Source: http://tbhr-law.com/ArticlesPost.aspx?id=280
Timestamp: 2017-07-24 10:36:34
Document Index: 66381621

Matched Legal Cases: ['§ 2', '§ 57', '§ 57', '§ 16', '§ 37', '§ 45', '§ 40', '§ 42', '§ 43', '§ 45', '§ 48', '§ 53', '§ 54', '§ 61', '§ 52', '§ 6', '§ 52', '§ 62', '§ 63', '§ 46', '§ 84', '§ 61', '§ 60']

By John D. Finnegan, Esq.
The economic strain on local governments is forcing municipalities to enhance their efforts to obtain much-needed revenue, including through increased collection of delinquent real estate taxes. Cities and towns are not only becoming more aggressive in their efforts to collect, they are also finding more creative ways to do so. Traditionally, municipalities in the Commonwealth have relied upon the tax taking and subsequent foreclosure process in order to collect delinquent real estate taxes. While tried and tested, these are not the only methods of collection available to municipalities. Recently, some communities have turned to tax sales and tax lien assignments to augment their collection efforts. Though municipalities’ authority to conduct tax sales and tax lien assignments in the Commonwealth are not the result of recent statutory additions, municipalities are re-discovering these less often used provisions to supplement the collection process.
As an initial matter, real and personal property taxes are due as of July 1st of the year to which the tax relates.1 However, interest accrues only if payments are not made by payment due dates.2 These due dates differ depending upon whether the municipality has adopted a semi-
annual or quarterly billing system.3
When a real estate tax remains unpaid, the Collector issues a demand for the delinquent taxes and mails the demand to the last, best address of the taxpayer.4 Note that failure of the taxpayer to receive the demand will not invalidate tax or proceedings to enforce the tax.5 If the taxes remain unpaid fourteen days after the demand is issued, the municipality may levy the taxes by sale or taking.6
2 Tracks: Collector’s Deeds and Tax Takings:
Collector’s Deeds
The statutory authority for the issuance of collector’s deeds has been in place, in its earliest form, since 1785. Historically, the issuance of collector’s deeds as part of the collection process has been little utilized, since the advent of tax takings, as discussed further, below. Municipalities’ issuance of collector’s deeds did experience a revival during the 1970’s, however, misunderstandings as to what a collector’s deed actually conveyed led to the discontinuance of the practice. In that regard, the collector’s deed conveys title to the property, subject to right of redemption by holders of an interest in the subject property.7 The broader availability of information and a more sophisticated investor pool have led some municipalities to reinstitute the issuance of collector’s deeds.
In order for a municipality to issue a collector’s deed, notice of the sale must first be published8 and posted in two (2) or more public places fourteen (14) days prior to the sale.9 If the taxes remain unpaid, as of the date noticed, the Collector may sell, at public auction, the smallest undivided part of the land, which will bring in the balance of the outstanding taxes, interest & charges that have accrued on the property.10 If the sale of an undivided part of the land will not satisfy the delinquency, or if there are no offers for such, the Collector may sell the entire land.11
The Collector then issues a deed to the purchaser stating the cause of the sale, the purchase price, the name of person upon whom demand was made, and the places of posting and advertising.12
As with Instruments of Taking, title to the property that is subject to a collector’s deed is held as collateral until the taxpayers’ rights of redemption are foreclosed, through the judicial process outlined in Chapter 60 of the General Laws. Until that time, buyers have no right to possession of the subject property.13 If there are no adequate bids, the municipality becomes the purchaser, via the statutory authority given to the collector.14 Tax Takings
Tax takings represent the more traditional avenue that municipalities in the Commonwealth utilize to collect delinquent real estate taxes. If taxes remain unpaid, fourteen (14) days after demand has been made, the Collector may take title to the property in the name of the municipality.15 Notice of collector’s intention to take the property must be served or published fourteen (14) days prior to the execution of an Instrument of Taking.16 The Collector must also post notice in two (2) or more public places.17 If the delinquency persists after date contained in the notice, the Collector may then execute an instrument of taking. The Instrument of Taking must contain a statement of the cause of taking, a substantially accurate description of the parcel, the name of the assessed owner and the amount of taxes, interest and charges to the date of taking.18 To be valid, the Instrument of Taking must be recorded within sixty (60) days of the date of taking.19 Title to the property then vests in the municipality, subject to right of redemption.20 In those instances where the Collector executes an instrument of taking, or where the municipality becomes the purchaser under a collector’s deed, taxes for subsequent fiscal years may, after demand, be certified by the Collector to the Treasurer without need for a subsequent sale or taking.21
Once a property has been taken, through an instrument of taking, or where the municipality has become the purchaser under a collector’s deed, the Treasurer of the municipality may institute proceedings to foreclose the taxpayers’ rights of redemption. Alternatively, the Treasurer may assign a tax title on one or more parcels.22 As with the other statutes governing tax collection, the statutory authority for assignment of a municipality’s tax receivable is not new. Until fairly recently, however, municipalities in the Commonwealth had shied away from utilizing tax lien assignments as a collection tool. This aversion is likely the result of the fallout from the controversy surrounding Breen Capital Services Corporation’s (“Breen Capital”) efforts to collect certain assigned tax liens in the state of New Jersey during the 1990’s.
