When property is owned by a single party, it’s easy to determine who is personally responsible for delinquent taxes.  It’s the owner as of the date of delinquency (usually January 6) and all subsequent owners.  GS 105-365.1.

But what if the property is owned by multiple parties? May the county force one of the two owners to pay the entire delinquent tax bill? What if the owners are married—may the county target one spouse to pay the entire tax bill?

I think the answer to all of those questions is yes.  One co-owner may be forced to pay the entire tax bill on jointly owned property.

But before we analyze these questions in depth, first let’s take a look at the basic forms of joint ownership available under North Carolina law. There are three:

1. Tenancy in common

This is the default type of ownership for non-married co-owners. GS 41-72(a). Tenants in common own “undivided” interests in the property, meaning that each tenant (aka owner) has the right to use the entire property.  The ownership interests do not need to be equal; a deed could specify that one tenant in common has a 75% undivided interest in a property while the other has only a 25% undivided interest. The differences in ownership percentages affect the tenants’ responsibilities for ownership costs and rights to future sale proceeds.

Regardless of ownership percentages, tenants in common can agree to different property use rights outside of the deed.  For example, two sisters may own a house as tenants in common and enter into an agreement under which one sister is granted exclusive use of the house for a year in return for monthly rent payments to the other.

Generally, tenants in common are obligated to contribute toward costs of ownership (taxes, maintenance, etc.) in proportion to their ownership interest percentage.  If one tenant pays more than their ownership interest percentage of ownership costs, they would be entitled to reimbursement from the other tenants for the excess costs they paid. GS 46A-27. Similarly, if the property is sold, the tenants share the proceeds pro rata based on their ownership interest percentages. GS 46A-85(d).

Under a tenancy in common, each tenant can sell or mortgage their interest in the property without the consent of the other tenants.  There is no right of survivorship, meaning that when a tenant dies their ownership interest passes to that tenant’s beneficiaries under a will or to their heirs under intestacy.  The surviving tenants then become co-owners with those beneficiaries/heirs.

2. Joint Tenancy

This ownership form is similar to tenancy in common, with one big difference.  A joint tenancy may provide for a “right of survivorship,” meaning that the ownership interest of a tenant who dies passes automatically to the surviving tenants.  GS 41-71.

Assume Bill and Tom own property as joint tenants with right of survivorship.  If Bill were to die, Tom would automatically become the full owner of the property. No will or probate proceeding would be necessary.

If property is held by three or more joint tenants with right of survivorship, when a joint tenant dies then the share of the deceased tenant is divided among the surviving tenants according to their respective ownership interests.

For example, assume Billy BlueDevil, Wanda Wolfpack, and Tom TarHeel own Parcel A under a joint tenancy with right of survivorship.  Billy’s ownership interest is 50%, while Wanda and Tom each own 25%. If Tom passes away, his ownership interest automatically passes to Billy and Wanda pro rata.  Billy’s pro rata share is two-thirds (50/75) while Wanda’s is one-third (25/75).  That would result in Billy receiving an additional 16.67% ownership interest (.67 times 25%) and Wanda receiving an additional 8.33% (.33 times 25%).  In the end, Billy would own a 66.67% undivided interest and Wanda 33.33%.

Just like a tenancy in common, tenants who hold under a joint tenancy can sell or mortgage their ownership interest without the consent of the other tenants.  But doing so will terminate the joint tenancy and transform it into a tenancy in common without a right of survivorship. GS 41-73.

3. Tenancy by the Entirety

This ownership form is available only to married couples.  Tenancy by the entirety creates a right of survivorship that operates the same as described above for joint tenancies.  GS 41-64. Property transferred to a married couple is presumed to be held as a tenancy by the entirety unless the deed specifies otherwise. GS 41-56(a).  Property owned by two individuals who later marry must be re-conveyed to themselves under a deed specifying tenancy by the entirety in order to benefit from this ownership form.  If a married couple owning property under a tenancy by the entirety divorce, ownership transforms into a tenancy in common.  GS 41-63.

Unlike property held as a tenancy in common or a joint tenancy, property held as a tenancy by the entirety cannot be reached by creditors of a single spouse.  GS 41-60. A lien or judgment against one spouse will not attach to property owned as tenants by the entirety because the property is considered to be owned by the marital entity. For example, property taxes on personal property owned by a single spouse does not create a lien on real property owned by both spouses as tenants by the entirety. Duplin County v. Jones (NC 1966).  The one exception to this rule is a federal tax judgment obtained by the IRS against one spouse, which may become a lien on property owned as tenants by the entirety.

