Board of Supervisors

Bankrupt owner calls property tax seizures ‘fraudulent’

The buyer of a property parcel at the Livingston County tax auction in July has been informed that the county needs to postpone transfer of the title to him pending resolution of the bankruptcy of the previous owner.

The proceeding has been complicated by the former owner’s claim that the county’s seizure of the title is fraudulent under the bankruptcy.

Livingston County Attorney David Morris has stated that the legal strategy being used to thwart county property foreclosure has, in this instance, potential to “lead to a real mess for all counties, not just Livingston.”

New York State counties are legally empowered to seize through foreclosure the title and full value of any parcel for which property tax, or a component thereof, has gone unpaid for more than two years.

This method of assuring property tax payment has come under criticism for its tendency to provide the county with tax auction revenue well above and beyond the amount of unpaid taxes which had been in arrears — at the expense of the former owners.

Other methods for securing unpaid property tax are in use by local governments, most notably the practice of attaching title liens when taxes go unpaid. City governments tend to use this alternate method, which is able to retrieve unpaid tax revenue through sale of the liens.

At a discussion during the Aug. 13 meeting of the Livingston County Supervisors’ Ways and Means Committee, County Attorney David Morris, Administrator Ian Coyle and several committee members expressed consternation over a threatened lawsuit which could cause havoc with the existing foreclosure scenario.

Among parcels seized for unpaid taxes by Livingston County and auctioned in the 2012 tax sale was one owned by Martin Barager in the Town of Portage, which was sold at the auction for $24,000.

Shortly before the auction, but after the county had taken title, Barager filed for bankruptcy in federal court. If the filing had taken place before the county had taken title, the foreclosure process would have been aborted and Livingston County would have taken its place among various creditors for Barager, to be reimbursed in whole or part under federal bankruptcy stipulations.

Now, however, Barager’s attorney is threatening Livingston County in a lawsuit which would be part of the bankruptcy proceeding, claiming the transfer of the property title was fraudulent “because it takes away assets that could otherwise be shared with other creditors of the debtor” — who himself was insolvent at the time of the transfer.

Reportedly, this attorney has represented foreclosed-upon property owners in other New York State federal court districts, in particular the Northern District, where his arguments have prevailed and, accordingly, a transfer by which the county seized property has been set aside by the federal court.

To date, there have been no rulings in the Western District, of which Livingston County is part.

Morris said this is a matter of some concern because an insolvent property owner has up to one year to file for bankruptcy, during which time the county would not know whether the filing would or would not be occurring.

A former property owner could file as late as 11-and-a-half months after had the county had taken his title and had sold the property at auction. A transfer might then be set aside by the court even after the new owner, who has had possession for several months, may have made improvements to the property.

Morris advised that bankruptcy claims of this sort have the potential of creating “a huge problem for the tax foreclosure process.”

Board of Supervisors Vice Chairman Gary Moore commented that state level legislation may the only remedy to the dilemma. Otherwise county would have to postpone tax auctioning for a full year, during which the former owners would be clamoring to pay their taxes and take their title back.

Morris and members of the board decided to separate the Barager property from the general resolution conveying tax auction properties to their new owners.

Supervisor Will Wadsworth expressed concern over county responsibility for maintaining and insuring the property while it holds title and while matters are being resolved in bankruptcy court. Morris expressed the opinion that, since Barager continues to live on the parcel, the county remains free of any maintenance obligation.

Terms of sale under which Livingston County sells parcels at the tax auction require refund of the purchase price in cases where a court judgment sets aside the sale.