Bar News - June 17, 2015
Municipal & Governmental Law: Tax-Deeded Property: Misconceptions and Special Considerations
By: Richard Sager
Ever since the New Hampshire Legislature established RSA 80:88-91 in 1998, disposing of real property acquired by municipalities for unpaid taxes has been relatively straightforward.
As the law has been implemented, though, municipal officials and residents have raised questions that expose a number of common misconceptions and special considerations of which municipal staff and municipal law practitioners should be aware. Here’s a brief overview.
Must a municipality wait three years after the recording of the tax deed before disposing of a tax deeded property?
This is an often-asked question, and the answer is no. A municipality may dispose of tax deeded property soon after it is acquired. To do so, the municipality must send written notice by certified mail, return receipt requested, to the former owner (with a copy to all mortgagees of record at the time of the recording of the tax deed) at least 90 days prior to the sale. RSA 80:89, I. The “90-day notice” must set forth the terms of the offering for sale and advise the former owner of the right to repurchase the property.
Once a former owner receives the 90-day notice, the former owner (assuming he or she wants to redeem the property) must notify the municipality in writing within 30 days, stating the former owner’s intent to repurchase the property, indicating further that he or she “is ready, willing and able to pay all back taxes, interest, costs and penalty.” The mortgage holder has the same right to repurchase, and can add the amount paid by it to the mortgage principal.
Is a municipality required to obtain a buyer for the property before sending the former owner a 90-day notice setting forth the terms of the offering for sale?
No. RSA 80:89, I clearly states that “offering for sale” occurs when the municipality authorizes “its designee to sell the property.” It stands to reason that hiring an auctioneer or a real estate agent are two common ways to authorize a designee to sell the property. Of course, no sale can occur until the right to redeem expires.
Does the municipality keep all of the net proceeds from the sale of the tax acquired property?
Usually, but not always. If the sale of the tax-acquired property occurs more than three years after the municipality takes title by tax deed from the tax collector, then it is entitled to keep whatever the sale generates, without regard to the amount of tax liens and other costs owed to the municipality. RSA 80:89, III.
However, if the municipality sells the property within three years of recording the tax deed, its share is limited to past-due taxes, interest, penalty, and incidental expenses detailed in RSA 80:90. If the property sells for more than the sum total of these RSA 80:90 items, then the “excess proceeds” must be paid to the former owner or lien holders at the time the municipality took title. If there were no lien holders, the municipality may pay the excess proceeds directly to the former owner. Otherwise, the municipality is required to pay the excess proceeds into superior court in an interpleader action, and let the former owner fight it out with the lien holders.
Is a municipality required to sell or dispose of all tax deeded property it acquires?
No. It can keep any property it acquires by tax deed, assuming the former owner’s right to redeem has expired.
Does a former owner have a right to remain in the tax deeded property until the three-year right of redemption expires?
No. As soon as the tax deed is recorded, the municipality can treat the property as its own, subject to the former owner’s right to redeem. The municipality should, in most instances, commence eviction proceedings immediately to remove former owners. And, as discussed above, a former owner may not have three years to redeem, if the municipality seeks to dispose of it sooner.
It’s important to include an amount needed to redeem with the 90-day notice to the former owner. When a municipality sends a 90-day letter to a former owner, the municipality is prudent to include an indication of what amount is required to redeem the property. Often a former owner is unaware of the statutory requirement for payment of a “penalty,” which, at 15 percent of the property’s adjusted assessed value, will often exceed all other amounts due combined.
Thus, when a former owner writes to the municipality of his or her intent to redeem, including that he or she “is ready, willing and able to pay all back taxes, interest, costs and penalty,” the former owner and the municipality may not have a meeting of the minds as to the amount due, and precious time can be lost for a municipality intending to sell the property. And, naturally, the former owner will likely be gravely disappointed.
The 15 percent penalty: To waive or not to waive. Although the power to waive the RSA 80:90, I(f) penalty exists, a municipality should proceed with an abundance of caution before doing so.
Taking someone’s property – especially a home – for nonpayment of taxes is one of the most unpleasant jobs town personnel must undertake. The usual inclination is to try to return the property to the former owner as quickly as possible. But what if the former owner doesn’t have the financial resources to pay everything due all at once?
RSA 80:91 allows a municipality to grant more favorable terms to a former owner in accord with RSA 80:80, VI, which in turn requires the selectmen or mayor to reduce to writing the agreement for repayment. The terms can include taking back a mortgage, reimposing the tax lien(s), and altering the redemption amount, among others.
Granting more favorable repayment terms to some, but not all, former owners can create a political firestorm. Charges of bias, a “sweetheart deal,” and other such accusations are to be expected.
A board of selectmen or a mayor inclined to offer a former owner preferential treatment is well advised to do so only in very limited and special circumstances, and only when the special circumstances are spelled out in the written agreement. Any waiver should be limited to the penalty portion of the redemption amount, and under no circumstances should the amount of past due taxes and interest be waived.
Richard Sager is a partner with Sager & Haskell, where he practices in municipal law and real estate. He is also a licensed New Hampshire auctioneer and owner of Legal Eagle Auctions, specializing in auctioning tax deeded properties for municipalities. He can be reached by email or at (603) 538-8188.