Opinion
June 10, 1999
Cross appeals from an order of the Supreme Court (Hughes, J.), entered July 2, 1998 in Albany County, which denied a motion by defendant Fidelity National Title Insurance Company of New York to dismiss the complaint against it for failure to state a cause of action and plaintiffs' cross motion for partial summary judgment on the issue of liability.
Connor Connor (John Connor Jr. of counsel), Hudson, for appellant-respondent.
Donohue, Sabo, Varley Armstrong (Kenneth G. Varley of counsel), Albany, for respondents-appellants.
Before: CARDONA, P.J., PETERS, SPAIN, CARPINELLO and GRAFFEO, JJ.
OPINION AND ORDER
In September 1994, defendant Fidelity National Title Insurance Company of New York (hereinafter Fidelity) issued a certificate of title to plaintiff Adirondack Capital Management (hereinafter Adirondack) on property located in the Town of Manlius, Onondaga County, in connection with the latter's extension of a $300,000 loan to Alice Carney, Daryl Carney and Burnell Carney. The certificate of title certified that the Carneys had "good and marketable title to the premises" but indicated that the 1993 and 1994 State, county and city taxes were currently unpaid. The subsequently issued title insurance policy expressly excluded from coverage "1994 and 1993 State, town and county taxes * * * unpaid in the amounts of $61,970.79 and $70,793.46, respectively, and any additional interest and penalties".
Approximately one year prior to the September 1994 closing — on October 1, 1993 — the County of Onondaga had "sold" the subject property at a tax sale pursuant to the Onondaga County Tax Act for the sum of $66,786.28 and took a tax sale certificate for that year (see, Onondaga County Tax Act § 5 [¶ 98-833]; § 6 [¶ 98-834-98-835). It later assigned this certificate to a third party, which notified the Carneys in November 1996 of their right to redeem (see, Onondaga County Tax Act § 6 [¶ 98-836]; § 7 [¶ 98-837]; § 8 [¶ 98-838]). It was at this time that Adirondack first learned of the 1993 tax sale (as well as a similar tax sale in 1994) and the issuance of the tax sale certificate. On December 20, 1996, plaintiffs Richard T. Corvetti, president and sole shareholder of Adirondack, and Diane Corvetti purchased the 1993 tax sale certificate from its holder.
Plaintiffs then commenced this action against, among another, Fidelity regarding its failure to disclose the October 1993 tax sale. Fidelity moved pursuant to CPLR 3211 N.Y.C.P.L.R. (a) (7) to dismiss against it for failure to state a cause of action. The essence of Fidelity's motion is that the title insurance policy specifically excluded the unpaid 1993 taxes and, therefore, under the Court of Appeals' decision in Heidi Assocs. v. Lawyers Tit. Ins. Co. ( 67 N.Y.2d 1041), no liability could attach. Plaintiffs cross-moved for summary judgment on liability only. At issue before this court is Supreme Court's denial of both motions.
We first address whether, under the unambiguous language of the title insurance policy, the tax sale based on the 1993 unpaid taxes was exempt from coverage. Plaintiffs claim that although the policy excepted the 1993 taxes, it did not except the 1993 tax sale. Noting that an insurer has the burden of proving that a claim falls within a policy exclusion (see, e.g.,International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 327), we are of the view that Fidelity did so here (compare, Boxer v. Commonwealth Land Tit. Ins. Co., 185 A.D.2d 515, 517, appeal dismissed 80 N.Y.2d 972).
Plaintiffs implore this court "to make a determination as a matter of law whether the exception for the 1993 taxes excludes Fidelity's liability for losses caused by the 1993 tax sale". There being no factual questions which might preclude this court from making such a determination, we heed plaintiffs' request.
The obligations of a title insurance company are "to be determined by reference to the provisions of the policy of title insurance" (Cummins v. U.S. Life Tit. Ins. Co. of N.Y., 40 A.D.2d 639, 640); see, Rajchandra Corp. Here, Fidelity insured against loss or damage sustained by reason of, inter alia, title being vested other than as described in the policy. The policy unequivocally states that it "does not insure against loss or damage * * * which arise by reason of * * * [the] 1993 state, town and county taxes * * * and any additional interest and penalties" (emphasis supplied). In our view, the instant action falls squarely within this exclusion and, accordingly, plaintiffs lack a cognizable claim against Fidelity (see, Inavest Enters. v. TRW Tit. Ins. of N.Y., 189 A.D.2d 111;Heidi Assocs. v. Lawyer Tit. Ins. Co., 112 A.D.2d 844 [dissenting mem], revd on dissenting mem below 67 N.Y.2d 1041).
