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Tax Farmer Sues NY City Over Tax Liens

ALBANY, N.Y. (CN) - A Florida company asked a federal judge to bar the city of Schenectady from foreclosing on tax-delinquent properties, claiming it paid the city $43 million for the right to do so.

American Tax Funding, of Jupiter, Fla., says city foreclosures would thwart its own foreclosures in Schenectady and threaten its livelihood.

American Tax Funding is a collections company that buys tax liens in bulk from municipalities that lack resources to recover back taxes from homeowners. American Tax pays cash up-front, then recoups its money from the property owners through repayment plans or foreclosure.

The company paid more than $43 to Schenectady for its tax liens between 2004 and 2009, American Tax claims in its federal complaint.

But in September the city said it would conduct its own foreclosures on tax liens from 2010 and 2011.

American Tax Funding claims that "would render numerous liens that the city sold to ATF worthless," because they could involve some of the same properties.

"The city's threatened foreclosure action would preclude ATF's foreclosures, would preclude ATF from collecting on the payment plans that it has in place with numerous property owners, and would also preclude ATF from purchasing subsequent tax liens pursuant to its right of first refusal under the contracts," according to the complaint.

"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 AFT would not be able to repay its bank loans obtained to finance the purchase."

ATF's website describes the company as "the nation's leading bulk sale purchaser and servicer of delinquent property tax liens."

Formed in 1997 as a division of Transamerica Corp., ATF claims it has paid more than $1 billion over the years to local governments in more than a dozen states, money that helped build roads, bridges and schools, and finance municipal operations.

In 2004, Schenectady was on pace to post an accumulated deficit of $10.2 million by year's end and had the lowest bond rating of any municipality in New York, according to the Albany Times Union.

That June, the Legislature stepped in and granted the city the option of selling its delinquent tax liens to a third party.

A sponsors' memo that accompanied the legislation noted that "the cash-strapped city of Schenectady is owed millions of dollars" in back taxes. "This municipality should be given the opportunity to utilize as many procedural methods as possible to collect the monies owed from the unpaid taxes."

The city chose American Tax Funding over another collections firm, and the next year Schenectady's mayor told the Times Union that the nearly $8 million paid by ATF for liens from 2003 and 2004 helped turn around the city's finances.

But lately, the company and city have been at odds.

This spring, several Schenectady nonprofits faced foreclosure by ATF because of liens inadvertently generated and sold by the city; a similar mistake affecting a parcel owned by Amtrak threatened to hold up reconstruction of a major city thoroughfare.

The city sued ATF in June this year over 2008 and 2009 liens.

ATF says it still holds about $5.8 million in tax liens purchased from the city, and claims that some of the foreclosures the city would bring from 2010 and 2011 liens "would be subsequent tax liens to parcels upon which ATF holds liens sold to it by the city."

"The city's threatened foreclosure action would interfere with ATF's pending foreclosure actions and rights to foreclose on its remaining tax liens, as the city's foreclosure would render the tax liens sold to ATF invalid and unenforceable," the complaint states.

ATF also claims city foreclosures would wreak havoc with delinquent taxpayers who are reimbursing ATF through installments for the tax liens it previously bought.

"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," the complaint states.

ATF says its contract with the city gives it the right to purchase subsequent tax liens, "so long as any sold tax liens remain outstanding."

ATF asked the city in February to sell it the subsequent tax liens, but the city refused, according to the complaint.

"ATF's right to pursue its current foreclosure actions would be wiped out. AFT's rights to purchase subsequent tax liens and collect on its payment agreements would also be wiped out," the complaint states. "Not only would the clear meaning of the contracts be gutted, in which ATF paid some $43 million for, but without the liens, AFT's business would come to a screeching halt. It would not be able to pay back its bank loans, resulting in the demise of the business."

ATF claims it has suffered "extreme hardship and actual and irreparable damage" and that injunctive relief is the only option.

It seeks a permanent injunction to restrain the city from doing anything that would render the ATF liens void - including foreclosing on subsequent tax liens.

It is represented by Joseph Camardo Jr., of Auburn, N.Y.

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