A tax sales certificate purchaser who bid down to an undivided one percent interest in the real estate was allowed to foreclose upon only the undivided one percent under a Nebraska Supreme Court case decided on March 11. In Adair Asset Mgmt. v. Terry's Legacy, 293 Neb. 32, ___ N.W. 2d ___ (2015), the court decided a case of first, and possibly last, impression because the option of bidding down a tax sale was eliminated by legislation that took effect in January 2015.

In Adair, the purchaser asked to use a bid down process, rather than the traditional round robin format. Adair bid down the certificate to an undivided one percent and paid $2,223.44 for the 2009 taxes and paid the subsequent taxes for years 2010 through 2012. After the statutory time period elapsed, Adair filed an action and obtained a district court decree judicially foreclosing the lien provided by the tax sales certificate. The decree determined the amount that was due to Adair for the taxes, interest, costs and attorney fees and provided for a sheriff's sale of the property. In effect, the decree ordered the sale of a 100-percent interest in the property.

Terry's Legacy, the property owner, appealed and the Supreme Court moved the case to their docket. The court looked at the words used in the bid down and lien statutes and found that both described "the real property" that was purchased. The court cited the rule of statutory construction that statutes relating to the same subject are construed together (in pari materia). In addition, where the same words are used repeatedly in the same act, unless the context requires otherwise, the words are to have the same meaning. Thus the court concluded that "the real property" as used in the other statutes to describe the undivided one percent interest in the property also applied to the amount the purchaser was willing to take in return for paying the taxes.

Adair also argued that the judicial foreclosure they sought was different than pursuing a tax deed. The court agreed that the processes are different, but found that it did not affect the meaning of the tax sale certificate.

Finally, the court found that it would be unjust to award an interest in the entire property to a purchaser who acquired it by a bid for less than 100-percent interest in the property. It noted that there may have been other bidders willing to pay the amount of taxes for a 100-percent interest of the property, but they may have ceased bidding when the interest dropped below 100 percent. The court said it would be unfair to those bidders for Adair to receive a 100-percent interest when it became the purchaser only because it offered to pay the taxes due for the smallest interest in the property.

The court modified the district court decree to provide that Adair's lien was limited to a one percent interest in the property. As to that one percent, Adair's lien was superior to the right, title, and interest in the property and the other parties joined as defendants.

The full text of the case is available here.

 

The Attorney General issued an opinion last week on the constitutionality of LB717, a bill introduced by Senator Mike Groene as a possible property tax relief mechanism. The bill would 1) freeze 2016 values at the 2015 level, 2) replace the definition of "market value" with "actual value", and 3) provide for a five year sales history with the lowest 20 percent of values trimmed. Senator Groene asked the Attorney General whether the bill would comply with the uniform and proportionate valuation requirements of art. VIII, §1 of the Nebraska Constitution.

The Attorney General opined that when assessments are frozen, similar property in the same class may end up being under-valued or over-valued relative to other property. Since the proposed freeze is limited to a one-year period, the effect might be reduced and it might not be facially unconstitutional. However, it could lead to non-uniform taxation as to a particular class or subclass of property.

Revising the definition of "actual value" as proposed in the bill would not change the standard of value set out in §77-112. Historically, actual value has been understood to be the equivalent of market value or fair market value, and it has served as the standard to judge compliance with the uniformity clause. To the extent that LB717 represents an attempt to undo that understanding, the Attorney General concluded that there were constitutional concerns.

Finally, LB717 proposes measuring central tendency by using sales occurring in the last five years, excluding those that constitute the lowest 20 percent of assessment ratios. Currently, Department of Revenue regulations set a study period of two years for residential property and three years for commercial property and agricultural and horticultural land. A longer or shorter study period may be used when these periods do not accurately reflect the value in a county. These periods are consistent with recognized standards for ratio studies under the International Association of Assessing Officers (IAAO). The IAAO standards also address the trimming of outlier ratios but recommend against setting arbitrary limits, such as a percentage of sales to trim. The Attorney General determined that when these two concepts are combined, it creates a lack of uniformity among various classes in relation to market values.

The full text of the opinion is available on the Attorney General's website.