To the extent that plaintiffs attempt to avoid this clear and unambiguous exception by arguing that the Carneys were divested of title by virtue of the tax "sale" and issuance of the tax sale certificate, we are unpersuaded. Citing Canino v. Engelstein ( 43 N.Y.2d 922) and Matter of Ueck ( 286 N.Y. 1), plaintiffs argue that a tax sale is the equivalent of a legally effective transfer of title insofar as the property owner is concerned, and that the purchaser of a tax sale certificate acquires more than a lien on the property and in fact divests a property owner of title. This argument is legally unsound. While the acquisition of a tax sale certificate by a taxing district as the result of a tax sale extinguishes a taxpayer's personal liability for the unpaid taxes (see, e.g., Matter of Buffalo v. Cargill Inc., 44 N.Y.2d 7;Canino v. Engelstein, supra; Matter of Ueck, supra), we do not feel that these cases speak to the precise issue before this court; namely, whether the issuance of a tax sale certificate divests the owner of title to the property before the time period within which to redeem has expired.
In our view, the purchase of a tax sale certificate does not divest a property owner of title (see generally, Floreck v. Citibank [Cent.], 122 A.D.2d 574, 575, lv denied 69 N.Y.2d 601). In this respect, the case of Young v. Engelstein ( 53 N.Y.2d 973) is instructive. There, the owners of record failed to pay taxes for several years, prompting the City of Syracuse to annually sell the property at tax sales, bid the property on its own behalf and take tax sale certificates (see, Young v. Engelstein, 74 A.D.2d 1, 3, revd 53 N.Y.2d 973). The City of Syracuse, however, never actually implemented the steps to take title to the property under its tax act, although it clearly could have done so as the pertinent redemption periods had long since expired (see, id., at 3-5). In a dispute over who, as between the record owners of the property and the City of Syracuse, should be responsible for the demolition costs of an uninsured, fire damaged structure on the property, the Court of Appeals held that "[u]ntil such time as [the record owners] are in fact divested of title they remain responsible for carrying out the demolition order" (Young v. Engelstein, 53 N.Y.2d 973, 975, supra [emphasis supplied]).
As later noted by the Court of Appeals, the purchaser of property at a tax sale does not acquire "new and complete title to the land" until receiving a valid deed (Melahn v. Hearn, 60 N.Y.2d 944, 946). Moreover, the holder of a tax sale certificate has only an "inchoate right to a conveyance of the real property" (Matter of Blatnicky v. Ciancimino, 1 A.D.2d 383, 389, affd 2 N.Y.2d 943), which matures only in the event that the sum prescribed for redemption is not paid before the end of the redemption period and there is compliance with the notice and filing requirements of the Onondaga County Tax Act (see, Burden v. Max-Mor Dev. Co., 53 A.D.2d 1047, 1049; see also, Matter of Blatnicky v. Ciancimino, supra, at 388-389). This inchoate right is not absolute even in the event of nonredemption (see, Chase v. Senter, 41 A.D.2d 281, 284). Indeed, if the holder of a tax sale certificate does nothing within a five-year period, its certificate becomes void (see, Onondaga County Tax Act § 6 [¶ 98-836 (d)]). Given the holdings of these cases (see, Metropolitan Life Ins. Co. v. Union Trust Co., 283 N.Y. 33), we are unable to agree with plaintiffs' contention that divestiture of title automatically occurred as of the October 1, 1993 tax sale.
Cardona, P.J., Peters, Spain and Graffeo, JJ., concur.
ORDERED that the order is modified, on the law, with costs to defendant Fidelity National Title Insurance Company of New York, by reversing so much thereof as denied Fidelity's motion; said motion granted and complaint dismissed against Fidelity; and, as so modified, affirmed.