While an in-depth analysis of the Breen Capital case is beyond the scope of this article, to provide some background, in 1992 Breen Capital had obtained over 2,500 Jersey City tax liens with a face value of over $43 million.23 In a hybrid compensation system, the City received $25 million in cash and was to receive up to $19 million more, depending on the success of Breen Capital’s collection efforts. However, between 1992 and 1995 Breen Capital was only able to collect approximately 27% of the outstanding taxes.24 As a result, Breen Capital began to foreclose the liens in bulk, which resulted in long delays in the state office of foreclosures.25 The delays resulted in new liens for subsequent tax years being issued, which enjoyed priority over the initial liens.26 Overall, the city lost the additional $18 million to which it would have prospectively been entitled, had it not assigned the liens. Further, in December of 1999 a New Jersey trial court ruled that Breen Capital had violated state consumer protection laws relative to installment payment agreements Breen Capital had urged taxpayers to sign.27 These agreements were not specifically authorized by statute and the trial court held that entry into such agreements had put the taxpayers in an unfair bargaining position.28 Although the trial court was subsequently reversed on appeal, the award of summary judgment to the plaintiffs immediately caused a chill in the tax lien assignment industry, nationwide.29
In addition to events outside of the Commonwealth, there were certain internal inconsistencies within the statutory framework, which made the tax assignment process unattractive to investors. These inconsistencies were largely rectified with the enactment of Chapter 295 of the Acts of 2004. Chapter 295, which was approved on August 13, 2004, amended, inter alia, Sections 52, 62 and 63 of Chapter 60. Among other things, these amendments provided clarification relative to the redemption of assigned liens, including the interest rate to which the holder of an assigned tax lien is entitled. Under the prior version of the statute, assignees were limited to charging interest at the rate of 6.5% from the date of the assignment. Under the revised version, assignees are entitled to the same 16% interest rate available to municipalities.30
In order to hold a tax lien assignment auction, unlike auctions of foreclosed properties under G.L. c. 60 Section 77B, notice of a tax lien assignment auction must be both published and posted.31 In that regard, fourteen (14) days before the auction, the Treasurer must publish notice of his or her intention to hold an assignment auction in a newspaper printed in the city or town.32 If there are no publications within the municipality, notice must appear in a newspaper published in the county where the property lies.33 In addition, the Treasurer must post notice of the proposed assignment in at least two (2) public places within the city or town.34 Further, at least 10 days before auction, the Treasurer must mail notice of the intended assignment to the current owner of record at his/her last known address.35 Note, however, that the failure of the taxpayer to receive the notice will not affect the validity of the assignment.36
Auction and Instrument of Assignment
On the appointed day, the Treasurer holds a public auction of the selected liens, individually, or in bulk. If any of the taxpayers have entered into a payment plan with the municipality, the liens that are the subject of those payment plans may not be assigned. However, the Treasurer may assign the lien or liens that are not the subject of a payment plan to the highest bidder. The winning bid must be for at least the amount the taxpayer would have to pay to redeem the parcel on the date of the auction.37 While premiums – that is, amounts over and above the face value of the lien – may be bid, such premiums are “at risk” for the winning bidder, as discussed further below.
The winning bidder or bidders must submit payment in full to the municipality within two (2) weeks of the auction date. Full payment equates to the winning bid, plus tax title interest accruing between the auction date and instrument of assignment date, plus any premium bid.38 The Instrument of Assignment (“IOA”) must include the assignee’s full legal name and address and the amount for which the property was assigned.39 The IOA must be recorded within 60 days of execution to be valid. If so recorded, the IOA enjoys prima facie status as to all facts essential to the Assignment’s validity.40
The owner or other parties-in-interest may redeem the property by paying the assignee or the Treasurer the same amount they would have to pay to redeem the property, if the tax title had not been assigned.41 As discussed above, the assignee is entitled to post-assignment tax at 16% accruing on principal tax only.42 As mentioned, premiums are “at risk”; that is, the redeeming party need not pay the assignee any premium amount bid at auction. However, some municipalities, as an incentive to prospective investors, have instituted a policy to refund any premiums bid, in the event the property is redeemed.
If payment is made to the municipality’s Treasurer, instead of the assignee, a $10 handling fee is required to be collected.43 Though the statute allows the municipality’s Treasurer to accept payment, in practice, many municipalities prefer to stay “out of the mix” following an assignment and redeeming parties are often directed to submit payment to the assignee. The municipality’s Treasurer may not accept partial payments for an assigned instrument of taking.
