The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.
On occasion, municipal staff and officials have told us they don’t intend to sell properties taken by tax deed for non-payment of municipal property taxes. They believe that doing so would be met with public resistance, that they cannot sell properties that lack “clear title,” or that it would result in only negligible proceeds to their town or city.
When done thoughtfully, selling properties by tax deed is a great benefit to the municipality, the former property owners, and the community, and can be accomplished without exposing the municipality to undue legal risk. Perhaps most importantly, not conveying such properties could run afoul of state and federal law.
Municipalities should dispose of tax deeded properties promptly
Before 2020, municipalities were incentivized to hold onto tax deeded properties for several years. Under RSA 80:89, VII, the municipality’s obligation to distribute proceeds in excess of what the municipality was owed for back taxes, interest, costs, and penalty to the former property owners terminated three years after the date of recording of the tax collector’s deed. By simply waiting out the requisite period, the municipality would realize a windfall if a property sold for more than the municipality was owed. See RSA 80:89; RSA 80:90.
In 2020, however, the New Hampshire Supreme Court ruled that this law violated the takings clause of the state constitution because towns and cities were not providing “just compensation” to the former owners. See Polonsky v. Town of Bedford, 173 N.H. 226 (2020); see also Tyler v. Hennepin County, 598 U.S. 631 (2023) (reaching a similar conclusion under the U.S. constitution). Now, when a property is taken by tax deed and later sold, the former owners are always entitled to excess proceeds resulting from the sale after the appropriate payments have been made to the municipality and to lienholders that existed at the time of the tax deed.1
In our experience, former owners often receive tens of thousands of dollars from the sale of a tax deeded property. This money can, and has, helped these people have a fresh start. In some cases, selling a tax deeded property at a well-advertised auction probably resulted in a better financial outcome for the former owners than if they had sold the property through a private real estate agent before it was taken by tax deed.
Municipalities should no longer wait to convey their tax deeded properties.2 If a property is sold soon after the property is taken for non-payment of taxes, it typically will be easier to locate the appropriate recipients and distribute any excess proceeds to them. Further, the longer a tax deeded property is held by the municipality, the less the former owners and lienholders likely will receive; pursuant to RSA 80:90, I(a)-(b), the municipality is entitled to recover all taxes and interest that would have accrued but for the municipality’s ownership of the property. And, as practical matter, if the property contains one or more structures, the property almost certainly will diminish in value due to lack of upkeep. This not only could harm the former owners’ and lienholders’ total recovery, but also will make it less probable that the municipality will recoup everything it is owed from the sale proceeds.
Selling tax deeded properties can yield major financial benefits to the municipality
Tax deeded properties are frequently less desirable than your average piece of real estate. Many of our auctions have included parcels with dilapidated buildings, no known road access, minimal acreage, and difficult terrain. If a property had been more marketable, the former owner likely would have made great efforts to pay the back taxes, or a mortgage lender would have foreclosed on the property before it was taken by tax deed. Despite a tax deeded property’s potentially undesirable traits, as well as the above-mentioned cap on how much municipalities may recover from the sale of such properties,
the towns and cities we represent still realize substantial revenue from a well-advertised auction. Although certain tax deeded properties may be unappealing to traditional homebuyers, they may still be attractive to abutters, contractors, and real estate investors. Because of this, in our experience, the average multi-parcel auction regularly results in the municipality realizing hundreds of thousands of dollars that can be used to help offset budget shortfalls, fund projects, or ease local taxes. More importantly, these dormant, non-tax-revenue-generating properties are back on the tax rolls and providing regular income to the municipality once more.
Returning tax deeded properties to private ownership can help rejuvenate the community
Tax deeded properties can be a blight on the municipality. Because these properties may have been unoccupied for years, they are frequently unkempt and littered with debris. They can also be attractive sites for vandalism and other illicit behavior. Such properties diminish surrounding property values and detract from the broader community.
Selling tax deeded properties to private individuals is the best way to revitalize them. In our years of auctioning municipal real estate, we have seen many success stories of skilled contractors purchasing neglected tax deeded parcels, rehabbing the structures, and selling the properties to families or businesses. Along the way, everyone realizes a benefit—the municipality is reimbursed for what it was owed, the former owners and lienholders receive the excess proceeds, the contractor receives compensation for their time and investment, and the ultimate purchaser enjoys a property that otherwise would have been unavailable.
