If an owner of real property fails to pay real estate taxes on the property, the possibility exists that the county may sell the property to recover the unpaid tax. But, there are statutory procedures that must be followed for the tax-sale buyer to actually end up with legal title to the property. Those procedures can become complicated when the tract at issue is leased to a tenant who has possession of the property – that’s what was involved in this case.
Under Iowa law (Iowa Code §§446 and 447), when a property owner fails to pay real estate taxes, the County Treasurer of the county where the land is located is to sell the property “for the total amount of taxes, interest, fees and costs” that are due. The buyer at the tax sale receives a “certificate of purchase” from the treasurer. But, the certificate only represents a lien and not an interest in the property. That’s because the property owner has two years to redeem the property by paying the Treasurer the amount for which the property was sold plus the amount of any taxes that the buyer paid, plus interest at the rate of two percent per month. If the owner does not redeem the property, the certificate holder gets a tax deed to the property, and becomes the lawful owner. But, to get a tax deed, the tax-sale buyer must give notice of the expiration of the right of redemption to “the person in possession of the parcel” and “the person in whose name the parcel is taxed.” The notice must be given after a year and nine months from the date of the tax sale, and note that the right to redeem must be exercised within 90 days.
Here, the plaintiff lost a 40-acre tract because he failed to pay his real estate taxes. He had inherited the tract in the early 1990s as part of a larger farm. In 1996, the plaintiff rented the tillable ground (including about 35 acres of the 40-acre tract) to a tenant who then recorded the lease. After the 1999 crop year, the plaintiff and the tenant agreed to terminate the lease. The plaintiff then leased the 40-acre tract to another tenant, but this lease was not recorded. The County Treasurer sold the tract at a tax sale on July 19, 2000, to the defendant (a Virginia specialty finance company that owns and manages real estate tax liens) and issued a certificate of purchase. On January 28, 2003, the defendant served notice of the statutory redemption right on the plaintiff and filed an affidavit of service in the Treasurer’s office a few days later showing the manner and completion of the service of the notice. The property was not redeemed within 90 days, and the Treasurer issued a tax deed to the defendant on May 20, 2003. The defendant filed a “120-day affidavit” on June 4, 2003 with the County Recorder. That affidavit requested that anyone claiming to have an interest in the property specify the nature of that interest and how and when it was acquired within 120 days. No one filed a claim, and the defendant sold the property to the tenant.
The plaintiff sued to void the defendant’s tax deed. He admitted at trial to having received notices that the real estate taxes on the property were due as well as notice that he had a right to redeem the property from the tax sale. The trial court ruled that his suit was time barred because he failed to file a claim within 120 days of the defendant’s filing of the “120-day affidavit.” On appeal, the plaintiff claimed his suit wasn’t late because his tenant was never served notice of the right to redeem as the party in possession of the property. The defendant claimed it was reasonable for them to rely on the public record and only provide notice to the plaintiff and the prior tenant (pursuant to the recorded lease agreement), and because the current tenant had actual notice of the tax sale. The appellate court agreed with the plaintiff that Iowa law entitled the tenant in possession of the property to actual notice of the right to redeem. The court noted that the statute placed an affirmative burden on the tax certificate holder to identify the party or parties in possession of the property at issue. So, the defendant will have to begin again with giving the statutorily required notice of redemption. Dohrn v. Mooring Tax Asset Group, L.L.C., 743 N.W. 2d 857 (Iowa 2008).