Assume Billy and Wanda are married and own Parcel A as tenants by the entirety.  Billy is sued after an automobile accident and is found liable for $100,000 in damages.  That judgment can become a lien on all property owned by Billy anywhere in North Carolina, including property owned partially by Billy as a tenant in common or joint tenant.  But it cannot become a lien on Parcel A, because that property is owned as tenants by the entirety by the marital entity (Billy and Wanda), not Billy individually.

An individual spouse cannot convey or mortgage their partial interest in a tenancy by the entirety. Any conveyance or mortgage of tenancy by the entirety property requires the consent of both spouses.  GS 41-60.

What Does This Mean for Property Tax Collection on Jointly Owned Property?

I believe that an individual owner may be held fully responsible for delinquent real property taxes under any one of these three types of ownership.

Why? Because nothing in the Machinery Act restricts the authority of taxing units to employ enforced collections against co-owners.  Under GS 105-361, any owner of property as of the delinquency date is personally responsible for delinquent taxes on that property. GS 105-365.1.  The Machinery Act does not limit tax responsibility for co-owners or joint owners in any way.

What’s more, at least two North Carolina statutes contemplate the possibility of one co-owner paying more than their “fair” share of taxes. One is in the Machinery Act, GS 105-363(b), which grants a lien to a co-owner or joint tenant who pays more than their ownership percentage share of the property taxes on the property   The other is GS 46A-27(c), which grants a “right to contribution” to a co-owner who pays more than their share of property taxes.  Both statutes support the conclusion that a tax collector may collect the entire tax bill from a single co-owner.

Co-owners are also referenced in GS 105-363(a), which protects the ownership interest of a tenant in common or joint tenant from tax foreclosure if that owner pays their share of the taxes owed on the property.  While this provision limits the exposure of a co-owner to foreclosure, it does not limit a co-tenant’s exposure to collection remedies aimed at their personal property such as banks accounts and wages.

For example, assume Wanda Wolfpack and Tom Tarheel co-own Parcel A as tenants in common with equal ownership shares (50% each).  If Wanda were to pay half of the tax bill on the property,  GS 105-363(a) would prohibit the county from later foreclosing on Wanda’s ownership interest in the property if the remainder of the taxes become delinquent.  A subsequent foreclosure could be aimed only at Tom’s 50% ownership interest.  If such a 50% foreclosure went to sale, Wanda would remain a 50% tenant in common with whoever purchases Tom’s 50% ownership interest.

That said, a partial foreclosure is not a particularly attractive collection remedy for a local government.  How many people would be interested in purchasing an undivided partial interest in property with a stranger?  A more practical collection effort would be to target Tom’s assets through attachment or levy to satisfy the remaining 50% of taxes owed on Parcel B.  If the tax collector cannot find any of Tom’s assets, then the county would much prefer to target Wanda’s wages or bank accounts for the delinquent taxes than to pursue a partial foreclosure.

Let’s assume that the county cannot find any assets (wages or bank accounts or cars, etc.) owned by Tom to satisfy the rest of the tax bill.  If the county decides that it doesn’t make much sense to foreclosure on a 50% ownership interest, it could attach Wanda’s bank account (perhaps they have her checking information from her earlier payment) to collect the 50% of the tax bill that remains unpaid.

It may seem unfair for the county to target a responsible co-owner with enforced collection remedies for taxes above and beyond her ownership share.  Some local governments may make a policy of avoiding this practice.

But I view this issue as less of a fairness problem and more of an ownership problem for Wanda and her irresponsible co-owner to resolve. If the county collects the full tax bill from Wanda, she would get a lien on her co-owner’s interest for the “extra” taxes she would have involuntarily paid under this scenario and have a legal right to force him to reimburse her under GS 105-363 and GS 46A-27.

Even married owners who hold property as tenants by the entirety can be held personally responsible for taxes owed on that property.  Tenancy by the entirety property is protected from creditors of individual spouses (except the IRS, as noted above). NCGS 41-60. But the reverse is not true.  Nothing in our state statutes or common law suggests that a tenancy by the entirety shields individual spouses from liabilities relating to the real property. A tenancy by the entirety does not provide liability protection for the individual owners as does ownership by a corporation.  GS 55-6-22.

Bottom line: local governments are free collect the full amounts of taxes owed on jointly-owned properties from any one of the owners.