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.

Lis Pendens Only Available when Title to Real Estate is Involved

In the pending case of Brunswick Citizens for Collaborative Government, et al. v. Town of Brunswick, (Cumberland County Superior Court) the Petitioners claim that the Town of Brunswick failed to follow its Charter procedure to hold a public hearing and potential referendum election after receiving signed petitions.  

The case involves a piece of property that the Town Council had voted to sell. The point of the petitions was to hold a referendum election so the Town would retain the property. The case was brought as a Rule 80B Appeal and a Declaratory Judgment action. It explicitly does not involve title to real estate. It was not so noted on the Complaint nor was that checked in the civil cover sheet.  Nonetheless, the plaintiffs obtained a notice of lis pendens from the Clerk and recorded it in the Registry of Deeds, describing the property at issue in the lawsuit. The Town of Brunswick filed a Motion to Cancel the Lis Pendens arguing that a lis pendens under the law, 14 M.R.S. § 4455, only applied where title to real estate was specifically involved. The Court agreed and ruled that it was appropriate to cancel the notice of lis pendens. The Court noted that a lis pendens is a specific statutory procedure used to put title examiners on notice of issues involving the title to real estate.  It is not a general tool for advising the world of the pendency of lawsuit, in an improper effort to discourage the sale of real estate.

Preti Flaherty represents the Town of Brunswick in this case.