Municipal Tax Liens - PowerPoint Presentation

Municipal Tax Liens Developed by Paul R. Labrecque , Gilberte G. Mayo, and Stu Marckoon Presented by Gilberte G. Mayo and Stu Marckoon March 2, 2016 – Black Bear Inn, Orono March 30, 2016 – Keeley’s Banquet Center, Portland

What is a lien? The right to take another's property if an obligation is not discharged. A form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. A legal hold or claim on a property as security for a debt or charge. It can be voluntary such as a mortgage or involuntary such as for back taxes.

State Laws 36-MRSA § 942 & 943 (Lien Rules) 36-MRSA § 1071 (Tax Auction Sale) 36-MRSA § 941 (Civil Action) 36-MRSA § 1031 (Simple Civil action – only if necesssary )

Who’s Involved ??? Assessor Tax Collector Treasurer Municipal Officers

Timeline

Lien Time Line Calculation Tax Commitment Date July 15, 2015 Lien Window Start March 15, 2016 Lien Window End July 15, 2016 30-day Notice Filed April 15, 2016 End of 30-days May 15, 2016 Lien filing deadline May 25, 2016 Actual Lien Filing Date May 17, 2016 Foreclosure Notice Start October 3, 2017 Foreclosure Notice Deadline October 18, 2017 Foreclosure Date November 17, 2017

The Assessor’s Role Property Description Metes & Bounds, landmarks Map and Lot numbers, plan name Where can the map or plan be seen Supreme Court – functionality test – the lands must be described so that they can be identified with reasonable certainty…..

It starts with a deed. Name of seller Name of buyer Address of buyer Book/Page Description

Property Record Cards – Source of Valuations

Personal Property Tax is a big part of the valuation mix in many communities

Can we “Opt Out” of Personal Property? Absolutely not! Neither a municipal legislative body (town meeting or town or city council) nor municipal assessors may opt out of assessing any personal property otherwise taxable under State law. Such a decision would be ultra vires (beyond their legal authority). If it were made by the legislative body, it would have no binding effect on assessors, who are public officers bound by State law. If made by assessors themselves, it would be a breach of their oath to enforce the law.

Real Estate Transfer Tax Form Other Key Information: Map & Lot Selling Price Transaction Date

Knowing the amount to raise & the taxable value, the Assessors can set the property tax rate

The Tax Commitment Comes from the Assessor – This is the amount the tax collector is committed to collect

Valid Assessment The Town Meeting raising taxes must be lawful One tax commitment per year only! Assessors must be legally appointed or elected and sworn in Majority of Assessors must sign the commitment Assessors cannot hold incompatible offices Property must be assessed to the proper owner

Tax bills are prepared (not mandatory by law) Key Information: Due Date Interest Rate Amount State Required Wording

Required information on tax bills How much state funding has lowered the tax bill. Where the property tax dollars are being spent What debt the town has incurred

Tax Collector’s Role Billing- Annual vs. Multiple Due Dates Collections- Reminder Notices Thirty (30) Day Notices Tax Lien Recording True Copies to: Treasurer Un-assessed Owners Mortgage Holders

An incentive allows for prepayment of taxes not yet due or assessed, with interest (if any) to be paid by the municipality at a rate not to exceed 8% per annum (see 36 M.R.S.A. § 506). Any excess paid over the amount of taxes finally assessed must be repaid, with interest (if any), as of the date taxes are due and payable. A suitable warrant article would be: To see if the town will vote to authorize the tax collector to accept prepayment of taxes for the current year that are not yet due or assessed, and to pay interest thereon at a rate of __%. Accepting Pre-Payments

Track Payments (or lack thereof) Original Commitment Amount Interest Calculation Last Payment Date The Tax Collector’s Role

Thirty (30) Day Notice Must Contain The Following Information: Amount of taxes due Description of real estate Allegation that a lien is claimed if not paid Demand for payment within 30 days Statement that taxpayer may apply for an abatement-poverty/infirmity (36 M.R.S.A. §943-A) Signature or facsimile of the Tax Collector

Thirty (30) Day Notice When Given : Initial tax commitment by Assessor: 8-12 months from commitment date Recommitted taxes to new Collector: 8-12 months from initial commitment Supplemental Taxes : 8-12 months from supplemental commitment date NOTE: The 30 day lien notice must be mailed within the 4 month window-the tax lien can be recorded after the 8-12 month period ends.

