Good news! Your condo association is getting a real estate tax rebate following a successful “tax certiorari” appeal, which many condo boards routinely file on behalf of the unit-owners. It’s an annual rite of spring, when co-ops and condos alike challenge the often too-high assessments that the New York City Department of Finance (DOF) places on buildings in order to calculate how much real estate tax each cooperative building or condominium unit must pay.
But now, what do you do with it? Tax rebates are easy for co-ops boards to handle: each shareholder pays his or her share of the real-estate tax as part of the monthly maintenance charge. So, any rebates go into the corporation’s coffers, benefiting each shareholder proportionally.
Condo associations are different. Since each apartment is a separate piece of real estate, every unit-owner pays his or her real-estate taxes to the city individually. However, most boards have authority under their bylaws to file appeals on behalf of all residential units, says attorney Joseph B. Giminaro, a special counsel at Stroock & Stroock & Lavan. Therefore, while the city issues rebate checks to the condominium association as a whole, the association, by law, must pass along to each unit-owner his or her share.
Along with the rebate, the DOF also provides each condo association’s attorney with a printout – called a “consolidated check notice” – that gives the rebate amount for each “lot” (each parcel of real estate, which includes individual condo apartments). Logically, you should be able to determine shares by reviewing the list and cutting a check to each unit-owner.
Forget logic. This is New York. “It’s very ambiguous, and there are people who do it a number of different ways,” says one veteran tax-certiorari attorney who asked for anonymity after habitually encountering “tons of misinformation” and not wishing to enter the fray. The city, he explains, doesn’t necessarily send one lump-sum check but may send several that are spaced apart and may also send a rebate for more than one tax year at once.
That means some units will have been sold during that time – and so a single apartment can have past and present owners, each due a varying amount.
In that case, what most condo associations do, taking their cue from the co-op model, is charge each unit-owner an assessment roughly equal to his or her rebate on the consolidated check notice. “In the past eight years, every building I’ve worked with has accessed it back,” says Anthony Reinglas, a property manager with Bradford N. Swett Management.
“A board of managers can pass an assessment whenever it chooses,” notes Carl Cesarano, a principal in the CPA firm Cesarano & Khan. “Let’s say we get a $50,000 refund. As a condo board, we feel we have a need for $50,000 more in the treasury. We have an assessment” based, for example, on some percentage of the monthly common charge the each unit pays.
Because of tax exemptions for various groups (such as seniors and veterans), taxpayers living in identical apartments paying identical common charges might have owed different tax amounts and so are due back different rebate amounts. So, if the assessment is $150, based on a percentage of the common charge, “the unit-owner who’s due [a] $200 [rebate] gets $50,” says Cesarano, “and the unit-owner who’s due $100 owes $50.”
“Sometimes it’s not a cash refund,” observes attorney Geoffrey Mazel, a partner in Hankin & Mazel, “but a credit against future [common-charge] payments.”
The 232-unit, 50-story Highpoint at 250 East 40th Street in Manhattan created such an assessment. “Each unit-owner’s appropriate share … will appear as a credit on the February 2009 condominium fee bills … based upon the actual tax refunds due to each unit-owner,” Timothy J. Fine, executive vice president of Charles H. Greenthal Management, wrote in a January 16 letter to unit-owners, announcing the result of a multiple-year tax rebate. Simultaneously, the board imposed a special assessment. “In the case of almost all the unit-owners, their share … will be approximately covered by the real estate tax refund credit described above,” Fine explained in the letter. Those exempt from paying tax or who hadn’t paid their taxes had to pay their share of the assessment out-of-pocket.
Any condo board or unit-owner can check the city’s figures for themselves at a public, online site that gives each unit’s assessed value, tax bill and rebate amount (see sidebar below).
Are the city’s figures accurate? “I’ve had some good results when people call us, such as brokers setting up a listing, asking us about taxes, which their prospective buyers are going to want to know, and we’ve referred them to the Department of Finance,” says Fine. “We’ve gotten calls from unit-owners who want verification, and we’ve referred them” to the DOF. “Over the past three or four years, I have gotten no blowback from the numbers that the city gave people.”
When apartments change hands, however, some hands get shortchanged. How does a condo board responsibly – and legally – divvy up the tax rebate when a prior unit-owner may have sold his condo and moved away two or three years ago?
“To the extent that people [sell their units and] move, you could have issues about the requirement for due diligence for finding these people,” admits Cesarano. “Is the board really responsible for scouring the country? When there’s an asset that belongs to an individual, what do you do if you can’t find that individual?”
Some boards – after having their accountant or a resident volunteer with accounting experience figure out the rebate percentages, based on how much each owner paid during the covered period – set up an escrow account “in case these people resurface,” says Cesarano.
Not everyone does it this way. “Depending on the time that’s elapsed, if we’re talking a couple months, the former unit-owner would get the check,” says Reinglas. “If you’re talking a year later, it’s a different story; I just let the check die.” It then reverts to New York State. Under the 1943 Abandoned Property Law, unclaimed tax-assessment refunds are turned over to the state after five years.
But what is a condo board legally – and ethically – required to do to locate prior unit-owners due part of a tax rebate? “I’m not aware of any legal requirement for a condo to use heroic efforts to track people down,” says veteran real estate attorney Bruce Levinson, in private practice in Manhattan. “If you use the last known address, I think you will have fulfilled your legal obligations. As a courtesy, you might ask the current owner to look at their contract of sale and see if there’s a forwarding address for the seller, or alternatively, an address for the attorney who handled the closing for the former owner and might still be in touch with them.”
Attorney Martin Friedman, a partner at Sonnenschein, Sherman & Deutsch, agrees. “The condo board should send a letter to the last known address of the prior owner. Presumably, they got a forwarding address at the closing.”
Beware: if the board gives the rebate to a new owner who hadn’t paid the original tax, that’s considered “unjust enrichment” under the law. Indeed, notes Levinson, “Ofttimes, there’s a rider in the contract of sale obligating the buyer to remit to the seller any refunds received post-closing, which arose out of taxes paid prior to transfer of ownership.”
“I don’t think anyone could make the case that locating the sellers and sorting out these few transactions is any more difficult than correctly apportioning refunds to those who have paid,” says one former Manhattan condo board president. “I know if I were the guy left out and missed a $2,000 refund, I’d be plenty upset.” (For more, see sidebar, below.)
That said, it’s every taxpayer’s responsibility to be aware of his or her own tax payments and to check the publicly available record occasionally to see if one’s old condo unit was issued a rebate.
Ultimately, it comes down to transparency. Tax assessments, rebates, and pro rata calculations based on calendar dates and exemptions are mathematically highly complicated. Boards and their professionals frankly may not get these things perfect. But they can certainly make their processes and reasoning clear.
ASSESSMENTS & UNCLAIMED REFUNDS
The state comptroller is New York’s custodian of abandoned property, which that office tries to return to the rightful owners. It even allows for online search through the comptroller’s website at www.osc.state.ny.us.
The February 2006 Comptroller report, Unclaimed Funds at www.osc.state.ny.us/reports/other/unclaimedfunds.pdf says that in fiscal year 2004-05 alone, “over 197,000 accounts were processed, resulting in approximately $135.5 million in cash being returned to owners of unclaimed property.” At the comptroller website, boards can even download the “Handbook for Reporters of Unclaimed Funds.”
To check on your assessment itself, go to: http://webapps.nyc.gov:8084/CICS/fin1/find001i.