Selling undeveloped tax deeded parcels provides similar benefits to the community. Abutting landowners often purchase these lots to provide additional privacy or to simply increase the size of their property.3 Larger vacant parcels have offered opportunities for residential development, increasing the municipality’s tax base and helping to address New Hampshire’s ongoing affordable housing crisis.
Municipalities can shield themselves from legal risk when selling tax deeded properties
In an ideal world, every town and city would keep perfectly detailed records about its tax deeded properties. But in practice, this is not the case for even the most scrupulous municipal staff—particularly for tax deeded properties that were taken many years ago. Such incomplete records can generate uncertainty as to whether the characteristics of these properties are consistent with the information contained in the municipality’s tax cards and whether the properties have marketable title.
Although the New Hampshire Supreme Court has been clear that municipalities must follow the appropriate procedures when taking and selling tax deeded properties, see, e.g., J & N Fieldstone Supply, Inc. v. BHC Development Corp., 146 N.H. 500 (2001), it has also stated that such
properties ought to be readily conveyable, see Marshall v. Burke, 162 N.H. 560 (2011) (recognizing the “strong public interest in insuring the ready marketability” of tax deeded real estate). This is especially true in today’s legal landscape because, if towns or cities neglect to sell their tax deeded properties, they may be unwittingly committing a constitutional violation by not attempting to provide “just compensation” to the former owners and lienholders via
excess proceeds distributions.
To balance these considerations, municipalities should seek to convey their tax deeded properties with legal protections against future claims.
First, tax deeded real estate should always be conveyed “as-is, where-is, with all faults.” This protects a municipality from claims that the property did not comply with the municipality’s disclosures (or non-disclosures) about the property’s characteristics. This is particularly important if a purchaser intends to build on the property, but the property ends up being unsuitable for development due to zoning regulations, environmental considerations, or other limitations.
Relatedly, all tax acquired properties should be sold with the disclaimer than interested buyers must do thorough independent due diligence before the sale. That way, potential purchasers are on notice that it is up to them—not the municipality—to determine whether there are any concerns surrounding the property.
Finally, a municipality should only convey tax deeded real estate via a “deed with no covenants” (rather than a warranty deed or quitclaim deed). This form of deed provides no representations that the property is being sold is free of liens or with marketable title. The property may, in fact, have no liens or title issues, but the municipality should not make any such representations about the quality of title being conveyed or it may expose itself to claims from the purchaser or subsequent property owners.
By taking these and other protective measures the municipality is, in essence, shifting the risk to the purchaser. Generally, however, the purchaser is willing to assume this potential liability because it is preferable to having no opportunity to buy the property. In practice, purchasers of tax deeded properties will address potential defects after acquiring the property by obtaining releases from the former owners and lienholders, filing a quiet title action in New Hampshire Superior Court, and pursuing other curative measures.
In most cases, the former owners and lienholders prefer that the municipality sell tax deeded properties with the above conditions, even though doing so may reduce the overall sale price. Generally, these parties would rather have the opportunity to receive excess proceeds resulting from the sale sooner than waiting months or years for the municipality to take all necessary steps to convey the property with clear title and full warranties. Attempting to resolve all property issues before the sale also likely will reduce the amount of excess proceeds available—the municipality will, as noted above, accrue additional back taxes and interest as long as it owns the property, and it probably will incur thousands of dollars in legal fees and other costs that will be reimbursed first before the lienholders and former owners receive any funds. See RSA 80:88; RSA 80:90, I.
Municipalities should consult with legal counsel for problematic properties
Even when employing the protective measures described above, a tax deeded property may have known defects or unusual problems that should be addressed prior to the sale because it could expose the municipality to legal risk. Such concerns include (among others): People occupying the property at the time of sale; federal mortgages that cannot be extinguished by operation of a tax deed; known former owners, mortgage lenders, and other required
recipients that did not receive notices of the impending tax deed and sale; and unresolved rights of first refusal held by third parties.
