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Landlord Tenant Law Litigation Tax

What Happens to Surplus Funds in Tax Lien Foreclosures?

When a sale follows a municipality’s foreclosure on a tax lien, who is entitled to sale proceeds that exceed the amount of the tax lien?

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When a sale follows a municipality’s foreclosure on a tax lien, who is entitled to sale proceeds that exceed the amount of the tax lien? In cases decided over the past year, that issue has generated conflicting decisions. In two cases, the Fourth Department has held that the taxing authority is entitled to retain the entire surplus. More recently, in NYCTL 1997-1 Trust v. Stell, 184 A.D.3d 9, a case in which the taxing authority apparently made no claim to the surplus, the Second Department held that a first mortgagee was entitled to the surplus, rejecting the mortgagor’s claim that the statute of limitations barred the mortgagee’s claim. The issue is whether the surplus money provisions applicable in mortgage foreclosure actions are equally applicable in tax foreclosure proceedings.

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