such a lien is not included in the 'back' taxes which the petitioner for reconveyance must pay.) The statute provides that upon reconveyance to an Owner the mortgage and the transfer tax lien are reinstated. Thus, when an Owner petitions, his petition directly 'benefits' the mortgagor and the transfer tax lienor who had been wiped out by the In rem foreclosure.

But this is not so when a lienor petitions. A reconveyance to him Does not 'restore' the owner; the owner remains 'wiped out.' Assume a parcel worth $100,000 with a $30,000 mortgage and a $3,000 transfer tax lien. An owner receiving a reconveyance takes subject to $33,000 in liens. A mortgagor or a transfer tax lienor takes the Owner's title subject to $33,000 in liens--But the $67,000 'equity' of the owner is wiped out. It is idle for the City to contend that my hypothetic situation simply never occurs. The point is that a Statute permits it to occur and such a statute is grossly unfair even if not fundamentally, i.e., unconstitutionally, unfair.

I turn to the factual situation in the instant case. Several parcels (8) owned by several owners were involved. There were no mortgages but on each of the parcels one Sam Mintz had acquired a transfer tax lien. An In rem judgment entered April 25, 1955, wiped out the owners as well as Mr. Mintz. (See 13 to 30 of complaint.)

Approximately one year later (April 9, 1956) section D17--25.0 of the Code was enacted. Under its provisions, the owners as well as Mr. Mintz were allowed two months within which to apply for a reconveyance. Mr. Mintz applied--the owners did not. On July 3, 1958, Mr. Mintz received from the City a deed conveying to him the 'owner's title' to the eight parcels in issue having paid all 'back' taxes amounting to some $29,000. The owners who were wiped out by the In rem foreclosure closure judgment of April 25, 1955 were not 'restored' (as Mr. Mintz would have been if the owners had received the reconveyance).

Mr. Mintz conveyed the property to the principal defendant Astoria Holding Corporation, which in turn obtained a mortgage from defendant Chase Manhattan Bank.

Plaintiff Old Dutch purchased during 1963, 1964 and 1965 from some of the 'owners' what amounts to a 'chose of action' (see D17--25.0, subd. d). Some of the other defendants who have appeared are either the old owners or their representatives or successors in interest by inheritance or devise. Others of the defendants are purchasers or representatives or successors in interest to persons who, like Mr. Mintz, owned transfer tax liens.

A Prior action (Index #3376--1965) entitled Astoria Holding Corp. v. Old Dutch Lands, Inc. (reported N.Y.L.J. 3/25/66, p. 18, col. 1, aff'd w.o. 27 A.D.2d 905, 280 N.Y.S.2d 899, aff'd w.o. 20 N.Y.2d 905, 286 N.Y.S.2d 27, 233 N.E.2d 122) by the defendant in this action Astoria against the plaintiff in this action Old Dutch (parties reversed) in part concerned the same parcels and the same In rem foreclosure action. That action was an Article 15, Real Property Actions and Proceedings Law action and it determined that when the City reconveyed to Mr. Mintz it divested the 'owners' (predecessors to Old Dutch) of any 'right to redeem' against Mintz and in consequence Old Dutch had no right, title or interest in the lands in issue. This is of course Res judicata against Old Dutch and it is a binding precedent upon me insofar as the rights of the other owners (not parties to the prior action) are concerned.

It will be noted that in the prior action the 'owners' sought to sustain the statute by claiming 'rights', in the nature of a right of redemption, under the terms of the statute.

May they now in the instant action, having no 'right' in the real property, claim that the 'statute' is unconstitutional? If it is indeed unconstitutional, then The City (not the 'owners') Will have title to the property--only the reconveyance to Mintz (and from...