Tax Deeded Property: After the Collector's Deed Is Accepted

By Paul Sanderson

Part I of the discussion of tax deeded properties appeared in the October 2010 issue of New Hampshire Town and City. It addressed the process leading up to issuance of a tax deed. After a tax deed is accepted, a new set of issues arises.

Q. Assuming that the governing body has accepted the collector's deed of real estate, what happens now?

A. As the Supreme Court explained in First NH Bank v. Town of Windham, 138 N.H. 319 (1994), the issuance of the tax deed wipes away all of the encumbrances imposed against the real estate other than easements and restrictive covenants, and the product is a new and independent title to 100 percent of the land. As provided in RSA 80:91, "After the execution of a tax deed, the municipality may treat the property in all respects as the fee owner thereof, including leasing or encumbering all or any portion of the property, without any accountability to former owners, except that the proceeds of any sale must be accounted for as provided in RSA 80:88."

Q. Does this mean that the governing body now has a duty to manage and protect the property?

A. Yes. One of the first steps the governing body should take is to notify their insurance company that they are the new owners of the realty, so that proper casualty and liability coverage may be obtained. Hopefully, as part of the process of electing to accept the deed, they made reasonable inquiries to assure that the land was not environmentally contaminated. If the land is vacant and unimproved, there may be little or no additional action required to manage the property. However, if the property is improved and persons reside there, the situation is more complex.

Q. If someone is still there, we can just send the police over to make them leave, right?

A. Wrong! The residents are now tenants of the municipality, and they have all of the rights granted to tenants by New Hampshire law. This means that if there is a decision that the resident should stay, a written tenancy agreement should be drafted and executed by all parties, describing the right of the municipality to receive rent. If the decision is that the resident should be required to leave, the tenants are entitled to a process that is in strict compliance with the landlord-tenant statutes found at RSA 540, 540-A and 540-B and the housing standards found at RSA 48-A. If errors are made in this process, the statutes may allow the tenant to recover the sum of $1,000 per day in damages against a landlord. Therefore, we strongly recommend that the municipal attorney be contacted for assistance before the eviction process commences.

The decision as to whether the resident should be asked to leave is often difficult. Sometimes, the resident will be the landowner who lost the premises for financial reasons, but who may be able to garner the resources to redeem the property. At other times, the resident may be a client of the municipality's general welfare program, and this housing may be the least expensive option to meet this person's needs. Or, the landowner may be a nonresident investor, and the loss of the property is simply the end result of a poor investment decision. The property may require significant repairs or upgrades to be made reasonably safe and sanitary. Even if the current needs for repairs are small, the duty of maintenance is ongoing and involves the interior and exterior of the buildings, heating system, water and sewer or septic service, and grounds. Property management is a significant and ongoing task that comes with all property ownership.

Q. We don't want to be a landlord; we simply want the tax obligation paid and for the property to be productive again. Do we have other options?

A. Yes. If the legislative body has previously given authorization to the governing body in accordance with RSA 80:80, the property can be offered for sale. The statute gives the governing body wide discretion to specify the terms of the sale, reimpose its tax lien and even take a mortgage on the property to secure repayment of the sums due. The standard used to guide this discretion is "as justice may require." Thus, on a case-by-case basis, the governing body can utilize different approaches they determine are required to resolve the problem and make the property productive again. Note that this statute gives the governing body the authority to alter the terms upon which it may be offered back to the former owner, again using the standard of "as justice may require."

Q. If the property is to be sold, do we have any continuing obligations to the former owners?

A. Yes, but only for a period of three years from the date of recording of the tax deed. During this period, RSA 80:89 requires that at least 90 days prior to offering the property for sale, a notice be given to the former owner describing the terms of the offering, and the right of the former owner to repurchase the property. Within 30 days of that notice, the former owner can come forward and pay all back taxes, interest, costs and the penalty imposed by RSA 80:90. The penalty is 15 percent of the assessed value as of the date of the tax deed, adjusted by the equalization ratio for the year of the tax assessment. If the former owner elects to redeem under this law, any encumbrances that were wiped away by the collector's deed are reinstated. Obviously, use of this section would be very expensive for a former owner. For example, the penalty alone is $15,000 for each $100,000 of assessed valuation of the property.

If the former owner is unable or unwilling to redeem the property following this notice, the property may be sold upon such terms as the governing body determines using the standard provided in RSA 80:80. If the proceeds realized are greater than the amount needed to pay the back taxes, interest, costs and penalty, any additional funds must be paid to the former owners. If there are liens or other encumbrances which were wiped out by the collector's deed, the funds must be deposited with the Superior Court using a device called a "bill of interpleader," which permits the court to determine how these proceeds will be distributed among the various claimants.

The process is complex, and a number of years may pass before the matter is completely resolved for a parcel of land. Thankfully, most unpaid tax issues are resolved short of the collector's deed, and still fewer cases involve the sale of tax deeded property. During this time, members of the governing body are likely to change, as may other elected officials such as the tax collector. That is yet another reason why we suggest that the municipal attorney be involved in these matters to provide a measure of continuity as the steps in the process are taken.

Local officials in NHMA-member municipalities may contact LGC's legal services attorneys for more information on this and other topics of interest Monday through Friday 8:30 a.m. to 4:30 p.m. by calling 800.852.3358, ext. 384. School officials should contact the New Hampshire School Boards Association attorney at 603.228.2061.