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Tax Deeds Foreclosed a Sanitary and Improvement District’s Special Assessment Liens

on Tuesday, 19 August 2014 in Dirt Alert: David C. Levy, Editor

The Nebraska Supreme Court, in Sanitary and Improvement District No. 24 v. Tristar Management, LLC, held that Tristar’s tax deeds foreclosed the SID’s special assessment liens. The issue was whether the SID’s special assessment liens against real estate located within the SID survived Tristar’s acquisition of the property by tax deeds.

The SID levied special assessments on the properties and later became the owner of the properties in a tax auction for the collection of delinquent property taxes. Through assignment, Tristar became the holder of the tax certificates on the properties and began proceedings to redeem them. Tristar published notices of its intent to redeem the tax certificates and also mailed notices to the SID’s attorney. The SID took no action to redeem the tax certificates within the 90-day redemption period. Tristar then applied for and obtained tax deeds to the properties from the Douglas County Treasurer.

The Nebraska Supreme Court found there are two processes through which a holder of tax certificates can exercise its rights to property subject to a tax sale. Under chapter 77, article 18 of the Nebraska Revised Statutes, the holder of a tax certificate can obtain a tax deed from the county treasurer, after giving proper notice (the “tax deed” method). Under chapter 77, article 19 of the Nebraska Revised Statutes, the holder of a tax certificate can foreclose upon a tax lien in a court proceeding and compel the sale of the property, yielding a sheriff’s deed (the “judicial foreclosure” method).

After Tristar obtained tax deeds for the properties under the “tax deed” method, the SID sued to quiet title to the properties in the SID and foreclose its liens for special assessments. The district court granted summary judgment to the SID. The district court relied on Nebraska Revised Statutes section 77-1902, which provides that “when land has been sold for delinquent taxes and a tax sale certificate or tax deed has been issued, the holder of such tax sale certificate or tax deed may . . . proceed in the district court . . . to foreclose the lien for taxes . . . excluding any lien on real estate for special assessments levied by any sanitary and improvement district which special assessments have not been previously offered for sale by the county treasurer.”

The Nebraska Supreme Court reversed. The court concluded that the exception in Nebraska Revised Statutes section 77-1902 for the survival of an SID’s liens applied to the “judicial foreclosure” method, but did not apply to the “tax deed” method. Under common law, both methods passed title free and clear of all previous liens and encumbrances. Section 77-1902 provided a statutory exception to the common law, and therefore, the court construed the exception narrowly and limited its application to the “judicial foreclosure” method. Because title passed to Tristar free and clear of all previous liens and encumbrances, and the statutory exception for an SID’s liens did not apply, the SID’s special assessment liens did not survive the transfer to Tristar via tax deeds.

A copy of the opinion is available here.

Anthony D. Todero

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