Pay your Taxes before your Lender Redeems your Property

A mortgage holder has the right to redeem (take back) real property that is the subject of a real estate tax foreclosure when the owner does not pay taxes on the land, according to the recent decision of the Ohio Supreme Court in In re Foreclosure of Liens for Delinquent Land Taxes v. Parcels of Land Encumbered with Delinquent Tax Liens, Slip Opinion No. 2014-Ohio-3656).

The facts of this case are relatively straight forward. In June, 2003, Brandi and Troy Wagner executed a promissory note and mortgage in favor of Vanderbilt Mortgage and Finance to finance their purchase of a mobile home and land in Coshocton County. The Wagners failed to pay taxes on their property, so the county treasurer initiated a tax foreclosure proceeding for delinquent taxes (in the amount of $825.84). Because the Wagners did not respond to the foreclosure complaint, the trial court granted the treasurer’s motion for default judgment and ordered the sheriff to sell the property.

Although not explained in the record, the sheriff held two sales of the property; one at which Vanderbilt purchased the mobile home. At the other sale, James Matchett purchased the property with a winning bid of $15,100 and then deeded the property to Alan and Janette Donaker. Before either sale of the land was confirmed, however, Vanderbilt filed a notice to redeem the property and a motion to vacate the prior sales and foreclosure.

The trial court granted Vanderbilt’s motion, thereby vacating and setting aside the sale and entry of foreclosure. The trial court determined that Vanderbilt (a mortgage holder with a recorded interest in the property) was a “person entitled to redeem” under Ohio Revised Code Section (“R.C.”) 5721.25.

The Donakers and the Coshocton County Treasurer then appealed the trial court’s decision to the Fifth District Court of Appeals. The court of appeals held that Vanderbilt was not entitled to redeem the property, and reversed the judgment of the trial court.

Vanderbilt then appealed to the Ohio Supreme Court which characterized the issue

before the court as whether or not Vanderbilt, as a mortgage holder, qualifies as “any person entitled to redeem the land” under R.C. 5721.25.

Pursuant to the second paragraph of R.C. 5721.25: “any person entitled to redeem the land (emphasis added) may do so by tendering to the county treasurer an amount sufficient, as determined by the court, to pay the taxes, assessments, penalties, interest, and charges then due and unpaid, and the costs incurred in any proceeding instituted against such land under Chapter 323 or this chapter of the Revised Code, and by demonstrating that the property is in compliance with all applicable zoning regulations, land use restrictions, and building, health, and safety codes.”

Appellee Alan Donaker contended that the only reasonable interpretation of the statute is one that precluded anyone but the property owner from being a “person entitled to redeem” under R.C. 5721.25 and that broadly interpreting the phrase “any person” would thwart the intent of sheriff’s sales by allowing mortgage holders to sit and do nothing until after the sheriff’s sale.

Vanderbilt contended that when read in conjunction with R.C. 5721.181, which provides the form of notice required for tax foreclosure proceedings—the phrase “any person entitled to redeem the land” under R.C. 5721.25 includes “any owner, or lienholder of, or other person with an interest in the property” because those exact words are utilized in R.C. 5721.181.

The Supreme Court of Ohio agreed with Vanderbilt, reasoning that when statutes are clear and unambiguous, they must apply the statutes as written. The court cited previous cases holding that: (1) the court must “give effect to the words used, refraining from inserting or deleting words,” and (2) that the meaning of “any” [in a statute] is “every” or “all.”

The court also backed up its decision by contrasting R.C. Chapter 2329 (which governs judicial foreclosure proceedings such as mortgage foreclosure) with the language governing tax foreclosures in R.C. 5721.25. In R.C. 2329.33, the Ohio General Assembly specifically limited the right of redemption to “the debtor.” But in R.C. 5721.25, the legislature instead utilized broader language by granting the right of redemption in a tax foreclosure proceeding to “any person entitled to redeem.”

Acknowledging that their decision might be interpreted as unfair to property owners,

the court justified its holding by concluding that “any perceived inequity caused by our holding to purchasers or property owners like the Wagners must be balanced against the rights of others with competing interests, including those of a mortgagee, or lienholder, to protect its interest in the property where a mortgagor, or property owner, has fallen

delinquent in tax payments.”

What’s the moral of this story? Pay your taxes…at least before your county files a foreclosure action and your lender redeems your property.

How to Spell Real Estate Tax Relief in Ohio-“ESOP”, “PTAP” “TOP”…

While paying taxes is still one of the “top 2 certainties” in our lives, and we can’t legally avoid them, there are a number of property tax deferral/loan/grant programs currently in place (or in process) in Ohio offering some relief.

Most counties in Ohio allow taxpayers to pay in installments.

In Cuyahoga County, the “EasyPay” program allows current taxpayers (or those on delinquent tax payment plans) to have their upcoming real estate tax payments automatically deducted from their checking or savings account:

 (i) Monthly - 1/6th of the taxpayer’s estimated future tax bill will be withdrawn from their account around the 5th of each month.  Each January and July the remaining balance due for the period will be withdrawn from their account on the last day of the collection period;

(ii) Semi-Annually - Withdrawals will occur twice a year on the last day of each collection period in January and July.  The taxpayer may elect to have the first payment made on the last business day of December instead of the collection closing date; or

(iii) Annually – The taxpayer’s full year tax amount will be withdrawn either on the last business day in December or the last day of the January tax collection.

Call (216) 443-7420 or log on to: http://treasurer.cuyahogacounty.us/en-US/easypay-plans.aspx  

for more information.

