Court of Appeals Reaffirms Constitutionality of In Rem Foreclosure Proceedings

On February 14, 2023, the Court of Appeals issued a decision in Hetelekides v. County of Ontario, 2023 NY Slip Op. 00803, reaffirming the constitutionality of in rem foreclosure proceedings, explaining:

Plaintiff commenced this action in Supreme Court alleging that the in rem foreclosure proceeding was a nullity and that defendants had violated her due process rights; she also asserted additional claims under 42 USC §§ 1983 and 1988, contending that the County had adopted a policy, custom, or practice precluding the Treasurer from providing adequate due process to persons with interests in real property. Following a bench trial, Supreme Court rendered a verdict in plaintiff’s favor, except as to the federal statutory claims, concluding that the Treasurer’s mailings failed to comply with RPTL 1125 because they were addressed to decedent rather than his estate or plaintiff and that the foreclosure proceeding was a nullity because it was brought against a deceased person.

The Appellate Division modified the judgment, on the law, by vacating those parts that declared the foreclosure proceeding a nullity and granted plaintiff monetary relief, and, as so modified, affirmed. . . . [T]he Court rejected the Second Department’s reasoning in Matter of Foreclosure of Tax Liens (165 AD3d 1112 [2d Dept 2018] [Goldman], appeal dismissed & lv denied 35 NY3d 998 [2020])—which had held that a tax foreclosure proceeding may not be maintained against a deceased person—because the proceeding was in rem against the property and not in personam against decedent personally. Plaintiff appealed as of right on constitutional grounds and alternatively moved for leave to appeal. We denied the motion for leave as unnecessary.

Plaintiff, relying on Goldman, first alleges that the in rem foreclosure proceeding was a nullity, and that County Court therefore lacked jurisdiction to enter a default judgment, because defendants had brought the action against a deceased person. Defendants respond that the in rem foreclosure proceeding was brought against the property, not against the owner, and thus County Court had jurisdiction.

Plaintiff’s contention that the foreclosure proceeding was a nullity is based on a misunderstanding of the difference between in rem and in personam jurisdiction, and a conflation of those differences with respect to notice requirements. Distinctions between actions in rem and those in personam are ancient and originally expressed, in procedural terms, what seems really to have been a distinction in the substantive law of property under a system quite unlike our own. In New York, the CPLR makes clear that those distinctions continue to exist: A court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore. In their modern form, those distinctions rest upon the nature of the action and the source of a court’s authority to enter judgment.

An action in personam, giving the persons all the rights and remedies incident to a judgment in such action, is very different from a proceeding by special process in rem, either against specified property, or the property at large of the debtor. An action or proceeding in rem has for its subject specific property which is within the jurisdiction and control of the court to which application for relief is made. The foundation of in rem jurisdiction is physical power, and in an action in rem, a court obtains jurisdiction over the res—the property at issue in the proceeding. Thus, an action in rem proceeds against such specific property and its object is to have the court define the rights therein of various and conflicting claimants. The result of such an action is a judgment which operates upon the property and which has no element of personal claim or personal liability.

In contrast, an action in personam is initiated against a person to determine their personal rights and obligations. Thus, a judgment in personam imposes a personal liability or obligation on one person in favor of another. In such an action, a state court bases its jurisdiction upon its authority over the defendant’s person.

This Court has long recognized that an action for foreclosure is in the nature of a proceeding in rem to appropriate the land. Indeed, this Court has clearly described tax foreclosure proceedings as being governed by a detailed in rem foreclosure procedure set forth in RPTL article 11. The legislative history of article 11—originally enacted as article 7-a of the Tax Law by chapter 692 of the Laws of 1939—confirms that tax foreclosure proceedings involve proceeding directly against the land instead of the owner of the taxable real property.

Nevertheless, plaintiff, relying on Goldman’s reasoning, contends that decisions of the United States Supreme Court and this Court have eroded the distinction between actions in rem and in personam. That argument is meritless as it proceeds from a misunderstanding of fundamental legal principles regarding jurisdiction and notice. First, the assumption that a civil action or proceeding must be brought against a person is ahistorical and contrary to established law. Both this Court and the Supreme Court have continued to recognize the usefulness of distinctions between actions in rem and those in personam in many branches of law. Indeed, CPLR 301 provides that a court may maintain jurisdiction over property as had been done under the common law, including through an action in rem. The legislature did not abrogate this common understanding of foreclosure law and in rem jurisdiction when it enacted RPTL article 11. Of course, a dead person cannot be sued but, as long understood, an action in rem, like the tax foreclosure proceeding here, is not an action against a person, but rather the subject property on which the tax was charged and due. Put another way, the County did not sue the owner of the property; it merely took steps to notify the owner and others with a potential interest in the property so that they could protect their interests if they so chose.

Second, plaintiff and Goldman’s reliance on due process and notice by publication case law is misplaced. Before Mullane, notice by publication was good enough to satisfy due process in proceedings in rem.

Several justifications were commonly advanced for the sufficiency of constructive notice in in rem proceedings. First, nonresident landowners—who themselves could not be served—often had local caretakers to watch over their land and advise them of published notices affecting their property. Second, all landowners were charged with a duty to keep informed about the status of their land and presumed to know the consequences of nonpayment of taxes. Third, in in rem proceedings, only the land itself was in issue; affected individuals did not have to be present. Finally, costly notice requirements impeded the State’s vital interest in collecting its revenues quickly and inexpensively, making constructive notice a reasonable balance of the competing interests.
Mullane and subsequent case law, however, recognized that service by publication amounts only to a gesture, and when notice is a person’s due, process which is a mere gesture is not due process. That case law marked a departure from the early justifications underlying the conclusion that published notice was due notice, and a recognition that the caretaker theory, the presumption that every landowner read every newspaper of general circulation, and the notion that only the land itself was affected, had become increasingly unrealistic. Contrary to Goldman’s conclusion that the United States Supreme Court has explicitly rejected the fiction that an in rem proceeding is not asserted against any individuals, but only against the property itself, the Court has merely recognized that property owners and interested parties are owed adequate process where their property rights are at stake through an in rem foreclosure proceeding. Put another way, case law relating to notice and due process set forth requirements of service imposed in the modern era to address concerns of due process. These are not matters which go to the jurisdiction of the court to entertain the action on its merits.

In sum, we reject plaintiff’s claim that the tax foreclosure proceeding is a nullity. Goldman rests on an erroneous legal premise and should not be followed.

(Internal quotations and citations omitted).

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