A court says the city, not homeowners, must prove who owes the second-home surcharge
New York City must cancel roughly 17,000 notices mailed under its new pied-à-terre tax and redo the rollout, a state judge ruled Tuesday. The judge found the city unlawfully made homeowners prove they live in their own homes. The city appealed within hours, which triggered an automatic stay and keeps the surcharge moving for now.
Justice Wayne Ozzi of Richmond County on Staten Island left the tax itself intact. His Sept. 29 ruling targets how the Department of Finance identified who owes the surcharge. It lands one week before the Oct. 6 exemption deadline.
"No crime is involved here, but homeowners are being substantially harmed and penalized needlessly by [the city's] method of implementing the tax law," Ozzi wrote in his 22-page decision.
What the court told the city to fix
The order voids the mailed notices and the exemption process, which Ozzi called "unlawful burden shifting." The city must also take down a roll of about 900,000 properties it posted online in July. It may replace that roll with a narrower list of homes actually subject to the surcharge.
Any new notices must explain how each property was flagged and disclose the records behind that determination.
"We're gratified that the court has recognized we were right all along. The fact is that this administration failed to follow state law when it burdened New York City homeowners with proving they live in their own homes or be on the hook for paying a new surcharge," said Randy Mastro, the attorney for three homeowners who said their primary residences had been wrongly identified.
Mayoral spokesman Matt Rauschenbach called the decision wrong. "The pied-à-terre surcharge is about a basic principle of fairness: if you can afford a luxury second home in New York City, you can afford to pay your fair share for the schools, streets and parks that make this city work," he said.
Why co-op borrowers should pay attention
Mayor Zohran Mamdani announced the pied-à-terre in April with Gov. Kathy Hochul's backing, pitching it as a way to close the city's budget gap by taxing wealthy second-home owners. State lawmakers passed it on May 27, and it took effect July 1.
The ruling matters to mortgage brokers well below the $5 million headline threshold. For the 2026-27 and 2027-28 tax years, it applies to one- to three-family homes valued above $5 million and to condo and co-op units valued at $1 million or more, according to the Department of Finance.
Officials projected $500 million a year in revenue. The New York City Comptroller estimates $340 million to $380 million.
Rates for those units range from 4% to 6.5% of market value.
Co-ops were always going to be the hardest piece of the rollout. In June, veteran broker Melissa Cohn predicted the luxury market would absorb the tax. Even then, the William Raveis Mortgage regional vice president warned about how co-ops would be tracked.
"The co-op building has one deed, so someone's buying a second home as a co-op, how they're going to be able to track that is going to be a little bit more complicated," Cohn told Mortgage Professional America.
"You have to make sure that they're not taxing the building and they're actually just taxing the individual buyer."
The legal fight is widening. Former Commerce Secretary Wilbur Ross and casino developer Steve Wynn sued Monday to strike down the tax as unconstitutional. A group of Suffolk County homeowners and a co-op filed a separate challenge against New York State on Tuesday. Those suits follow President Trump saying he was exploring federal options to block the tax.
Buyers have kept coming anyway. Manhattan luxury condo activity posted its best quarter in years this spring, even with the surcharge approaching.
According to the Compass Q2 2026 Manhattan Market Report, contracts on properties priced between $10 million and $20 million surged 38.6% compared to the same period last year, while signings for the $20 million-and-above tier rose 25%.
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