Many neglected properties are also tax-delinquent properties. When a property owner fails to pay property taxes,local governments and other “taxing units” may impose a property tax lien on the property, representing the debtowed. 1 Tax liens may then be sold at public auction, subject to procedural and notice requirements. 2 If all proceduralrequirements are met and the original owner does not pay the taxes owed within a specified time limit, the tax lien“ripens” into a deed to the property, 3 at which point the lienholder becomes the property owner. In sum, after a period of about three years, a tax-delinquent property may be transferred from a delinquent owner to a new owner through a tax sale.
Prerequisites
Correct Tax Assessment. Counties must conduct assessments correctly for tax sales to be valid. “A tax deed is only as valid as the assessment on which it is based. If the tax lien is based on a void assessment, then the tax deed is likewise void. The passage of time beyond the three-year statute of limitations for remedies relating to tax sales and tax deeds does not save a tax deed that is void.” 4 For comprehensive guidance on the duties of county assessors in West Virginia, see the Guide for County Assessors from the State Tax Department’s Property Tax Division. 5
Advantages
- Can put neglected properties back into productive use by transferring them to new owners
- Local governments can recover unpaid taxes
- May motivate other property owners to pay their taxes on time
Disadvantages
- Relatively long process potentially lasting three years, taking up time and resources
- During the long process, property can fall into a worse state of neglect
- Uncertainty over ownership can also cause neglect: a lien purchaser is not technically the owner while the tax lien is “ripening,” but the original owner may not realize this and may continue to neglect the property as a result 6
- No guarantee that the new owner will be responsible
- Out-of-state speculators often outbid local purchasers at auction and leave properties to fall into further disrepair
- Potential lien purchasers may simply seek to profit from the interest that accrues on a lien up and until an owner redeems the property, and thus, in order to receive the interest, may choose to purchase liens on properties that owners actually wish to keep
- When an infant or mentally incapacitated person loses property by tax deed, they may have 20 years to set aside the tax deed, 7 meaning that even a fully ripened deed may be subject to redemption rights for 20 years 8
Tax lien sales can put low-income property owners, including many seniors, veterans, and people with disabilities at risk of losing their homes. These three groups may qualify for certain tax relief programs and credits that should be brought to their attention. For instance, senior citizens may qualify for the Homestead Exemption Program, the Senior Citizen Property Tax Deferment Credit, and the Homestead Excess Property Tax Credit. Local governments may consider targeting properties that are abandoned or uninhabited for tax lien foreclosure, rather than those that are inhabited. Special considerations and additional procedures will also apply if the owner of a taxdelinquent property lives in the property or files for bankruptcy. See Appendix K for more details.
Funding
In theory, the tax lien foreclosure process should fund itself, or at least bring in revenue that would otherwise be lost to tax delinquency. When delinquent taxes are redeemed or when a lien is sold at auction, the purchaser will pay the delinquent taxes, interest, and charges due. 10
Community Highlight
The City of Spencer tends not to use tax lien sales directly because the three-year process can be too cumbersome. However, if City officials learn that a tax lien was purchased on a property that the City has worked on or that needs repairs, it will approach the purchaser and negotiate for the tax lien interest, using the existing or potential City lien as a bargaining chip to motivate the tax lienholder to sell the interest. The City has successfully acquired interests in properties this way, and where the properties were not redeemed, the City took title and worked to market them to new owners.
Usage in West Virginia
Tax lien foreclosures are used frequently throughout West Virginia, but local governments are concerned about the lengthy and labor-intensive process itself and its effect on blight. For instance, the City of Huntington expressed concern in its home rule application that “[d]ilapidated properties can linger for years in a tax lien limbo and greatly contribute to the spread of slum and blighting conditions, reduction in property value, and a direct correlation to increases in crime.” 11
for Huntington’s rapidly deteriorating housing stock, a tax lien sale can be its worst enemy. ‘Very rarely is there a happy ending for a piece of property that ends up in a tax lien sale,’ said Tom Bell, Cabell County’s [former] chief tax deputy. ‘These are properties that people have walked away from because they have little or no value.’ And most of the time, they fall back into the hands of people who already have abandoned them or a land speculator who is looking for a quick profit rather than a home to redevelop. Neither outcome helps the city’s vexing problem with its housing stock. 12
At the Cabell County 2006 tax sale, 501 tax tickets were sold. Of those, 121, or 24%, were purchased by Sun Rise Atlantic LLC, an investment company based in Atlanta, GA. Thirty other tax tickets were purchased by a group listed as Sass Muni V DTR, which, according to the Cabell County Clerk’s Office, is an investment company based in Philadelphia, PA. 13
it has been threeand- a-half years from the time that the original property owner stopped paying their taxes . . . . The whole process is crazy, because we’re teaching people to not pay their taxes . . . . In the meantime, nothing productive is happening with the property. 14
Notification Requirements & Special Procedures
Notification requirements and special procedures are very important in the tax lien foreclosure process to ensure that sales are not vulnerable to legal challenges. For a step-by-step guide to the tax lien foreclosure process, see Appendix K.
FAQs
Q: Who owns the property after a tax lien is sold?
A: The original owner still owns the property until the tax lien “ripens” into
a tax deed.
15 It is important to note that the property itself is not bought at a tax
lien sale; the debt on the property, i.e., the lien, is bought. After the first
auction, the lien does not turn into an actual deed until 18 months after being
purchased.
Q: Do property tax liens have to be recorded?
A: No. These liens are exempt from the usual requirement that deeds be recorded.
