NYSAC Property Tax In Rem Foreclosure Whitepaper – 2023

A series of state legislative proposals, Executive SFY 2024 Budget recommended reforms, and court cases at both the state and federal level will require New York to modify its’ laws related to the In Rem property tax delinquency foreclosure process in the coming year. Most counties, and some cities and towns, administer property tax collection and tax delinquency foreclosure process. The process for property tax foreclosure is laid out in state law and is a complicated, multi-year process involving courts and other lienholders.

A unique feature of New York State law, compared to other states, is that New York requires most of its counties to hold other local governments (towns and school districts) harmless for delinquent property taxes they assess and in practice most other local governments (cities and villages) often are held harmless as well. These hold harmless provisions require counties to keep paying delinquent property taxes to these other taxing jurisdictions as the In Rem foreclosure process plays out across multiple years and involves hundreds of millions of dollars annually.   

A U.S. Supreme Court ruling released in May of 2023 sets the minimum requirements in relation to how any surplus is treated when a property is sold in a foreclosure process.  Currently counties keep any surplus as they have for many decades to help offset the costs of holding other taxing jurisdictions harmless and covering the significant costs of administering the foreclosure process. The Supreme Court requires that any such surplus must be returned to the prior owner(s). The following white paper outlines the county position on the Governor’s reform proposal and county priorities in reform of this process. The goal is to ensure that all taxpayers are treated fairly in the process and to ensure the state provides financial resources to counties under the new process.