Category: Tax Sales

Who Gets Excess Tax Sale Funds in Georgia?

Revisiting a previous post, under Georgia law, a tax commissioner holds excess funds generated by a tax sale in a fiduciary capacity, and the disbursement of those funds is governed by OCGA § 48-4-5. But, after a tax sale, if there are any excess funds after paying taxes, costs, and all expenses of a sale, who gets these funds? The answer, generally, is that distribution of excess tax funds is based on the right to the funds at the time of the tax sale.

If there are excess tax funds, the officer selling the property shall give written notice of the excess funds to the record owner of the property at the time of the tax sale and to the record owner of each security deed affecting the property and to all other parties having any recorded equity interest or claim in such property at the time of the tax sale. Such notice shall be sent by first-class mail within 30 days after the tax sale. The notice shall contain a description of the land sold, the date sold, the name and address of the tax sale purchaser, the total sale price, and the amount of excess funds collected and held by the tax commissioner, tax collector, sheriff, or other officer. The notice shall state that the excess funds are available for distribution to the owner or owners as their interests appear in the order of priority in which their interests exist.

If there is a dispute regarding who is entitled to the excess tax funds, an interpleader is filed and the excess funds are distributed by the superior court to the intended parties, including the owner, as their interests appear and in the order of priority in which their interests exist.

Some issues that come up in regard to distribution of excess tax funds is whether a “super-lien” obtained via a redemption gives the redeeming party first priority on the excess funds. The answer is no because a super-lien applies places a lien on the property but not on the excess tax sale funds.

Another issue is when additional taxes come due after the tax sale—is the tax commissioner allowed to use the excess funds for taxes due after the tax sale? The answer is no because the tax deed purchaser is the party responsible for paying property taxes after the tax sale. The remedy for the tax purchaser is to add taxes paid to the redemption price.

Service by Publication in a Quiet Title or Tax Deed Barment

In both a tax deed barment and the subsequent quiet title, a critical part of the procedure is serving all parties with an interest in the subject property. This includes lien holders, heirs, and anyone else with a claim against the property.

Often in these situations, especially when the property is distressed or abandoned, parties connected with the property may be hard to find. The best example is the delinquent taxpayer. That party has not paid taxes for one or more years, and, many times, has abandoned possession. If the delinquent taxpayer is gone and hasn’t left a forwarding address, that party may be anywhere.

What must be done in these situations? A reasonable and diligent search must be conducted to find and serve each party that has an interest. In a barment, this requires personal service for parties residing in the county of the tax sale or certified mail for parties residing outside the county. In a quiet title, personal service is required.

What if personal service or certified mail is unsuccessful? For example, you get back the certified letter stating it is undeliverable. In those situations, you’re entitled to serve by publication. This usually means advertising notice of the barment or lawsuit in the official county newspaper for four consecutive weeks.

Sound simple . . . usually it is  straightforward, but there are times when things don’t work out as expected. In a recent case, Dukes v. Munoz et al., A18A0572 (decided June 15, 2018), a tax deed holder, unable to serve the delinquent taxpayer, hired an investigator. The investigator came back saying the delinquent taxpayer could not be found after reasonable search. Relying on the investigator’s testimony, the tax deed holder barred the taxpayer’s right of redemption and filed a successful quiet title action.

Happy tax deed holder and end of story . . . not so much. Turns out that the delinquent taxpayer was a Georgia state legislator, who found out about the barment and quiet title. The Georgia Court of Appeals ruled that because a Google search would have provided the address for the delinquent taxpayer, the tax deed holder had not exercised proper diligence in locating the delinquent taxpayer. Therefore, service by publication was improper and the barment and quiet title were voided; the tax deed holder was forced to incur the expense of the barment and quiet title.

The takeaway is that it’s not sufficient to use the last known address of party if that address appears invalid. The best approach, in our opinion, is to spend a little extra money to make sure parties with an interest are served and given a proper opportunity to object.

Excess Tax Sale Funds in Georgia

Following up on a previous blog regarding whether redeeming parties get priority to claim excess tax sale funds (they don’t), this blog discusses the process of disbursing excess funds following a tax sale.