If these or similar issues arise, the municipality should contact legal counsel to determine the best approach, which may include disclosing the issue in the municipality’s sale materials, or withholding the property from the sale, resolving the problem, and attempting to sell it later. As noted above, the legal fees and other costs incurred in pursuing such remedies are recoverable assuming the property sells for a sufficient amount. See RSA 80:90, I(d).
Converting tax deeded properties into permanent municipal real estate can be a great benefit to the community … if done properly
In most instances, tax deeded properties will be of little interest to the municipality due to their location or characteristics. For these parcels, typically the best approach is to sell them in a well-advertised auction so they can resume generating tax revenue for the municipality.
That said, a town or city may want to keep a tax deeded property permanently for public use, such as a police station, recreational fields, or a nature preserve. Municipalities are permitted to do this, see RSA 80:80, V, but given the changes in the law mentioned earlier, they must follow the appropriate procedures. If a municipality converts a tax deeded property into permanent public property without attempting to pay the former owners and lienholders the difference between what the municipality is owed and the probable market value of the property, it risks committing an unconstitutional taking because it is not seeking to provide “just compensation.” See Tyler v. Hennepin County, 598 U.S. 631 (2023).
If your town or city is considering converting tax deeded property to permanent municipal real estate, be sure to consult with legal counsel before doing so. It may require extra steps, but it is worthwhile to assure that the municipality is not violating the law when increasing its public spaces.
Conclusion
Municipalities now have every incentive to dispose of their tax deeded properties soon after taking them. Doing so will maximize the direct and indirect financial benefits to the municipality, the former owners and lienholders, and the community as a whole. It also relieves the municipality of concerns about whether it is complying with state and federal court decisions regarding government takings of private property. And with the proper protections in place,
the municipality can realize these many benefits without exposing itself to unnecessary legal risk.
Weston R. Sager and Richard D. Sager are partners at Sager & Smith, PLLC and co-owners of NH Tax Deed & Property Auctions. Both are dual-licensed attorneys and auctioneers with experience in municipal law, real estate law, and auction law. Weston may be reached at weston@sagersmith.com or weston@nhtaxdeedauctions.com, and Rick may be reached at rick@sagersmith.com or rick@nhtaxdeedauctions.com.
The information contained in this article is not intended as legal advice or as a legal opinion.
1 RSA 80:89, VII still provides in relevant part that the “duty of the municipality … to distribute proceeds pursuant to RSA 80:88 … shall terminate 3 years after the date of recording of the deed.” Although the New Hampshire Supreme Court determined this three-year limitation for returning excess proceeds to former owners was unconstitutional, the New Hampshire legislature has yet to update the statute to reflect this judicially imposed change in the law. Similarly, the state legislature has not updated RSA 80:91—which affords municipalities broad protections in connection with tax deeded properties—since Polonsky and Tyler were decided. Municipalities should not rely on this statute because it may have been directly or indirectly invalidated by these decisions.
2 If a property is sold soon after the property is taken for non-payment of taxes, it typically will be easier to locate the appropriate recipients and distribute any excess proceeds to them. Further, the longer a tax deeded property is held by the municipality, the less the former owners and lienholders likely will receive; pursuant to RSA 80:90, I(a)-(b), the municipality is entitled to recover all taxes and interest that would have accrued but for the municipality’s ownership of the property. And, as practical matter, if the property contains one or more structures, the property almost certainly will diminish in value due to lack of upkeep. This not only could harm the former owners’ and lienholders’ total recovery, but also will make it less probable that the municipality will recoup everything it is owed from the sale proceeds.
3 On occasion, members of the public have expressed concern that selling vacant properties would nudge adjacent landowners over the current use acreage threshold, reducing the municipality’s overall tax base. See RSA Ch. 79-A. This should not be a material consideration of the municipality when selling tax deeded properties for several reasons. First, the most valuable, developed land would remain fully taxable even if other portions are placed in current use. Second, having a new property in current use likely would only delay payment to the town. Assuming the property owner will eventually take actions that would remove all or a portion of the land from current use, the municipality would receive the benefit of the land use change tax. See RSA 79-A:7. Finally, even if the sale of a vacant tax deeded property could result in a modest reduction to the municipality’s tax base in the near term due to a new current use designation, this does not relieve the municipality’s obligation from providing “just compensation” to the former owners and lienholders of the tax deeded property.