Thirty (30) Day Notice Methods of Delivery: Personal service to taxpayer Personal service to last known address Certified mail /Return receipt requested *** separate notice for each separately assessed parcel Documenting method & proof of delivery When method of delivery is ineffective ??? *** If notice returned as UNCLAIMED must resend by regular mail or leave notice at that address (Jones v. Flowers -2006 US Supreme Court )

Thirty (30) Day Notice To Whom Given: Assessed person Corporations (main or other office) Personal representative, devisees or heirs PR - appointed by Probate Court Devisee - when a will is written, receive part of deceased person’s estate Heirs - w/o will- receive part of estate Unknown owners ??? (newspaper pub.)

Payments Partial payments prior to 30 day notice should be applied to interest & fees first, then principal. Partial payments after 30 day notice Full payments after 30 day notice “Demand Notice”- fixed amount Continued interest accrual ??? Payments by mail- postmark date Last minute payments-just before recording date Bad checks etc Payments to oldest outstanding tax (policy vote)

Applying to oldest tax first It’s called a “Section 906 Order” (after the statute – 36 M.R.S.A. § 906 – that authorizes it). A Section 906 Order is a directive by the municipal officers (selectmen or councilors) to the tax collector and treasurer requiring them to apply any tax payment on a property in the order of the oldest unpaid tax first.  It prevails regardless of the taxpayer’s directions or intention.  But there are two important limitations. First, a payment can be applied only to taxes on the property for which the payment was tendered.  Thus, a payment made on real estate taxes cannot be applied to personal property taxes owed by the same taxpayer.  Nor can a payment made on one property by applied to another. Second, a payment cannot be applied to taxes for which an abatement request or appeal is pending unless the taxpayer approves in writing.

Yet More Fees Lien Filing Fee $ 19.00 (more if > 4 owners) Discharge Fee $ 19.00 (more if > 4 owners) Collector Fee $ 1.00 Municipal Fee $ 9.00 Notice Mailings $ 6.74 x # of parties in interest 30-Notice Fees $ 3.00 “Other” Fees NOT Allowed Cost of special certified mailing envelopes Unpaid dog licenses (yes, there was such a question)

http://www.maine.gov/treasurer/revenue_sharing/delinquent_tax_rates.html State Treasurer determines maximum interest rate Taxable Year Maximum Rate 2015 2014 7.00% 7.00% 2013 7.00% 2012 7.00% 2011 7.00% 2010 7.00% 2009 7.00% up to 9.00% 2008 11.00% 2007 12.00% 2006 11.00% 2005 7.75% 2004 6.50% 2003 7.00% 2002 6.75% up to 8.75% 2001 11.50%

Calculation of Interest When a municipality has fixed a date when taxes are due and payable and a rate of interest has been approved, the interest becomes “added to and part of’ the tax” ( 36 M.R.S.A. § 505 ). Thus, if a person who pays the taxes but refuses to pay the interest has not paid the tax in full and the collector may record a tax lien for the unpaid balance.

Calculating Interest Tax Due $1,000.00 X Interest Rate 7% (.07) = Annual Interest $70.00 /365= Daily Rate $0.191 X Number of Days Overdue 325 = Interest Due $62.08 Interest is FROZEN during 30-day notice period

Lets Take A Break!

Recording Tax Lien Certificate Contents * name of assessed/current owner(s) * amount of assessed tax/balance due * description of real estate * allegation that a tax lien is claimed * allegation-demand for payment made * allegation that a balance remains * signature of tax collector * acknowledgement by notary public

True Copies Copies must be sent to: Unassessed owners of record Mortgage holders of record (mortgagee) Other lien holders IRS- State of Maine- DHHS Mechanics liens- (ie. contractor for non-payment.) Other parties of interest

Failure to Send True Copies Does not invalidate tax lien Does not invalidate notices sent to other parties It leaves redemption open for non-notified parties HOW DO YOU RECTIFY ???? Send all non-notified mortgagees a true copy of tax lien certificate. If true copy of lien is sent after the 18 month redemption has expired, all non-notified parties are granted an additional 3 month period before redemption period expires.

Searching Registry of Deeds Why Search ??? To determine parties who require notification Who Should Search ??? The Tax Collector or contracted out When to Search ??? Best time- during the 30 day notice period How to Search ??? Search for Record Owner/Unassessed owner Grantor/Grantee Index-Interim Index/Day Book Mortgage Search…….. Mortgagor/Grantor…..is the property owner Mortgagee/Grantee…..is the lender Assignments…..sold to another lender

The Tax Collector’s Role During the 30-day notice period, search the Registry of Deeds for mortgages and other parties of interest.