Under Georgia law, a tax commissioner holds excess funds generated by a tax sale in a fiduciary capacity. Alexander Investment Group v. Jarvis, 263 Ga. 489, 491-492 (1993). Georgia statutory law, in O.C.G.A. § 48-4-5, describes the process of disbursing excess tax sale funds.

If there are any excess funds after paying taxes, costs, and all expenses, within 30 days of the tax sale, written notice is sent by first-class U.S. Mail to the following parties: (1) the owner of the property (delinquent taxpayer), (2) security deed holder, and (3) parties with a properly recorded interest in the property.

The notice of excess tax funds shall describe the land sold, the date sold, the name and address of the tax sale purchaser, the total sale price, and the amount of excess funds. The notice shall also state that the excess funds are available for distribution to the owner or interest holders in the order of priority in which their interests exist on the public record.

If excess funds are unclaimed or a dispute arises regarding who’s entitled to the excess funds, the tax commissioner or sheriff is entitled to deposit the funds into the registry of the superior court so that the superior court can disburse the funds.

If the excess funds remain unclaimed for five years, the funds may be retained. After this time, only a court order from an interpleader action filed in the county where the tax sale occurred, by the claimant for the funds, shall serve as justification for release of the funds.

 

Georgia Tax Deed Purchasers Are Responsible for Paying Association Dues

Under Georgia law, a tax deed purchaser is obligated to pay homeowners’ association assessments that come due after the tax sale. See Croft v. Fairfield Plantation Property Owners Assn., 276 Ga. App. 311, 314 (2005). This includes the period before the purchaser can foreclose on the right of redemption. Georgia courts have held that a tax deed purchaser acquires sufficient title to trigger automatic membership in the association. The rationale is that assessments and fees paid to a homeowners’ associations benefit a tax deed purchaser.

The good news for tax deed holders is that Georgia courts allow tax deed holders to include condominium association assessments paid as part of the redemption price. Harvest Assets, LLC v. Northlake Manor Condo. Assn., 340 Ga. App. 237 (2017).

Georgia Tax Deeds: Excess Tax-Sale Funds and Super Liens

There was an important shift in Georgia tax deed law last year. The Georgia Supreme Court, in DLT List, LLC vs. M7even, 301 Ga. 131 (2017), decided that a party who redeems a tax deed is not automatically first in line to receive excess tax-sale funds following a tax sale.

The facts of DLT List are straightforward: a property was auctioned at a tax sale and sold for $110,000. The delinquent taxes were $5,000, so there were $105,000 in excess tax-sale funds. The delinquent taxpayer applied to the tax commissioner to receive the excess funds–there were no other claims to the funds. Several months later, a third-party, who held a lien against another property owned by the delinquent taxpayer, redeemed. The redeeming party applied for the excess tax-sale funds. The question became who was entitled to the excess tax-sale proceeds.

Under existing law in Georgia, a redeeming party, simply by virtue of redeeming, is entitled to first position against excess tax-sale funds. This arose out of an often-cited case, National Tax Funding vs. Harpagon, 277 Ga. 41 (2003), which involved competing lien holders in the context of a tax sale. Harpagon held that following a tax sale, a competing lien holder had two choices: (1) claim the excess tax-sale funds, or (2) redeem the property. Importantly, if a competing lien holder chose to redeem, the redemption converted the competing lien holder’s claim into a first-position lien against the property. This is known as a “super lien” and allows a redeeming party to leapfrog over higher priority creditors. A super lien has many benefits for tax sale investors.

Redeeming parties, relying on the super lien language in Harpagon, began claiming their super lien status not only gave them a first-position lien against the property, but also entitled them to the excess tax-sale funds following redemption. These claims were affirmed by the courts in cases like Wester v. United Capital Financial of Atlanta, LLC, 282 Ga. App. 392 (2006).

Fast forward to 2017.  In DLT List, LLC vs. M7even, the Georgia Supreme Court revisited the issue of excess tax-sale funds and found that super liens attach only to real estate, not to personal property. Therefore, because excess tax-sale funds are personal property, super liens don’t attach to excess tax-sale funds. Thus, redeeming parties aren’t entitled to any preference with regard to excess tax-sale funds. By so deciding, the Supreme Court distinguished Harpagon and overruled cases like Wester.

While this ruling isn’t likely to slow down the tax deed business in Georgia, as a real estate investor, it’s something to be aware of.