When a property owner fails to pay property taxes, the county treasurer can sell the property for the amount of taxes, interest, fees and costs due. At the sale, the buyer receives a “certificate of purchase” from the treasurer. But, the property owner (and any other person with an interest of record in the property) has two years to redeem the property. If redemption does not occur, the tax sale certificate holder is entitled to a tax deed. But, the treasurer must give notice of the expiration of the right to redeem to the person in possession of the parcel, the tax owner of the parcel and any mortgagee of the property. The Iowa Supreme Court decided a case earlier in 2008 in which it held that the failure to give notice of the right to redeem to a farm tenant caused the tax deed to be void. That decision controlled the outcome of this case.
In this case, the plaintiff contracted to buy a tract of real estate in 2001. A title search indicated that the seller had clear title and could transfer title to the plaintiff. So, the seller executed a deed transferring title to the plaintiff. Sometime later, the plaintiff learned that she didn’t have clear title because of problems with a tax sale of the property a few years earlier. What had happened was that the property had been purchased at a tax sale in 1997. The treasurer had issued a certificate of purchase and the buyer paid subsequent taxes accruing on the property. Two years later, the buyer at the tax sale filed an affidavit of service stating that the required redemption notice had been provided to the necessary parties notifying them that the right of redemption would expire unless the property was redeemed within 90 days of the filing of the affidavit. Redemption did not occur, and the treasurer issued a tax deed to the buyer. However, after the tax deed was issued, the buyer realized that it had failed to serve the 90-day notice of the right to redeem on the holder of the first mortgage on the property. So, the buyer tried to remedy the situation by serving the mortgage holder with the required notice. The mortgage holder redeemed the property and got a redemption certificate from the county treasurer. But, the mortgage holder did not file a claim with the recorder within the 120-day period. The buyer then transferred title to the property to another party who then transferred title to the party who transferred title to the plaintiff in this case. After acquiring title, the plaintiff discovered that there was an unsatisfied mortgage on the property that the holder would not release. So, the plaintiff sued the title company and other private parties in the chain of title to resolve the matter. The title company claimed that the mortgage holder’s interest was cut-off when the 120-day affidavit was filed, even though the mortgage holder was initially not served with notice of its rights to redeem. The trial court agreed – noting that the mortgage holder didn’t file a claim within the 120-day period. The mortgage holder appealed.
On appeal, the court reversed – it was a “slam dunk.” Earlier in 2008, the Iowa Supreme Court (Dohrn v. Mooring Tax Asset Group, L.L.C., 743 N.W.2d 857 (Iowa 2008)) held that a county treasurer is only authorized to issue a tax sale deed once all of the necessary parties have been served with notice of redemption and at least 90 days have passed. Lack of proper notice is enough, all by itself, to prevent the redemption period from ever expiring. Because the mortgage holder was entitled to notice under Iowa law and didn’t receive it, the tax sale deed was void. The mortgage holder’s 90-day redemption period didn’t start running until it actually was served with notice of its right to redeem. The mortgage holder did redeem within the allowable time period. Robinson v. First American Title, No. 8-165/07-1548, 2008 Iowa App. LEXIS 430 (Iowa Ct. App. Jun. 25, 2008).
Note: During its 2008 session, the Iowa legislature passed H.F. 2642 and the governor signed the bill into law. The bill provides that a treasurer’s deed issued after the expiration of the period of redemption is void if it is proven that a notice of expiration of the right of redemption was not served on the owner of record or the person in whose name the parcel is taxed if other than the owner of record. The bill further provides that the deed is not invalid solely because notice was not provided to a person with an interest in the parcel conveyed by tax deed or a person who is in possession of the parcel and such persons were entitled to notice of expiration of the right of redemption. However, the deed remains subject to challenge under other statutory provisions. Effective April 8, 2008.