The Tax Collector’s Role Once liens are filed and notices mailed, turn them over to the Treasurer. Depending on the personal property tax situation, you should be able to do your settlement after the filings.

Tax Collector settles with municipal officers to release from personal obligation for taxes.

Personal Property Tax NEVER, NEVER, NEVER, NEVER, NEVER (Get the idea) file a lien for personal property at the Registry of Deeds DO NOT INCLUDE AMOUNT with real property lien Options: UCC Filing Through Secretary of State Small Claims Court (Limit is $6,000, filing cost is $50) Discussed Further in Chapter 5 in Lien Manual

Treasurer’s Role Accepting payments Who may redeem property ? Person paying , if not owner, has no title right Discharging liens Sending collection letters- redemption period Sending impending foreclosure notices

Discharge- continued Discharge after foreclosure date- valid after 1 year no need to record quit claim deed (use form 5c) Mistaken issuance of discharge- record form 6a & 6b Error in Book and Page- record form 6c Partial discharge ????- Nothing in law authorizes this practice ie….. Sale of a portion of a larger piece of land and a lien is recorded on the whole.

Title acquired by tax lien foreclosure is not “marketable” title (free from any reasonable doubt), so a municipality should convey tax-acquired property only by municipal quitclaim deed without covenants (also known as a “release” deed). This warrants nothing and conveys only whatever interest, if any, the municipality may have. Purchasers of tax-acquired property are not legally entitled to anything more . Time Limit to Challenge Tax Lien Foreclosure Sale is 5-years.

Special Rules….. Taxpayers in the Armed Forces Service members Civil Relief Act – (50 USCA ss 501) Additional Period of Redemption- 50 USCA- 526 “A period of military service may not be included in computing any period provided by any law for the redemption of real estate sold or forfeited to enforce any obligation, tax or assessment.” The 6% Interest Rule- (50 USCA ss 527) “An obligation or liability bearing interest at a rate in excess of 6%/year by a service member and spouse jointly shall not bear interest at a rate in excess of 6% during the period of military service”

Impending Foreclosure Notice Timing- 30-45 days prior to foreclosure Delivery method- certified mail To whom sent ??? Taxpayer Mortgagee(s) Unassessed /Record / New Owners – if any

Automatic Foreclosure Process

The Treasurer’s Role Time Line Commitment Date 8-12 months 30 Day Notice File Lien Foreclosure Notice Foreclosure 30-days 18-months 30-45 Days Tax Collector Treasurer

Automatic Foreclosure Occurs 18 Months after the lien filing date Date Filed stamped by Registry Filed June 30, 2014 = Foreclosed December 30, 2015

Notice to be sent to all with interest 30-45 days Mortgages

Send via certified mail, return receipt may be electronic Foreclosure Notice Must Contain: Treasurer’s Signature Last Known Address Exact Foreclosure Date If Forecloses, municipality owns Contact if you cannot pay Stuart Marckoon Richard C. Zerrien, Sr. PO Box 462 Lamoine, ME 04605

The US Supreme Court has ruled that certified mail may not be enough of an effort: Suggestions: 1 st Class mail if unclaimed Telephone call Service by Deputy Service in Person Contact Relative

Article 10: To see if the town will vote to authorize the Selectmen to sell and/or dispose of any property acquired by tax liens after first offering the property to the previous owners for payment of all back taxes, fees and interest, and if they decline, advertising for sealed bids on same, and stating the lowest bid acceptable, and to allow the Selectmen to authorize the Treasurer to waive automatic lien foreclosures when it is in the best interest of the town. Legislative Body determines how to dispose

To Insure or Not to Insure: The 60-day rule No liability until 60-days after taking possession by automatic foreclosure. If Occupied….. Ask (nicely) to leave Start eviction process Allow to stay Evicting occupants of tax-acquired property is not legally required or, in most cases, advisable; there are in fact some very good reasons not to evict

More on Eviction: There is generally no good reason – legal or otherwise – to forcibly vacate tax-acquired property unless someone is committing “waste” (substantial damage). The property should be sold “as is,” with the duty of dealing with the occupants falling to the buyer. There are in fact some very good reasons not to forcibly vacate tax-acquired property (not least, it can actually increase the risk of liability). But we don’t recommend collecting rent either (that too can raise this risk).

Installment Contract available on MMA Website

Installment Sales Pitfalls If they don’t pay, collection/foreclosure is a lengthy process May have to get attorney involved Should have attorney review the installment sales document Courts can extend redemption period in contract. Monitoring the collection of installment receipts – tickler file.

