Tax Deeded Property (Legal Q & A)
For this discussion, we will assume that the municipality uses the "optional tax lien procedure" set forth in RSA 80:58-:91. Further, we must assume that the landowner has not filed for protection under the federal Bankruptcy Code. If either of these assumptions do not apply to a specific fact situation, you should seek additional advice from the municipal attorney regarding these issues.
Q. How does a municipality enforce the obligation of property owners to pay property taxes assessed against their real estate?
A. Since the local property tax is the major source of revenue for each municipality, enforcement of the tax is an important obligation of local elected officials. The enforcement procedure is detailed in RSA Chapter 80. The New Hampshire Supreme Court has issued many opinions regarding the process, each of which requires strict adherence to the procedures contained in the statute. If errors are made by local officials at any point in the process, it may become more difficult, or even impossible, to collect the sums that are due.
Property taxes are based upon an "assessment" of value which must occur by April 1 of each year. If property taxes are not paid by the December 1 following their assessment, they are delinquent, and a lien arises. Pursuant to RSA 80:19, the lien continues for a period of 18 months, until October 1 of the subsequent year. The tax collector is required to give notice of sums due, and that the tax lien will be "executed" on a certain date. If the taxes are paid prior to the date the lien is "executed," the process ends. If not paid, the "execution" means that the lien is transferred over to the municipality, and the clock starts to run on the landowner's right to "redeem" the property. If the taxes remain unpaid for another two years, the tax collector is required by RSA 80:76 to tender a deed of the property over to the municipality. Before the deed can be tendered, additional notices in accordance with RSA 80:77 and 80:77-a must be provided to the landowner and the holders of any mortgage on the property.
Q. If the landowner has two years before the municipality can take the property, why does anyone pay their property taxes when due?
A. The statute contains several powerful incentives for landowners to pay the property tax on time. Because of these incentives, there are relatively few tax assessments which remain delinquent at the end of the two-year collection process.
First, under RSA 80:69, interest is charged at the annual rate of 18 percent on the unpaid balance of the tax. Also, as the procedure continues, there are substantial costs and penalties imposed for notices and recording charges, in accordance with RSA 80:77-:90. Most people are able to borrow the amount due for a much smaller interest charge, and elect to pay the taxes rather than incur the high interest, costs and penalties imposed.
Second, the property tax lien is special, because the statute gives it priority over all other liens. The "super priority" of the property tax lien means that the tax obligation moves ahead of every other obligation secured by the property, even a mortgage taken out years before the tax obligation arose. Failure to pay the tax means that the landowner is also in default of their obligations under a mortgage, and risks a foreclosure and loss of property to the mortgage holder. This super priority is the reason the statute requires the tax collector to give written notice of delinquencies to mortgage holders during the process. Mortgage holders take the failure to pay taxes very seriously, since they risk losing the security for the amounts they have loaned to the landowner. Mortgage holders often pay delinquent taxes to remove this risk, and add these amounts to the mortgage itself. If the landowner cannot pay, the mortgage holder proceeds with a foreclosure, recovers possession of the property and a new owner takes over the obligation to pay the tax.
Finally, if the "collector's deed" is accepted by the governing body of the municipality at the end of the process, title to the land passes to the municipality. At this point, it becomes public property, and the landowner has a limited legal right to require the municipality to convey it back. Pursuant to RSA 80:89, if the former owners pay all of the back taxes and penalties within three years of the date the tax deed is recorded, they may recover ownership subject to all of the encumbrances that were there at the time the property was taken. However, the municipality also has a right to offer it for sale to the public as soon as the tax deed is recorded, and, if the former owner is financially unable to redeem the realty, a purchaser will be able to step in and take ownership of the real estate.
Q. Are there other obligations to the municipality that can be enforced by the tax collector using this method?
A. Yes. Here is the list of those items:
Road betterments, special assessments, RSA 231:30
Land Use Change Tax (Current Use), RSA 79-A:23, and RSA 80:85
Excavation taxes, RSA 72-B:7
Municipal utility charges, RSA 38:22
Sewer charges, RSA 149-I:11
Timber yield tax (doomage), RSA 79:12
Q. Other than the tax collector, are there any other municipal officials with a role in deciding whether the property will be deeded over to the municipality to enforce the tax obligation?
