Statute Allowing Municipalities to Retain Excess Proceeds from Sales of Tax-deeded Property Brought Under Constitutional Scrutiny

Polonsky v. Town of Bedford
New Hampshire Supreme Court Case No. 2016-0354
Thursday, June 28, 2018

The plaintiff, Richard Polonsky, failed to pay property taxes from 2008 – 2010, and it was therefore tax deeded to the Town of Bedford in 2011.

In 2013, the town gave Polonsky notice it intended to re-sell the property and provided a redemption amount.  Polonsky attempted to negotiate a repurchase without paying the “penalty” provided in RSA 80:90(I)(f), but the town rejected that offer. He did not redeem the property and remained in possession. The town did not seek to sell the property at that time.

However, in 2015, when the town resumed efforts to sell the property, Polonsky sued the town, raising several claims:

1. That the notice of right to repurchase was defective due to timing.

2. That the “penalty” to be collected was unlawful.

3. That the town was not entitled to retain the proceeds of a sale, even though three years had passed since the deed was recorded.  This was based on both a claimed statutory interpretation and a constitutional “taking” claim. Essentially, Polonsky was arguing that the town could keep only what it was actually owed—back taxes, interest, costs—and nothing more.

The superior court judge rejected the Plaintiff’s first two arguments, but agreed with Polonsky that the statute did not limit the former owner’s recovery to three years. In other words, despite the language of the statute, the trial judge determined that Polonsky could make a claim to recover “excess proceeds” of the eventual sale of the property, even though more than three years had elapsed.

Both parties appealed to the New Hampshire Supreme Court. In its decision, the Court agreed with the superior court that the town’s notice of repurchase process was not defective. The Court also disagreed with the superior court judge that the law allowed a prior owner to make a claim for excess proceeds from any future sale of the property.

However, despite that holding, the New Hampshire Supreme Court did not answer the constitutional question, sending the case back to the superior court for a hearing on the question of whether the town retaining excess proceeds would constitute an unconstitutional taking. The Court stated that the trial judge had not addressed the constitutional takings issue, including the following questions:

1. Whether the plaintiff has a vested property right that was taken from him without his consent or, if so, when the taking occurred.

2. If a taking occurred, whether the plaintiff received any compensation for that taking, or, if he did, whether the compensation received constituted “just compensation” under the New Hampshire Constitution.

3. Whether the plaintiff could convey his right to repurchase the property within the statutory three-year period and, if so, how his ability to convey that right affects the takings analysis.

4. Whether any of the town’s affirmative defenses apply, such as its contention that the plaintiff’s claim is barred by the statute of limitations.

The language of the decision means that the Court has left open the possibility that it could find the statute “unconstitutional” if there is another appeal after the superior court hearing. The Supreme Court also deferred any ruling on the constitutionality of the 10% “penalty” available under the statute.

Therefore, although this decision did not actually change the law, the decision calls into question the constitutionality of the law that allows municipalities to retain excess proceeds when the sale occurs more than three years after the date of tax deed.

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