New York Supreme Court Dismisses Plaintiff’s Complaint to Foreclose on Tax Liens Against Bona Fide Purchasers For Value, but Finds City Liable for Negligence in Mistakenly Marking the Liens as Satisfied

In an action to foreclose on two tax liens that were assigned to plaintiff, the New York Supreme Court, Westchester County, recently granted defendant purchasers’ motion for summary judgment dismissing plaintiff’s complaint as against them on grounds that they are bona fide purchasers for value, as well as plaintiff’s motion for summary judgment against the defendant city for negligence mistakenly marking the liens as satisfied.  See Equity Inv. & Mortg. Co. v. Smith, 2017 WL 1066109 (Sup. Ct. March 21, 2017).  In the case, plaintiff purchased tax liens on the property at issue in 2011 and were assigned the same.  However, the city mistakenly marked the liens as having been satisfied.  In 2014, defendant purchasers bought the property.  Before doing so, they obtained a title report that did not disclose any open or unpaid tax liens against the premises.  After the purchasers bought the property, the city realized its mistake and corrected the records.  In 2015, plaintiff commenced an action seeking to foreclose the property.  After the purchasers answered and claimed to be bona fide purchasers for value, plaintiff amended the action to assert a negligence claim against the city.  The purchasers moved for summary judgment dismissing the claim as against them, and plaintiff moved for summary judgment on its negligence claim against the city.  The city opposed both motions, arguing that (i) the purchasers should have examined the actual paper copies of the tax liens and not just the records, and (ii) it was immune from liability for the negligence claim.  The Court granted both motions.

In granting the purchasers’ motion and dismissing plaintiff’s complaint as against them, the Court found that it is undisputed that the city’s official tax records indicated that the two liens were marked cancelled and satisfied at the time of their purchase, and the purchasers were entitled to rely on the public records.  Therefore, the purchasers were bona fide purchasers and are entitled to a cancellation of the tax liens.  As to plaintiff’s motion for summary judgment against the city, the Court found that plaintiff demonstrated the existence of a special relationship with the city because, by selling the tax liens that were assigned to plaintiff, the city had a form of direct contact with plaintiff and knowledge that selling an invalid tax lien could lead to harm.  The Court further found that plaintiff justifiably relied on the city’s affirmative undertaking of selling what should have been valid and enforceable tax liens.  Accordingly, the city “is not entitled to a windfall due to its own error in marking the tax liens as satisfied and cancelled.”

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at or Clarissa Gomez at