On May 3, 1962, the petitioners Vivenzio and Butler purchased the Union Fern building at 77-83 Genesee Street in Utica. The petitioner Bersani holds a first and second mortgage on the property. On May 8, 1967, the respondent city took title to the premises, claiming it for unpaid 1962 taxes, a resultant tax sale on May 29, 1963, and a failure thereafter of the petitioners to redeem. There were also tax sales of the property in 1964, 1965, 1966 and 1967 for other unpaid taxes and on each occasion the city bid in the property.
Originally the petitioners commenced a CPLR article 78 proceeding seeking redemption or reconveyance of the property upon payment of back taxes, interest and expenses. This was rendered impossible by the State of New York's appropriation of the premises. The court nonetheless, upon the agreement of the parties, has heard the issues, since the petitioners' right to a condemnation award depends on their resolution.
Looming in the background of this controversy and shadowing its issues is a condemnation action that the petitioners have had in progress throughout these years against the city for its appropriation of their property known as the Hotel Hamilton. The petitioners have devoted much of their proof to the allegation that the city agreed that they could defer their payment of the Union Fern taxes until the city paid them what it owed for the Hotel Hamilton.
It is, though, the petitioners' primary contention that the city's title to the Union Fern property is invalid for its failure to have observed the requirements of its own city code respecting tax sales and tax sale deeds. Their second contention is operative only in the event that the court finds the city to have observed the niceties of the code. In this event they argue that equity demands a reconveyance since such title as the city has was gained only through assurances by the city's agents that it would reconvey.
The city denies any defect of title, denies the making of any assurances and argues that even if they were made they cannot legally bind the city.
Because the loss of one's property is such a harsh penalty for the nonpayment of a tax while the taxing body can always be made whole by the payment of arrears with interest and expenses, the law will deprive an owner of his title only if the provisions of the pertinent statutes have been strictly met and these provisions will be liberally construed in the owner's favor. (Clason v. Baldwin, 152 N. Y. 204; Werking v. Amity Estates, 2 N.Y.2d 43, cert. den. 353 U.S. 933.) Even a presumption of regularity of a tax title (Utica City Code, § 14-29) will be overcome by proof of irregularity elicited from the mouths of those in the taxing body responsible for it. (Werking v. Amity Estates, supra.) The Utica City Code provides that property shall be sold for unpaid taxes "at auction to the highest bidder" (§ 14-24). The city must bid the amount owed it, that is, the taxes in arrears plus interest plus expenses, if no one else makes a bid in at least that amount (§ 14-24). The purchaser at the sale must be given a certificate showing "the amount paid therefor" (§ 14-25). The owner of the property may redeem it within a limited time by paying "the sum mentioned in the certificate" with interest at 12% per annum (§ 14-26).
The meaning and intention of these provisions are clear. There must be a minimum bid, by the city if by no one else, of the taxes in arrears plus interest and expenses. There is no suggestion that this is the only price to be bid. There is no suggestion that this is not only a minimum but also a pre-ordained maximum. Quite to the contrary -- the provisions require auction bidding, the price to go as high as unstifled competition will carry it. The city profits the difference between what is owed it and the highest amount bid. The successful bidder may recover his money from the owner, with 12% interest, if the property is redeemed. Otherwise he becomes the owner at the price paid.
The actuality was a far remove from the code. If its provisions were ever followed at the city tax sales, apparently time and the press of business have now eroded the procedure to a point where there is no semblance to the mandated practice, the intention of which is thereby defeated.
The present City Treasurer and the then Delinquent Tax Clerk have both described the method of sale used in those years with which we are concerned. If no one made a bid, the city would bid the minimum price. If someone present held a certificate on a property from a prior year, that property was not offered to the public at all but was offered to the certificate holder at the minimum price. If there were no certificate holder present from a prior year, the property was offered for sale and all those willing to pay the minimum price cut cards to see who would get the certificate. As the former Delinquent Tax Clerk put it in his deposition, "If there were four people wanted to buy the certificate, they'd all pick a card from the desk, and the high card -- they'd all agreed to go by that procedure. The one that had the high card would get the certificate."
In short, there was just one price, the amount of the taxes in arrears plus interest and expenses. There was no bidding, no auction, no chance for the city to make a profit. There was no way for one willing to bid highest to prevail other than by drawing the highest card. While this method may have assured the city of more purchasers by keeping their outlay down, it is nonetheless totally contrary to the code. A tax deed based on such a sale is invalid.
It makes no difference that on the May 29, 1963 sale there were no bidders for the Union Fern property other than the city. Who can say how many potential bidders actually present were inhibited by an awareness of the illegality of the procedure? Furthermore, knowledge of this sales method, designed to stifle competition, might well have kept many bidders from the sale who would have been willing to compete in an auction but were loath to gamble in a lottery.
Since the city held the certificate from the 1963 tax sale, the Union Fern property was never offered to the public at the tax sales of 1964, 1965, 1966 and 1967. It was simply bid in by the city at the minimum. This is contrary to the code; such preferences are illegal (Matter of Coulbourn v. Burns, 206 Misc. 1058), and can furnish no basis on which the city can claim title.
Section 14-26 of the City Code provides that the notice to the owners to redeem the property together "with the proof of service thereof shall be exhibited to the treasurer prior to his issuing a conveyance of such real estate, and proof of service of such notices shall be recorded with such ...