Council presses corporation counsel over foreclosure surplus funds; courts deemed prior payouts a 'gift of public funds'

A contentious exchange in the finance committee focused on surplus proceeds from in-rem foreclosures and whether prior council guidance and corporation-counsel advice led to residents losing funds. Council members said they were advised during earlier policy changes that homeowners would still be able to reclaim surplus proceeds; several said those assurances influenced their votes.

Corporation Counsel explained the legal history and recent court rulings. "There have been judicial decisions where the court said if the city sought to distribute those proceeds because they were at the time a sale of city property, then it would be a gift of public funds," the counsel said, summarizing rulings tied to the city's in-rem process and noting a state-law amendment that amended the Real Property Tax Law procedures.

Council members repeatedly asked whether proceeds from the earlier in-rem (referred to in committee as in-rem 53) had been escrowed and where that money went. The counsel said they found no escrow set aside and that funds were treated as city proceeds and likely went to the general fund. "I don't believe that anything is held in escrow," the counsel said.

Council members pressed for remedies and asked whether the city could petition courts or pursue legislative relief; corporation counsel said the courts had rejected retroactive remedies and that, for past auctions where the city took title and sold property, prior owners and creditors' interests were cut off under the law and judicial decisions found remittal to prior owners would be a constitutional violation. Several council members requested a formal resolution and additional staff work to track the prior proceeds and to prevent recurrence.