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Thursday, May 27, 2010

Impact of Tax Lien Foreclosure on the NY Mortgage Foreclosure Process

Impact of Tax Lien Foreclosure on the NY Mortgage Foreclosure Process

Dateline: September, 2004

Tax Liens Plague Mortgage Foreclosures

Tax liens and tax lien foreclosures can plague any mortgage foreclosure action. In New York, each county dictates the procedure for tax lien foreclosures. For example, in Suffolk County, the county holds tax liens before selling them at tax lien sale for three years. Other counties may sell their liens after only one year. However, though counties differ, the underlying law for tax lien foreclosures remains unaltered.

The Tax Lien Nightmare in Action

Tax liens are open taxes on a parcel of land that become a lien on the property. After a certain period of time, specified by the county, the tax liens are sold at a tax lien foreclosure sale. The tax lien foreclosure sale mimics the auction that takes place at a mortgage foreclosure sale. The tax lien is auctioned off and sold to the highest bidder or bought back by the county. The bidder can then initiate his own foreclosure action to sell the property. Once the property is sold, title vests into the new owner and he takes the property and all the equity it holds.

As an Example: A property is worth $400,000. There is a tax lien on the property of $4,000 (including interest, attorney’s fees and costs), a mortgage of $350,000 and two judgments for $2,500 each. The property is sold to the highest bidder at auction for the tax lien foreclosure in the amount of $4,200. The purchaser takes the property free of the mortgage and judgments and thus makes a profit of 345,800.00.

A property tax lien can be redeemed, or saved from being sold at tax lien sale, with the county before the lien is sold. The county assessor’s office can be contacted for the amount of the lien that is due, along with interest and penalties. However, if the tax lien is sold at tax lien foreclosure sale and a tax lien foreclosure has been initiated, the attorneys for the tax lien foreclosure can be contacted to pay off the tax lien similar to a mortgage that is paid off before sale.

The tax lien foreclosure procedure is identical to a mortgage foreclosure. A summons and complaint is filed, followed by an order of reference, a referee is appointed to compute and conduct the sale, judgment is entered against the property and then a public auction is held to sell the property. However, a typical tax lien foreclosure lasts approximately nine months, whereas a mortgage foreclosure can take over one year to be completed. As with a mortgage foreclosure, there is no redemption period after the sale, meaning that the lien cannot be paid off after the sale has occurred. Should a tax lien be sold at foreclosure sale, the debtor, along with any mortgagees or judgment creditors lose their interest in the property. Therefore, time is of the essence in dealing with tax liens on a property because if they are not redeemed with the county or paid off with the tax lien purchaser, the property can be sold.

The result of sale is that the mortgagee can no longer foreclose on the property and recover the amount owing on the mortgage as title to the property is no longer held by the debtor. While the tax lien foreclosure process mirrors the mortgage foreclosure process, it is important to remember that all equity in the property is lost at tax lien foreclosure sale. Upon the transferring of title to the purchaser of the tax lien, the property is lost and the ability of the mortgagee to foreclose pursuant to the terms of its mortgage is terminated.


Tax lien foreclosures are an investor’s dream but a mortgagee’s nightmare. It is important that all outstanding taxes on a property revealed by the tax search be paid immediately upon receipt. All escrow advances for taxes paid on the property to be foreclosed are recoverable at judgment so the mortgagee is losing nothing and is sure to keep the property for its own foreclosure sale. Immediate redemption of tax liens affecting the property is necessary for a mortgagee to protect its interest in the property to be foreclosed.

This Article is a service of the Creditors’ Rights Department of Fein, Such, Kahn & Shepard, P.C., 7 Century Drive, Suite 201, Parsippany, NJ 07960. Phone: 973-538-4700. Website: It does not constitute legal advice nor create an attorney-client relationship. For more information contact Shareholder Alan F. Such, Esq. at

© 2004, Fein, Such, Kahn & Shepard, P.C., all rights reserved. Permission is granted to reproduce and redistribute this article so long as (i) the entire article, including all headings and the copyright notice are included in the reproduction, and (ii) no fee or other charge is imposed.

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