Daily Development for Wednesday, December 13, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

TAXATION; PROPERTY TAX; TAX SALES; SERVITUDES: Declaration of Restrictions and Covenants recorded against residential subdivision providing for payment of assessments to homeowner's association was not an "encumbrance" for purposes of tax forfeiture statute and was not canceled when title became vested in state following a tax sale.

Lakes of the North Ass'n v. TWIGA Ltd. Partnership, 614 N.W.2d 682 (Mich. App. 2000).

Landowner acquired property from the County following a tax foreclosure by the County. Under state law, as a consequence of the tax sale, the property free of "all liens and encumbrances" existing at the time of the sale.

The property law within the boundaries of a subdivision, and the homes association had the right under the Declaration to levy assessments for services provided to subdivision. Landowner argued that, as a consequence of the tax sale, the impact of the declarations disappeared from his lot, as the declarations constituted an "encumbrance." Hence landowner was free of any responsibility to pay even assessments arising after the tax foreclosure sale.

Homeowners association conceded that the landowner was not liable for assessments that preexisted the tax sale, as these were "liens" within the meaning of the statute, and were expunged. However, it brought an action to collect past due association assessments for periods following the landowner's post taxsale purchase.

The Court of Appeals determined that the statute term "encumbrances" certainly has been applied in other contexts to encompass servitudes and other aspects of the declaration. But, in language that will cause any association lawyer's heart to pound, embraced the notion that the special policy interest invested in association liens justifies concluding that the declaration and the right to impose liens were not "encumbrances" within the meaning of the tax foreclosure statute: The primary goal of judicial interpretation of statutes is to ascertain and give effect to the intent of the Legislature. When the language of the statute is of doubtful meaning, as in the present case, the Court must examine the object of the statute and apply a reasonable construction that best accomplishes the statute's purpose. In the present case, the purpose for canceling past due taxes, assessments, and liens against foreclosed property is "to attract prospective buyers and ultimately restore the property to the tax rolls." Defendant asserts that land with a restrictive covenant would be more difficult to restore to the tax roll; consequently, a holding that such covenants survive a *99 tax sale would defeat the object of the statute. We disagree.

Restrictive covenants, especially those pertaining to residential use, enhance and preserve the value of real estate. Preservation of property value will facilitate, not impede, the objective of the tax statute to restore the property to the tax rolls. Destruction of such covenants following a tax sale reduces the value of the property, and perhaps the other properties within the community, because landowners would no longer be able to preserve its planned character. Planned unit developments are a modern trend in residential living. Deed restrictions and covenants are vital to the existence and viability of such communities, and "if clearly established by proper instruments, are favored by definite public policy." Because public policy favors restrictions and covenants regarding residential use, we believe that the Legislature did not intend to cancel such restrictions and covenants in the event of a tax sale. We agree with the trial court in this case that the term "encumbrance" within the meaning of [the statute] "applies to things that are actually presently existing against the title to the property." The parties agree that a lien for past due assessments arising before a tax sale does not survive a tax sale. However, plaintiff is only attempting to collect assessments due for the periods after defendant became the owner of the four lots.

Comment 1: The editor believes this to be the general, but not universal approach to this issue.

Comment 2: But is it an appropriate approach? For instance, do we know whether all servitudes are preserved, or only those that, in the view of the court, "are favored by public policy" or "enhance and preserve the value of real estate?" Isn't this court operating at a level of judicial activism equal or greater than (dare I say it) the Florida Supreme Court? What's policy good for a national election contest, in any event, may not be so good for certainty of title.

Comment 3: There are enough cases out there concluding that in equity an association that provides benefits to an unbound lot can collect the value of those benefits, and that the value can be measured by the assessment amount. We don't have to twist the meanings of words to get to an equitable result. The editor believes that the certainty of tax sale titles is endangered by this somewhat open ended ruling by the court. The policy is a good one, but its one for the legislature to make.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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