After Foreclosing Homes, New York Towns Have to Pay Residents Back

There’s a red house on Penny Place with three bedrooms, a fireplace, and baby pink tile in the bathroom. In 2022, Ulster County foreclosed on the home, in Ellenville, after the owner failed to pay a $13,390 tax bill. A company called Blue Door Housing bought it in a public auction for $103,200, and the county earned nearly $90,000. The former owner was left with nothing.

“It’s really, really devastating for people who have worked for 30 or 40 years to pay off their mortgage to lose this money this way,” said Tanya Dwyer, a foreclosure lawyer in the Hudson Valley. “It’s their retirement safety net. It’s the generational wealth their family has been building by protecting the house.”

Last May, the United States Supreme Court ruled the practice unconstitutional in Tyler v. Hennepin County, arguing that a municipality keeping the surplus money in a tax foreclosure sale violates the takings clause of the Fifth Amendment. In 2015, Geraldine Tyler, an octogenarian living in Hennepin County, Minnesota, had her condo foreclosed on after failing to pay a $15,000 tax bill. The county sold her condo for $40,000 and kept the surplus $25,000, leaving Tyler — like the former owner of the house on Penny Place — with nothing.

Even though they’re subject to state law, New York municipalities each conduct tax foreclosures their own way. As a result, the state doesn’t keep data on how many tax-delinquent properties have been foreclosed on, how much money local governments have kept from foreclosure sales, or how the demographics of foreclosed homeowners look.

In the Hudson Valley, Dwyer said, more than 2,000 properties have been foreclosed on over the past two years after owners failed to pay their taxes. Across seven counties, she estimates that $20 million in surplus funds are taken from property owners annually. Her typical client owned a home worth more than $250,000 and owed $15,000 in taxes.

“A lot of our clients are elderly, often widows, who have very modest Social Security income and perhaps a small pension, but they can’t pay their taxes just on Social Security income,” Dwyer said. “The taxes are usually $10,000 a year. They wouldn’t be able to eat or go to the doctor if they used their Social Security income to pay their taxes.”

Many people’s properties represent their life savings. If they fail to pay their taxes and their house gets foreclosed on, they get evicted, and their local government may sell their house in a public auction. After taxes, interest, and administrative fees, they might expect to use the surplus money to find new housing.

Pre-Tyler, that surplus would go into a municipality’s general fund. In the decision’s wake, they have to give it back — and Dwyer is looking to make that retroactive. She’s asking towns, cities, and counties in the Hudson Valley to return the money to her clients and everyone else who has faced tax foreclosure.

After the Tyler decision in May, the majority of municipalities in New York paused all tax foreclosures to give the state time to amend its property tax law. In addition to local governments, that’s also affected New York’s 28 land banks.

While most New York municipalities sell tax-delinquent homes at public auctions, some transfer them to one of the land banks — non-profit organizations that rehabilitate tax-delinquent properties and sell them to vetted buyers.

The Syracuse land bank has sold 1,300 properties since it was created in 2012. By 2019, it had reduced the number of vacant buildings by at least 20 percent, according to Katelyn Wright, executive director of the Greater Syracuse Land Bank.

But some of the buildings’ former owners still live in them — around Syracuse, less than 10 percent, Wright said. The land bank does not typically sell the occupied property back to the original owner.

In 2022, the Albany County Land Bank acquired two properties — down from 200 to 400 properties in past years, said Adam Zaranko, its executive director, approximately 90 percent of which were vacant or abandoned.

“Everyone’s focused on homeowners, which is totally rational and the right thing, but the bad properties, the harmful ones, are caught up in that net,” Zaranko said.