Defective Collector’s Deeds
In the event that a Collector’s Deed is determined to be defective, the purchaser may surrender the deed to the municipality or, alternatively, may assign his/her interest to municipality.44 Such claims must be made within six (6) months of the date of the collector’s deed.45 Upon surrender or assignment of the deed, the municipality must reimburse the purchaser for the amount paid, plus interest at eight percent (8%) per annum.46
Invalid Takings
In some instances it will subsequently be determined that an assigned instrument of taking is defective. In such instances, assignees of defective instruments of taking also are entitled to recourse against the municipality. However, in the case of assigned instruments of taking, the defect must be ascertained by a court of competent jurisdiction. If so ascertained, the clerk of the court is required to issue a certificate to the assignee stating such.47 Upon receipt of such a clerk’s notice, the municipality is required to reimburse the holder of the defective taking the amount paid, plus interest at the rate of six percent (6%) for a maximum of two years from the date of assignment.48
Post-sale and post-assignment taxes
One concern relative to the issuance of collector’s deeds and the assignment of instruments of taking is the accrual of post-sale or post-assignment taxes. Should real estate taxes go unpaid following the issuance of a collector’s deed or assignment of an instrument of taking, the municipality may issue a new collector’s deed, or new instrument of taking.49 In such instances, the prior collector’s deed or the assigned tax title will be subordinate to the new collector’s deed or instrument of taking for the subsequent taxes and charges. Unlike purchasers of bulk tax receivables under M.G.L. c. 60, § 2C, buyers of individual collector’s deeds and assignees of instruments of taking have no automatic right to purchase the new lien. Recently, some municipalities that have held such sales or assignment auctions have contractually required the purchasing party to pay such post-sale or post-assignment taxes. However, the enforceability of such arrangements has yet to be tested. Further, in the event of a breach, the municipality’s remedy – other than to prohibit the offending party from participating in future sales or assignment auctions – is unclear.
If post-sale or post-assignment taxes are paid by the buyer or assignee, that party is entitled to receive a certificate from the municipality stating such.50 However, the certificate issued by the municipality is not a lien, in and of itself, and these subsequently paid taxes do not become part of prior collector’s deed or the assigned instrument of taking. There are no statutory provisions requiring a redeeming taxpayer to reimburse the party who had paid such subsequent taxes. Further, unless an overpayment occurred, the municipality would be unable to refund these subsequently paid taxes to the buyer or assignee. It remains to be seen whether a court would require that the redeeming party reimburse the certificate holder as a matter of equity, or whether the payment of such subsequent taxes is more properly categorized as a business risk undertaken by the buyer or assignee in an effort to protect its lien priority. In any event, if the buyer or assignee is entitled to reimbursement for payment of subsequently accrued taxes, there are no statutory provisions which would allow the certificate holder to collect interest on the paid amounts.
Clearly, non-traditional methods of collecting delinquent real estate taxes, such as the issuance of collector’s deeds and the assignment of instruments of taking, are useful additions to a municipality’s arsenal of collection tools. Though each method offers a quick cash infusion, municipalities must trade-off the accrual of interest under the very favorable statutory rates of 14% and 16%, in order to take advantage of such an infusion. In today’s rate environment, that trade-off may be too costly. In addition, where the economy has shown signs of improving, it remains to be seen whether the use of collector’s deed sales and assignments of instrument of taking will continue to trend. However, municipalities should continue to consider these methods when crafting their global collection strategies.
John D. Finnegan, Esq.
101 Huntington Ave., 5th Floor, Boston, MA 02199
617-218-2000; Fax: 617-261-7673
jfinnegan@tbhr-law.com
1 M.G.L. c. 59, § 57
3 M.G.L. c. 59 § 57C
4 M.G.L. c. 60 § 16
6 M.G.L. c. 60 § 37
7 M.G.L. c. 60 § 45
8 M.G.L. c. 60 § 40
9 M.G.L. c. 60 § 42
10 M.G.L. c. 60 § 43
12 M.G.L. c. 60 § 45
14 M.G.L. c. 60 § 48
15 M.G.L. c. 60 § 53
18 M.G.L. c. 60 § 54
21 M. G.L. c. 60 § 61
22 M.G.L. c. 60 § 52
23 Paul Beckett, Foreclosed: A Play on Tax liens By Wall Street Types Blows Up in Their Face, The Wall Street Journal, November 30, 2000
27 Varsolona v. Breen Capital, 180 N.J. 605, 853 A. 2d 865 (N.J. 2004)
29 Id.; Beckett, supra.
30 Chapter 295 of the Acts of 2004, §§ 6-8
31 M.G.L. c. 60 § 52
41 M.G.L. c. 60 § 62
43 M.G.L. c. 60 § 63
44 M.G.L. c. 60 § 46
47 M.G.L. c. 60 § 84A
49 M.G.L. c. 60 § 61
50 M.G.L. c. 60 § 60