In Franklin County, the Budget Payment Program allows taxpayers to make monthly prepayments on their semi-annual tax bill. The money paid will be held in an escrow account in the taxpayers name and will automatically be applied to their semi-annual real estate tax bill when it comes due. Payments can be made by personal check, certified check, money order, cash, credit card, or direct debit.
By choosing the monthly direct debit from your checking or saving account the taxpayer can receive an interest credit towards future taxes.

• The interest earned on the taxpayer’s escrow account is paid at the same rate of return as the Treasurer's investment portfolio.
• Interest is calculated on all of the taxpayer’s monthly payments from their first direct debit until the tax due date.
• The interest is credited to the taxpayer’s escrow account, which goes toward their taxes for the next billing cycle.

Should you have questions or require additional information please e-mail the Treasurer, call the Franklin County Budget Payment Unit at 614-525-3438 or log on to: https://treasurer.franklincountyohio.gov/payments/budget-pay

In Hamilton County, the Treasurer's Optional Payment (Top) Program allows

 residential and commercial  property owners to prepay their real estate taxes in five installments.

 It is similar to an escrow account with a financial institution. There is no service charge associated with the program.

  If interested in the “TOP Program”: Taxes must be current;  both residential and commercial properties qualify; and the Top Program cannot be used to pay taxes already owed.

 Once enrolled in the program, the taxpayer will be sent four prepayment coupons, representing their estimated tax payment. Each month they would mail their one-fifth payment, along with a coupon, to the treasurer's office.  The final statement will be the taxpayer’s tax bill, which will reflect all prepayments made and the final balance due.

 If you would like more information about this program, please call: 513/946-4788 or log on to: http://www.hamilton-co.org/treasurer/TOP2.html

Franklin County has a one-time emergency grant program-“PTAP”

.

The Senior Citizen Property Tax Assistance Program of Franklin County (PTAP) is a not-for-profit organization with an endowment fund through the Columbus Foundation which has as its purpose, the collection and distribution of funds to assist needy senior citizens and disabled individuals in the payment of their property taxes. These funds are to be provided for tax payments on an emergency basis only. The program is to assist eligible 60 plus year old senior citizens or disabled homeowners on a one-time basis (However, if applicant has a history of property tax delinquency, assistance will be determined on a case-by-case basis).

Income eligibility is to be based on 150% of the Federal Basic Needs Standard.  "Disabled" is defined as a person who is unable to engage in any substantial gainful employment or activity because of a physical or mental impairment that is expected to last for an extended period of time. The applicant should be receiving or has applied for disability payments such as SSI, SSD, VA etc.

If you would like more information about this program, log on to: https://treasurer.franklincountyohio.gov/tax-savings/property-tax-assistance-program

In Cuyahoga County, “ESOP” is about to unroll (August/September, 2014) its delinquent  property tax loan program

As reported by Sheryl Harris, Consumer Columnist with the Cleveland Plain Dealer in her article “ESOP Offers Loans to Seniors who Fall Behind on Property Taxes: Plain Dealing”, posted on June 27, 2014 (on Cleveland.com), eligible Cuyahoga County residents will soon be able to apply for loans to pay off their delinquent tax bills. According to Ms. Harris, “Sometime late this summer, Faith Community United Credit Union, which is administering the loans, will be taking applications from Cuyahoga County residents 55 and older [for 3 year, 10% loans]”. “ESOP refined the idea for the tax loan program with the help of the Clinton Global Initiative. Third Federal kicked in the $200,000 needed to cover the initial loans and associated costs.”

For the complete article by Ms. Harris, log on to: www.cleveland.com/consumeraffairs.com. Ms. Harris can be contacted at: 216-316-6832 (c) or sharris@plaind.com.

For additional information about the Senior Tax Delinquency Loan Program or ESOP's programs for homeowners, contact ESOP through www.esop-cleveland.org or call: 216-361-0718.

Buyer Risks With Deliquent Property Tax Sales

When acquiring property through a property tax sale, there are risks to the buyer if the property owner becomes a debtor in bankruptcy.  Under the Bankruptcy Code a transfer might be avoided if the debtor was insolvent (or becomes insolvent due to the transfer) and received less than reasonably equivalent value for the property.  If that transfer took place within the look back period (either 2 or 4 years depending on the bankruptcy filed, Chapter 7, 11 or 13) and the sale price was not “reasonably equivalent value” for the property, then the transaction might be challenged as a fraudulent transfer.

The U.S. Supreme Court in 1996 held that in a foreclosure sale, if state law for the foreclosure process was followed, then the price obtained as a result of that foreclosure sale constituted reasonably equivalent value as a matter of law. However, the court noted that there might be exceptions to the rule in other contexts, such as a forced sale to satisfy tax liens.   

In tax sales where the only reason for the sale was to pay the delinquent property taxes, if there is a significant disconnect between the sale price and the value of the property, and if there was no opportunity for competitive bidding, then it’s an open question whether the sale price will be considered a fair value.  If the sale were to be timely challenged in a subsequent bankruptcy, the court may well decide to avoid the sale as a fraudulent transfer.

If that happens, the bankruptcy court could recover the fraudulent transfer from the initial transferee and even the next transferee who acquired the property from the initial transferee (unless buyer #2 can assert a successful defense as a good faith purchaser).

Bottom line. . . when purchasing properties through forfeiture procedures, such as a property tax sales, that do not include competitive bidding, buyers need to be aware that their liability doesn’t end with the transfer deed.

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