Enforcement of Tax Liens

This year, one subject that raised a lot of questions related to title to real estate acquired by the foreclosure process for failure to pay real estate taxes and the sales of those properties. Although the process is laid out very clearly in the statute, Title 36, particularly §§ 942 and 943, it has proven challenging for tax assessors to always get things right. The Law Court has been very clear that if there is even a minor error in the tax foreclosure process, it will be declared to be void if challenged by the taxpayer.

One of the particular areas of concern is the requirement under Title 36, Section 943 (the so-called 30-day notice), which must be served to complete the foreclosure process. A common mistake that is made is that the notice is simply sent to the address of the property itself, rather than to the owner’s usual place of abode, or last known address. Another problem we have seen is that when a town isn’t careful, it assesses property to one property owner when there are multiple property owners, including husbands and wives. A notice of foreclosure only sent to one property owner may not be effective against the property as a whole, and, at a minimum, will not be effective against the interests of the property owner who was not notified. Even when it is clear that the process was handled properly, towns often choose to file a quiet title action to ensure that they have good title to property before attempting to re-sell it. The title standards of the bar generally require a ten-year waiting period for titles to be considered clear. There is no impediment to the town selling the property once it obtains title through the foreclosure process, even if title has not been declared by a court. It is critical that the assessor carefully follows the exact process laid out in Title 36, §§ 942 and 943, for the municipality to properly acquire title to property acquired because of tax delinquency.

Why Municipalities Should Convey Real Property by Quitclaim Deed

Municipalities own real estate that they convey to third parties in a variety of situations. Most often this occurs in the context of conveying property the town acquired because of unpaid property taxes back to the taxpayer once the past due amounts have been paid in full, but also in the context of municipal-owned property in industrial parks and other property suitable for development. Almost always a municipal quitclaim deed is the appropriate instrument for conveying tax acquired property. A municipal quitclaim deed releases any right, title, or interest the municipality may have in the described property to the identified grantee, without any covenants or guarantees of title. Put another way, such deeds do not contain any representation or warranty by the municipality as to whether or not it actually has title to the described property or whether or not the property is subject to any lien or encumbrance. Muni-quitclaim deeds are truly the “buyer beware” of deed forms.

Nonetheless buyers of property and other parties acquiring title to real property from a municipality often ask for a warranty deed or a quitclaim with covenant deed. The rationale these buyers offer is that they, unlike taxpayers paying back taxes, are paying real money for the property and they are entitled to know that the municipality has title and that it is free and clear of liens and encumbrances. These buyers are in effect asking the municipality to perform the buyer’s due diligence and search title to the property. For a number of reasons, this burden switching is inappropriate and improperly places the burden of insuring title on the municipalities’ residents.

While municipal quitclaim deeds offer nothing in the way of promises to the buyer, other forms of deeds—for illustration purposes, warranty deeds and quitclaim deeds with covenant—provide a number of such promises. A warranty deed is the seller’s promise that it has the interest in the property it is purporting to convey to the buyer; that there are no encumbrances on the property, such as mortgages, liens, or easements, other than those referenced in the deed; and that the buyer’s possession of the property will not be interrupted by someone with a superior interest in the property. Most importantly, the seller promises that its title to the property is free of defects, and that it will defend the buyer’s possession of the property against the claims of “all persons,” even with respect to defects or claims that may have arisen years before the seller acquired the property. By giving a warranty deed, then, a seller takes on potential liability not just for what the seller has done during his or her period of ownership, but also for claims arising well before he or she acquired the property, of which it likely has no knowledge. Quitclaim deeds with covenant offer similar promises, with the exception that the guarantee of no defects or claims covers only that period of the seller’s ownership.

A municipality often acquires property without having performed a complete title examination and is thus unable to know whether it has title to the property, whether such title is subject to any liens or encumbrances, and whether others have claims to the property. Only by a thorough title examination is the municipality able to answer these questions and to meaningfully evaluate what such promises might entail for potential future liability. Even though a tax foreclosure provides that a municipality owns a property free and clear of any encumbrances, the title standards require either a five- or fifteen-year waiting period for clean title, depending on when the period of redemption expired.

Even though the possibility of selling a property for more money exists when a deed other than a quitclaim is given, absent an action to quiet title, the risks outweigh the benefits.