How Much to Get for your Foreclosed Property Things to Take Into Consideration All Back Taxes All fees All interest Next year’s taxes Any costs associated with insuring, securing property Legal fees Advertising costs associated with foreclosure sale Appraisal cost “the market”

Can the town raffle off tax acquired property? NO! – Municipalities are not authorized to conduct raffles.

Upon sale, issue Quitclaim Deed without covenants

As applied to the sale of tax-acquired property, the transfer tax is computed on the basis of the sale price. The buyer, whether the former owner or another party, is liable to pay its half of the tax, but the municipality is exempt from paying its half. The buyer is also responsible for submitting the declaration of value and recording the deed. The municipality, however, should probably complete the declaration of value form not only because the seller must also sign it but to ensure its accuracy as well. Both the declaration and the deed should then be delivered to the buyer for payment of the tax and recording of the deed at the buyer’s expense. For full details on Maine’s transfer tax, see 36 M.R.S.A. §§ 4641-4644   http://www.maine.gov/revenue/propertytax/transfertax/transfertax.htm Don’t Forget the Declaration of Value!

Waiver of Foreclosure Vote of legislative body - Town meeting or City/Town Council Timing – before lien matures Court action needed to foreclose later on that lien (36 M.R.S.A. ss 945) Purpose of waiver- to avoid acquiring property that may be burdensome such as a dilapidated building or a contaminated site.

Refunds Permissible on Tax Acquired Sales If a municipality wishes to permit refunds, an ordinance must be enacted by the local legislative body (town meeting or town or city council). If a municipality does not wish to permit them, no action is required . 36 MRSA § 949 This was passed in 2015 and applies only to foreclosures taking place after January 1, 2015.

Bankruptcy BAPCPA effective 10/17/05- Provisions make it easier for municipalities to create & perfect tax liens. Types of Cases: Chapter 7- Full Liquidations Trustee is appointed 90% of Maine cases are “No Asset Cases ” Chapter 9- Governmental Entities Chapter 11- Corporate Reorganizations Chapter 12- Family Farmers Chapter 13- Individual Wage Earner Plans

Parties Involved in Bankruptcy Debtor - person filing for bankruptcy protection Trustee - responsible for preserving the property in the bankruptcy estate Bankruptcy Court- in Maine…..Southern & Northern division Creditors- persons and entities who are owed $$$ by the debtor

Bankruptcy Procedure Filing the petition- begins the bankruptcy case Automatic Stay- debtor entitled to protection from creditors pursuant to 11 U.S.C. ss 362. This protec- tion is called the “automatic stay ” . In the tax lien context, a municipality is prevented from foreclosing on a tax lien The Bankruptcy Notice- First indication that a bank- ruptcy case has been initiated Filing Proof of Claim- file with court and trustee When to send Who should send – Tax Collector or Treasurer ?? What to send

Bankruptcy Procedure- cont’d Real estate taxes are secured because they are auto- matically perfected as of April 1 each year. The recording of a tax lien simply secures that status. Personal Property taxes are considered secured only if a UCC tax lien is recorded . Otherwise they are considered unsecured. Relief from the Automatic Stay- No need to file a request with the court because tax liens can be recorded without court permission. However, foreclosure cannot occur without permission from the court and they will not grant permission Accepting payments from mortgagee, friends , relatives

Bankruptcy Procedure- cont’d Sale Free & Clear of all Liens/Encumbrances Abandonment of Property by Trustee Confirmation of Plan Discharge of Debtor Closing of Case Dismissal of Debtor Conversion of Case Dischargeability of Debts Violating Automatic Stay- penalties/ damages etc.

Water/Sewer & Other Special Liens Water & Sewer Service Charge Liens Sewer Construction Liens Malfunctioning Septic System Liens Dangerous Building Liens Automobile Graveyard & Junkyard Abatement Lien Watercraft Excise Tax Liens

New Rules – Sewer Liens No “commitment” required If no 30-day notice sent to all owners of record, those parties in interest must be sent copy of lien certificate After 18-months if mortgage holder or owner didn’t get foreclosure notice, they have 3-months to redeem after notice.

Sewer Service Charges Demand for payment – billing 30 day lien notice sent-after 3 months & within 1 year after charges become due Recording water/ sewer lien certificate- 30 days/1 yr. True Copies to: Treasurer Mortgage Holders Fees- same as regular tax liens Interest- as authorized for municipal taxes Payment/ Discharge Impending Foreclosure Notice Foreclosure- 18 month redemption period

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