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Nassau County Supreme Court Issues Preliminary Injunction Blocking the Holder of a Nassau County Tax Deed from Evicting a Commercial Property Owner from Its Building for Nonpayment of Real Estate Taxes

Firm Partners Adam Koblenz, Andrew Roth, and Joseph Bjarnson have obtained an important ruling from the Nassau County Supreme Court in the case of Forest Glen Realty LLC v. T11 Funding that protects Nassau County commercial property owners in real-property tax enforcement proceedings by requiring purchasers of Nassau County tax deeds to commence judicial proceedings to quiet title before they can assert rights under their tax deeds.

Nassau County enforces delinquent real property taxes under procedures set forth in the Nassau County Administrative Code (NCAC). Under the NCAC, when a property owner fails to timely pay real property taxes, the amount of the unpaid taxes automatically becomes a lien on the real property. Once a year, Nassau County sells the liens at a public auction. Private investors can purchase the liens at the auction as investments. If a tax lien is not satisfied by the property owner within two years of its sale, the tax-lien purchaser can serve a notice to redeem on the property owner. If the property is a commercial property, and if the owner does not pay the unpaid taxes plus interest and penalties after service of the notice to redeem, the tax-lien purchaser can apply to the county treasurer for a tax deed pursuant to which the Nassau County Treasurer conveys the subject property to the purchaser.

Under this procedure, the property owner has no opportunity to be heard in a judicial proceeding before the tax deed is issued. Under the NCAC, the holder of the tax deed may thereafter commence a judicial proceeding in Nassau County Supreme Court to confirm that it has lawful title to the property. If the holder of the tax deed commences such a proceeding, however, the NCAC grants the commercial property owner the right to redeem the property in the proceeding by paying the unpaid taxes, penalties and interest.

In an attempt to divest commercial property owners of their right to redeem their properties in a judicial proceeding commenced under the NCAC, some holders of tax deeds commence landlord-tenant proceedings to evict commercial property owners from their properties based on their tax deeds. The commercial property owners have no right to redeem their properties in the landlord-tenant proceedings.

In the Forest Glen Realty case, Forest Glen Realty (Forest Glen) owns a commercial building in Glen Cove, New York, valued at approximately $2 million. It failed to pay approximately $1,000.00 in real property taxes on the property in 2014. Nassau County sold the tax lien on the property to T11 Funding, a private investor. When Forest Glen failed to redeem the tax lien by paying the unpaid taxes, T11 Funding applied for and was issued a tax deed for the property. Relying on the title that it purportedly acquired via the tax deed, T11 Funding commenced a landlord-tenant proceeding seeking to evict Forest Glen and its tenant from the property.

In response, SWC, on behalf of Forest Glen, promptly commenced an action in Nassau County Supreme Court seeking, among other things, a preliminary injunction enjoining T11 Funding from prosecuting the landlord-tenant proceeding and otherwise interfering with Forest Glen’s ownership and possession of the building on the grounds that, among other things, Nassau County’s tax enforcement procedures violate Forest Glen’s constitutional rights to due process and equal protection of the law.

On November 13, Nassau County Supreme Court Judge Jeffrey S. Brown granted Forest Glen’s request for a preliminary injunction. The Court ruled that, in order to comply with fundamental requirements of due process, T11 Funding was required to commence a judicial proceeding against Forest Glen under the NCAC to quiet title to the property. In that proceeding, Forest Glen is entitled “to one final opportunity to save … [its] property by paying the amount owed.” The Court ruled that T11 Funding could not circumvent this due process safeguard by commencing a landlord-tenant proceeding against Forest Glen based on the tax deed.

“The ruling is a victory for commercial property owners in Nassau County and a blow to those who attempt to use tax deeds to confiscate commercial properties from unwary owners who failed to pay their real property taxes for one reason or another,” Mr. Koblenz said. “A tax-lien purchaser can no longer rely on a tax deed, in and of itself, to establish title to real property. Rather, the holder of a tax deed must, in order to comply with fundamental requirements of due process, commence a judicial proceeding under the NCAC to confirm its title to the property. In that proceeding, the commercial property has one last opportunity to save its property from forfeiture by paying the unpaid taxes, interest and penalties.”

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