The city’s one-time partner in tax collections is now suing it.
American Tax Funding is suing Schenectady — and being sued, in turn, by the city — over the city’s round of foreclosures in August.
The company said in court documents that the foreclosures would “have a catastrophic effect” on ATF, “resulting in the complete destruction of ATF’s business.”
The city filed foreclosures on 214 properties that were years behind in tax payments to both the city and ATF. Both ATF and the city have the right to foreclose on the properties, but the houses are generally of so little worth that they won’t sell for enough to pay back everyone. Whoever forecloses first, then, has the best chance of getting paid.
ATF sued to stop the city from foreclosing first.
Corporation Counsel John Polster, who is handling the lawsuit, said it’s a cut-and-dried matter: New York state law says that whoever holds the current tax liens wins in foreclosure cases like this.
“Our liens are superior to their liens,” Polster said.
The situation has its roots in 2004, when the city started selling its tax liens to ATF. That stopped in 2010 when ATF began offering pennies on the dollar for tax liens. ATF had originally paid the city exactly what it was owed on each lien, and the city refused to sell the 2010 and 2011 liens for pennies.
But that created a delicate situation in which property owners owed money to both ATF for 2004 to 2009 taxes, and the city for 2010 and 2011 taxes.
If the city forecloses to collect the recent taxes, it would “render the numerous liens the city sold ATF worthless,” ATF officials wrote in court documents.
“Not only would ATF be left unable to recoup its investment in the tax liens if the city were permitted to proceed, these actions on the part of the city will result in the demise of ATF, as ATF would not be able to repay its bank loans obtained to finance the purchase.”
ATF bought $43 million of tax liens from the city, partly by borrowing money from banks, according to the court documents.
The company still holds $5.8 million in tax liens. Many owners are paying off their liens slowly through payment plans, the company noted in court documents.
ATF is foreclosing against some of those owners anyway. In one case, the company is foreclosing because the owner has $168 left on a tax debt. In some of those cases, the owners owe much more to the city, but if ATF forecloses, the city’s liens will become null and void.
ATF also complained that the city is pressuring those owners to pay their current tax bills to avoid foreclosure.
“By now attempting to foreclose out ATF’s interests in the sold tax liens, the city is interfering with ATF’s payment plans, in that many taxpayers are being forced to pay the city on the subsequent tax liens rather than ATF on its tax liens,” court documents said.
ATF attorney Joseph Comardo Jr. said he could not comment on the case without permission, which he could not get by press time.
The proceeding is in U.S. District Court for the Northern District.