“The Machinery Act is a labyrinthine compilation of statutes that requires careful interpretation.”
So observed the North Carolina Court of Appeals in a recent decision (In re: Appeal of Trade Land Company, LLC). All of us working in the property tax field already knew that was true, but it’s nice for others to recognize that what we do on a daily basis ain’t easy. The next time you get tied in knots trying to decipher the Machinery Act, know that you are not alone.
One of the many confusing topics in the Machinery Act is foreclosure. I’ve written over a dozen blog posts on foreclosure but had not previously combined that advice into one resource. I remedied that oversight with the publication of this new Property Tax Bulletin.
The goal of the bulletin is to provide an overview of property tax foreclosure so that your tax office can best employ this remedy to suit your local government’s goals.
It does not offer a step-by-step guide for the foreclosure process; if that’s what you need, see this book or this one.
The new bulletin covers topics such as the key questions that a tax office should ask before pursuing foreclosure, which taxpayer obligations should be included in a foreclosure, and what happens if the government is the high bidder at the foreclosure sale. It summarizes lots of practical lessons I’ve learned from property tax office employees and foreclosure across the state over the past 15 years.
While I think that the entire bulletin will be valuable, two pieces of its advice deserve special attention. One focuses on the very beginning of a foreclosure, while the other concerns the end stages of the process. Both emphasize the importance of clear and effective communication between the tax office and the board, the manager, taxpayers, and foreclosure attorneys.
- Does your office have a consistent foreclosure policy in place?
The tax office should work with the manager and board to develop an objective plan for how foreclosure will be employed. How long must taxes be delinquent before foreclosure is initiated? Is there a minimum amount of delinquent taxes that will trigger a foreclosure? Will foreclosure be used on occupied residences or only on vacant properties? Will the local government submit initial bids to ensure that if the properties are sold to third-parties then all taxes and costs will be paid, or does the local government not want to risk becoming the high bidder and owner of the properties?
Consistency is key to maximizing the deterrent effect of foreclosure on other taxpayers and minimizing complaints of inequitable tax enforcement.
2. Does the tax office communicate clearly with taxpayers and foreclosure attorneys concerning the right to redeem properties and stop foreclosures?
Any party, whether the owner of the property or a third-party, may “redeem” the property and terminate a foreclosure by paying all taxes, interest, and costs—including attorney fees for a mortgage-style foreclosure—owed on the property. This opportunity ends when the court confirms a mortgage-style foreclosure sale or when the upset bid period ends in an in rem sale.
Regardless of who makes the payment, ownership remains in the name of the party that owned the property at the time the foreclosure was initiated. A third party cannot take ownership of property under foreclosure simply by paying the amount owed on the property.
Tax offices should take care to communicate clearly with taxpayers and their attorneys throughout the foreclosure process. Taxpayers should be given clear guidance about what they need to pay to terminate a foreclosure and how they can do so. Poor communication can lead to litigation, botched foreclosures, and public relations disasters. See this blog post for more about a foreclosure gone (very) bad.
The bottom line: Foreclosure, like many aspects of the Machinery Act, is rarely simple in operation. Read as many resources as you can, talk with your experienced foreclosure colleagues across the state, and do not hesitate to reach out to me when you have questions or wisdom to share.
