Going Once, Twice, Sold!...Maybe! Getting Title To Property From A Tax Sale In Utah - May 2017

Terry Jessop & Bitner Newsletter

Issue 42, May 2017

When drafting the Declaration of Independence, Thomas Jefferson borrowed John Locke's idea that people are entitled to "life, liberty and property." Of course, Jefferson changed the word "property" to "the pursuit of happiness." It was a good change. If you don't pay your property taxes, you'll have to find a way to pursue happiness without your property, because the County is going to sell it to someone else. As tax sales are held in May or June of each year, now is a good time to review the process.

The Rules

If you own real property, you are obligated to pay taxes on it annually. If you fail to pay taxes for four years in a row, the County has the right to sell the property at a tax sale. (UCA § 59-2-1343.) At any time prior to the sale, an owner may "redeem" the property, i.e., prevent it from being sold, by paying "all delinquent taxes, interest, penalties, and administrative costs that have accrued on the property." (UCA § 59-2-1346(2).) If the sale goes forward, the County must first give notice, by certified mail (and by publication) "to the last-known recorded owner, the occupant of any improved property, and all other interests of record . . . at their last-known address." (UCA § 59-2-1351(2).) The County gives a tax deed to the successful bidder at the sale.

Clouds on the Horizon

Because properties are usually worth far more than the taxes owed, it can be tempting to rush out and buy all the property you can at a tax sale. But getting clear title at a tax sale is easier said than done. For one thing, there is a four-year statute of limitations for interested parties to try to set aside the sale. That means that once you have a tax deed in hand, you have to wait for four years to see if anyone tries to rip the property away from you. Some underwriters won't insure the property even after four years have passed, preferring to wait seven years instead.

The issue that makes title from tax deeds so dodgy is notice: did the County give proper notice to every interested party? Where the County does everything right, the 4-year statute of limitations is designed to shore up the title to the property and give certainty to future buyers. But where the County does not give proper notice, the tax sale does not cut off those who did not receive notice, no matter how much time passes. The Utah Supreme Court recently said as much in Jordan v. Jensen, 2017 UT 1.

Under the 14th Amendment of the U.S. Constitution, no one can be deprived of property without due process. In the tax sale context, the Jordan court said that due process means actual notice of the tax sale beforehand. Constructive notice of the recorded tax deed after-the-fact is not good enough, nor does the passage of time cure the defective sale. Due process requires prior, actual notice. Consequently, if you buy a property at a tax sale, you'll probably need to file a quiet title action before you get clear title to the property.

The good news is that the 14th Amendment is alive and well. Your property cannot be taken from you without due process. That idea is central to the pursuit of happiness under the rule of law. We handle all kinds of property issues. If you have a question, give us a call. We can help.

© Terry Jessop & Bitner May 2017