16
Q: At auction, what does “sold to state” mean?
A: “Sold to state” is a reference to when no one buys the tax lien, but this
expression is arguably outdated. The two sales in the tax lien foreclosure process
are sometimes referred to as “the sheriff’s sale” and “the state sale.” If no one
buys the lien at the first county sale—the sheriff’s sale—the sheriff certifies
the property to the State Auditor’s office, where it is held for 18 months.
17 The Auditor’s office then certifies the property to the Deputy Land Commissioner,
who then has a second sale—the state sale.
18 If no one buys the property after the state sale, it remains with the
Deputy Commissioner, and anyone can make an offer on the property. However, the
state never actually “owns” the property, just the lien. In 1992, the West Virginia
Legislature changed the West Virginia Constitution so that unsold titles to tax-delinquent
properties no longer automatically become state property.
19
Q: Is a tax lien purchaser required to provide notice of the sale to the owner
or any other party?
A: Yes, the tax lien purchaser must provide notice to the owner and all parties
entitled to notice. This arguably presents a conflict of interest because purchasers
who want their liens to ripen into ownership would not want the original owner
to redeem the property or have knowledge of the tax lien sale. In essence, the
state “assigns to a private party the State’s Fourteenth Amendment obligation to
notify property owners of their right to redeem their property interest.”
20
The tax lien purchaser is required to conduct the search and notification, including
searching public records, with “reasonable diligence.” If the purchaser deliberately
does a less than thorough search, the tax deed may be set aside.
21
1 W. Va. Code Ann. § 11-8-4 (West 2015); George F. Hazelwood Co. v. Pitsenbarger,
149 W. Va. 485, 489, 141 S.E.2d 314, 317 (1965).
2 W. Va. Code Ann. § 11A-2-10 (West); Rebuild America, Inc. v. Davis, 229
W. Va. 86, 92–93, 726 S.E.2d 396, 402–03 (2012).
3 W. Va. Code Ann. § 11A-3-18(d) (West).
4 D. Kevin Moffatt, West Virginia Tax Sales and Tax Deeds: The Effect of
Tax Deeds on Oil and Gas Leases and Easements, Annual Inst. the Energy and Mineral
Law Found. §WV.05(1) (2014).
5 Guide for County Assessors: State of West Virginia, State Tax Dep’t, available
at http://www.state.wv.us/taxrev/publications/propertyTax/countyAssessorsGuide.pdf.
6 See Huggins v. Prof’l Land Res., LLC, No. 1:12CV46, 2013 WL 431770, at
*1 (N.D. W. Va. Jan. 25, 2013) (After the tax lien is sold at public auction, “the
property has not left the hands of its original owner; the State has simply sold
its tax lien against the property to a third-party.”).
7 W. Va. Code Ann. § 11A-4-6 (West).
8 Moffatt, supra note 4, at §WV.05(3).
9 W. Va. Code Ann. §§ 11-6B-3, 11-21-24 (West); W. Va. Tax Dep’t, West Virginia
Tax Tips for Senior Citizens (2009), available at http://www.state.wv.us/taxrev/tsdPublications/
tsd413.pdf; W. Va. Tax Dep’t, Senior Citizens Tax Credit (2014), available at http://www.state.wv.us/taxrev/publications/tsd/tsd411.pdf.
10 W. Va. Code Ann. §§ 11A-2-18, 11A-3-5 (West).
11 City of Huntington, Home Rule Pilot Program: Revised April 2013 6 (2013),
available at http://www.cityofhuntington.com/assets/pdf/document-center/Home_Rule_Plan.pdf.
12 Id. at 12.
13 Id. at 11.
14 Id. at 10.
15 See Huggins v. Prof’l Land Res., LLC, No. 1:12CV46, 2013 WL 431770, at
*1 (N.D.W. Va. Jan. 25, 2013).
16 See City of Parkersburg v. Carpenter, 203 W. Va. 242, 245, 507 S.E.2d
110, 123 (1998).
17 W. Va. Code Ann. § 11A-3-8(a) (West).
18Id. § 11A-3-45(a).
19The shift away from unsold titles to tax-delinquent properties automatically
becoming state property is detailed in the following: A proposal to amend Article
XIII of the West Virginia Constitution by repealing Sections three, four, five,
and six was adopted during the 1992 legislative session and placed on the ballot
for the election held on Tuesday, November 3, 1992. Following the approval of the
constitutional amendment by the voters in that election, the legislature adopted
statutes patterned after the West Virginia Law Institute’s proposal. The new statutes
were codified as West Virginia Code Chapter 11A, Article 3, Sections 1 through
74, and Article 4, Sections1 through 7, effective July 1, 1994. . . . As noted
above, the ‘new’ statutes shifted the burden of satisfying ‘due process’ by appropriate
notice to the former owner and others with a substantial property interest to the
purchaser of the tax lien. John W. Fisher, II, Delinquent and Non-Entered Lands
and Due Process, 115 W. Va. L. Rev. 43, 60 (2012).
20Huggins, No. 1:12CV46, 2013 WL 431770, at *2.
21W. Va. Code Ann. §§ 11A-3-55, 11A-4-4 (West); Huggins, No. 1:12CV46, 2013
WL 431770, at *1. In Huggins, the United States District Court for the Northern
District of West Virginia concluded that the tax lien purchaser charged with notifying
interested parties could be considered a state actor, and thus, could potentially
be held liable for constitutional rights violations under 42 U.S.C. § 1983 by failing
to meet the due diligence standard. Id. at *4–6. 63