A. Yes. Pursuant to RSA 80:76, the governing body must determine whether or not to accept the deed offered by the collector. The collector has a statutory duty to offer the deed, but the governing body has some discretion to refuse to accept the deed. If the collector's deed is refused, the tax lien remains in place indefinitely, retains its "super priority" over all other liens, and interest, costs and penalties continue to accrue. The landowner continues to have the right to "redeem" the property by paying all of the sums due. If the reason for not accepting the deed is later resolved, the governing body may instruct the collector to issue the deed after notice is provided to the landowner and mortgage holders.
Q. Why would a governing body elect not to accept a deed from the tax collector?
A. Pursuant to RSA 80:76, II, a property shall not be accepted if the municipality could have liability under certain federal environmental statutes, and the resulting responsibility to clean contamination from the property. Thus, for every property that is subject to the deeding process, the governing body should take reasonable steps to determine if such contamination is present. That includes a check at the Registry of Deeds to see if any documents have been recorded by the Department of Environmental Services (DES). A call to the Concord office of DES will allow them to check their records for the property. Town records in the planning or code enforcement areas may have information, and a visual inspection might be possible to see if there are visible fill pipes for underground fuel tanks, leaking equipment or other readily visible indicators of possible contamination.
At the option of the governing body, and upon notice to the property owner, RSA 80:19-a permits authorities to enter the property for the purpose of conducting an environmental site assessment or audit. The law also allows refusal when, in the judgment of the governing body, ownership of the real estate would involve "undesirable obligations or liability risks." These include a duty to comply with restrictive covenants imposed on the property, or obligations to tenants, or "for any other reason [that] would be contrary to the public interest." It is not always easy to determine the best course of action to protect municipal interests.
Q. I understand the issue when the land is environmentally contaminated, but what are some examples of the other situations where a governing body might elect not to accept a property?
A. Here are some factual situations that we have heard more than once:
- An owner of an old mobile home refuses to pay a small tax obligation. The land under the home is owned by someone else, either a single landowner or a mobile-home park owner. The structure is in such poor condition that no one else would live there and, thus, is of minimal, if any, value. The landowner is putting pressure on the municipality to accept a collector's deed so the landowner will not have to spend the time or legal fees needed to evict the homeowner and structure from the land. Sometimes the home itself has hazardous materials present, such as asbestos or toxic mold.
- An undeveloped parcel of land has been clear cut of its trees, and the land now has minimal value for development or conservation. The only access to the land is over a Class VI road which is now barely passable, other than to the all-terrain vehicles which have created serious ruts and drainage problems. Significant effort from an owner will be required to correct these problems and develop a workable plan for reforestation.
- The taxes on the parcel are unpaid because the owner has died, and there is no family or other interested person willing to come forward and administer the estate because the owner did not create a will or other estate plan. The municipality could proceed with a filing in the probate court as a creditor, but is unwilling to take on the duty to resolve the numerous other issues which the decedent left behind in his or her affairs. Often, the property is also run down and could not easily be made productive again.
- The property consists of a building in poor condition, with several small rental units. Each unit has a tenant, but the residents are usually only there for a short time because they refuse to pay their rent. There are building code problems which call the basic safety of the units into question, but enforcement is impractical because the existing conditions may be grandfathered, and the owner is financially unable to make improvements. Upon investigation, there is concern about toxic mold, lead paint and asbestos in the old heating system, some of which is hidden behind existing walls and ceilings. The tenants are unwilling or unable to move to other locations without assistance from the town's general welfare program.
- The property consists of a single unit in a condominium, which may have been subjected to ongoing monthly fees by the condominium unit owners association, or a high special assessment from the association to conduct a repair within the condominium.
This is a complex area of New Hampshire law. We advise all tax collectors and governing bodies to seek specific advice from the municipal attorney as they review and evaluate their options in these types of proceedings. In a subsequent article, we will discuss the issues confronting governing bodies once they accept a collector's deed and become the owners of the real estate.
For more information on this and other topics of interest to local officials, LGC's legal services attorneys can be reached Monday through Friday from 8:30 a.m. to 4:30 p.m. by calling 800.852.3358, ext. 384.