New Governor, New Era for State/Municipal Partnership

Governor Janet T. Mills is being inaugurated today as Maine’s first female Governor. Municipal officials and leaders throughout the state should expect a more positive relationship between the Governor and the State of Maine and local municipal government during this new administration. As everyone is well aware, despite having been the former Mayor of Waterville, Governor Paul LePage had a very testy and unproductive relationship with municipalities throughout his tenure as Governor. He was generally opposed to revenue sharing for municipalities and went out of his way to foist responsibility onto municipalities for programs and the costs of those programs for which the State historically has taken responsibility. Governor Mills, in her interview with the Maine Municipal Association which occurred prior to the election, made it abundantly clear that she welcomes the support and advice of municipalities and fully intends to restore that relationship and stop the process of shunting costs onto local property tax payers. Since Governor Mills worked her way up through the ranks of local and state politics before becoming Attorney General and finally Governor, she has a keen understanding of what local officials go through and will likely be far more sensitive to those concerns than the previous administration.

What Is “Good Cause” for Granting an Abatement of Real Estate Taxes?

NHRSA 76:16, I(a) provides that “Selectmen or assessors, for good cause shown, may abate any tax, including prior years’ taxes, assessed by them or by their predecessors, including any portion of interest accrued on such tax. . . .” For many years, municipal attorneys and tax assessors in New Hampshire have proceeded in the belief that the only grounds for abatement of real estate taxes were disproportionality and poverty or inability to pay. A case decided by the New Hampshire Supreme Court in May 2017, Robert Carr et al. v. Town of New London, held that “good cause” for granting an abatement is not limited to those two grounds, that RSA 76:16 “provides selectmen a liberal tax abatement framework to promote equitable resolutions.” 

In that case, the taxpayers’ property had been struck by lightning and burned to the ground on July 1, 2014, so that the taxpayer could not use the property for 272 of the 365 days of the 2014 tax year (April 1, 2014 – March 31, 2015). The Town had denied the taxpayers’ timely filed application for abatement under RSA 76:16 on a number of grounds, including:

1. The condition of the property as of April 1, 2014, (before the fire) governed its assessment for the 2014 tax year; 
2. RSA 76:21, which allows prorated assessments for buildings damaged by fire, was the exclusive remedy for prorating or abating taxes on buildings damaged by fire; and 
3. Disproportionality and poverty/inability to pay were the only grounds for granting an abatement

The Court rejected all three arguments, finding:

1. Damages to property occurring after April 1 of the tax year may constitute “good cause” for an abatement;
2. RSA 76:21 is not the exclusive remedy for abating taxes on buildings damaged by fire during the tax year; and
3. Disproportionality and poverty/inability to pay were not the sole reasons for granting an abatement

The Court upheld the trial court’s decision that the taxpayers had shown “good cause” for an abatement under RSA 76:16. Thus, the Carr case established that selectmen have broad power to grant abatements—that “if justice requires an abatement, that would be good cause for the selectmen to [abate the property tax].” The Court failed, however, to set forth a bright-line test for determining when “justice requires an abatement” under RSA 76:16.

Future cases will provide guidance as to what is and what is not “good cause” for granting an abatement.

Maine Municipal Law Update: Biennial Budget, Marijuana Legalization & Opportunity Agenda

Maine's Biennial Budget

Legislative work continues to steadily flow in Augusta, Maine as more bills are taken up by policy committees and many of them are meeting passage or being killed. In addition, the state’s biennial budget is slowly inching forward as the Appropriations & Financial Committee has accepted non-controversial initiatives, and will soon tackle the more contentious ones.

The Marijuana Legalization Implementation Committee

In the meantime, the implementation of adult-use marijuana legalization continues to pose interesting and as-yet undecided policy questions to the Marijuana Legalization Implementation Committee (MLI) and the State House’s respective party caucuses.

The MLI has thus far held a series of public hearings allowing any and all members of the public to voice a range of opinions around marijuana policy, including the state’s preexisting medical program. However, only LD 243 has been taken up in MLI. This bill, after being extensively worked by the committee received a 16-1 “ought to pass as amended” vote.  It is now poised to establish a “hub and spokes” model of licensing that would be centered on the Department of Administrative and Financial Services (DAFS) with major “spokes” extending to the Bureau of Alcoholic Beverages and Lottery Operations (BABLO) and the Department of Agriculture, Conservation, and Forestry (DACF). BABLO, an organization that exists within DAFS, would regulate packaging and retail, while DACF would regulate cultivation. 

The Committee will continue to meet regularly through the end of session and continue through the interim period between sessions.  The Committee is likely to hold several more large public hearings throughout the spring that will cluster individual bills based on their proposals and the different aspects of legalization implementation.

Opportunity Agenda

In other news, Legislative Democrats unveiled the “Opportunity Agenda” last week, a counter-proposal to the most recent LePage biennial budget. The program is touted by Democrats as providing the largest property tax cut in history, funded partially through new revenues created by adult-use marijuana legalization.