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November 9, 1973


Weinstein, District Judge.

The opinion of the court was delivered by: WEINSTEIN

WEINSTEIN, District Judge.

Cross claimants purchased tax liens upon the property of General Douglas MacArthur Senior Village, Inc. from the County of Nassau and from a school district, village and town in that county. Within months of the purchase, the United States, as mortgagee of the MacArthur property, moved to foreclose because of a failure to pay taxes and local water charges in breach of the mortgage agreement. An effort by the municipalities and cross claimants to establish priority over the United States in the proceeds of the foreclosure was unsuccessful. See United States v. General Douglas MacArthur Senior Village, Inc., 337 F. Supp. 955 (E.D.N.Y.), rev'd. 470 F.2d 675 (2d Cir.), cert. denied, sub nom. County of Nassau et al. v. United States, 412 U.S. 922, 93 S. Ct. 2732, 37 L. Ed. 2d 149 (1973).

 Whether cross claimants are entitled to a refund of the money paid to the taxing authorities for the now worthless tax lien certificates is the question posed. Since there is no disputed question of fact, the matter is ripe for adjudication on the motions for summary judgment. Dressler v. Sandpiper, 331 F.2d 130 (2d Cir. 1964). Jurisdiction is not seriously questioned; all cross claims are so closely related to the main action as to be ancillary. See e.g., R. M. Smythe & Co. v. Chase National Bank of the City of New York, 291 F.2d 721, 724 (2d Cir. 1961); C. Wright, Fderal Courts 353 (2d ed. 1970).

 New York law governs this dispute. Cf. Aquilino v. United States, 363 U.S. 509, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1960); United States v. Brosnan, 363 U.S. 237, 80 S. Ct. 1108, 4 L. Ed. 2d 1192 (1960); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Under that law, as indicated below, these purchasers of tax liens cannot recover from the local taxing authorities.

 Tax Liens in General

 Tax lien systems begin to operate when taxes are levied as a lien against the land of a delinquent taxpayer. See, generally, N.Y. Real Property Tax Law Art. XIV, McKinney's Consol.Laws, 49-A., 16 McQuillin, Municipal Corporations § 44.139 at 401 (3d ed. 1972); H. K. Allen, Collection of Delinquent Taxes by Recourse to the Taxed Property, 3 Law & Contemporary Problems 397 (1936); Note, Tax Sale Law in New Jersey: A Re-examination, 26 Rutgers L.R. 266 (1973); Note, Marketable Title in New York State: Tax Deeds, 9 Syracuse L.R. 69, 70 (1957). In all states, the taxpayer enjoys a "redemption period" during which he can pay his taxes plus interest and penalties to remove the lien.

 Taxing authorities may sell the liens to members of the public in the form of tax sale certificates. Selling certificates is justified on the ground that it provides the municipality with a source of immediate cash. H. K. Allen, Collection of Delinquent Taxes by Recourse to the Taxes Property, 3 Law and Contemporary Problems 397, 405 (1936). These certificates represent an "inchoate right to a conveyance of the real property [which] would mature only in the event that such [redemption] payment was not made." Blatnicky v. Ciancimino, 1 A.D.2d 383, 389, 151 N.Y.S.2d 267, 273 (2d Dept. 1956); H. K. Allen, supra, at 405.

 Tax Liens in Nassau County

 Local government in Nassau County is dependent upon income derived primarily from taxation of real estate. The Nassau County Administrative Code (Laws of 1939, Chapter 272), title B Article 2, provides for collection of municipal taxes by the County Treasurer. It applies to all but village taxes, which are controlled by similar state provisions. N.Y. Real Property Tax Law Art. XIV.

 Section 5-32.0 of the Code authorizes the Nassau County Treasurer to bring a plenary action for the amount of taxes due, together with penalties and interest. In the absence of such an election, section 5-33.0 requires the Treasurer to sell liens at an annual tax sale. The tax sale lists and notices of advertising normally encompass thousands of parcels of land described by a section, block and lot on the Nassau County Land and Tax Map and, if available, by the name of the owner of the real property as it appears on the tax books.

 At the time of the sale, prospective purchasers bid for specific tax liens at a rate of interest and penalty as described in sections 5-39.0 and 5-40.0 of the Nassau County Administrative Code. The lowest interest rate bid wins. Lower rates benefit the taxpayer since it means he can redeem by paying less interest on overdue taxes.

 Although they may be made at the maximum rate of ten percent for each six month period within which the tax remains unpaid after the sale, not to exceed 24 months, bids are normally much lower because of competition among investors. For example, the interest and penalty for the one MacArthur sale exhibited to the court was six percent.

 When a bidder has successfully purchased a lien, he obtains a Certificate of Sale containing information descriptive of the parcel, the amount bid and, in accordance with section 5-41.0, "7. Such other information as the county treasurer shall deem expedient." A reservation of priority rights of the sovereign is inserted in the County Certificate pursuant to paragraph 7. The printed legend, in type of the same size as the rest of the document reads: "All liens on property involved in this sale are sold subject to . . . any and all superior tax liens of Sovereignties and other Municipalities." (Emphasis supplied.) The United States is a sovereignty within the meaning of this certificate -- though, of course, its priority arose from a mortgage rather than a tax assessment.

 No objection was made to the form of certificate until after this action was commenced by the United States to enforce its priority. But even without such an express statement the reservation as to superior liens of sovereignties would have been implied under New York law. N.Y. Real Property Tax Law § 1020(1); Riverhead Estates Civic Association v. Gobron, 206 Misc. 405, 134 N.Y.S.2d 13 (Suffolk ...

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