May 16th Meeting

I am including an article that was in the paper a few weeks back. It interested me so much I thought I would ask Larry Riley to be our speaker for the May meeting. He will be joining us. I unfortunately will be out of town that evening. I hope that he will come back and speak again. He has so much knowledge about so many things. I know he will be interesting.

Tax sales process under fire

A 40-minute drama played out last Thursday at the Indiana Supreme Court over constitution­ality of the process by which Hoosier counties conduct delinquent tax sales of real property.

Two courts already have said the process does, indeed, violate the Bill of Rights and if the Supreme Court agrees — a decision likely won’t be announced for months — counties will have lots more work to do to sell properties delinquent in paying taxes. “Yeah, it will have a huge impact. The coun­ties can’t afford it,” said Jon Orlosky, Muncie attorney whose law prac­tice is devoted to tax sales and who’s at the center of the legal storm.

Orlosky argued before the Supreme Court in defense of Indiana’s system.

The case began sever­al years ago when M&M Investment Group LLC, bought a commercial property in a Bartholo­mew County tax sale for $95,000. I think M&M is an out-of-state firm that, as growing numbers of specialty investors are becoming, focus on tax sale properties with no objective of actually owning their purchase.

Instead, the buyers hope the original owners “redeem” their property to keep ownership, and when they do, the tax sale buyer gets their purchase price back plus 10 to 15 percent interest, depending on when the redemption takes place.

The redemption peri­od is only one year, so the buyer makes a quick killing. In M&M’s case here, if the prop­erty was re­deemed after a couple of months, M&M makes $9,500 profit.

But the property wasn’t redeemed, so M&M went ahead to take the property to deed.

When you have the winning bid in a tax sale auction, you don’t actu­ally buy the property. You buy a lien giving you the right after one year, if the property isn’t re­deemed, to petition a court to grant you a deed. You do have a host of steps to take, including notifying any other lien holder on the property and the property owner what you’re doing.

In Indiana, the property owner of record — the owner whose name is on the tax rolls — is always notified by the county if their property will be in a tax auction.

The county also advertises the sale in the local newspaper and must send a list of such prop­erties to any mortgage company asking for one, but the county doesn’t do a title search to see who all is a lien holder on the property, including any­one who might hold the mortgage on the proper­ty.

That’s the issue at hand. Monroe Bank, in Bloomington (now part of Old National Bank), had a mortgage on the property with an unpaid balance exceeding $800,000. If M&M gets a tax deed, the bank’s out.

The theory behind requiring the buyer of a tax sale property to noti­fy all interested parties is so those parties, should they choose, can pay the back taxes (and the 10-15 percent inter­est), keep the title in the original owner’s name and protect their lien.

For some reason, Monroe Bank did not do that during the redemp­tion period.

Afterward, the bank said it should have been notified before the prop­erty was sold in the tax sale, claiming it was denied “due process” protection of the 14th Amendment to the U.S. Constitution.

A Bartholomew Coun­ty judge at trial agreed. The case is complicated in that the state Supreme Court ruled in 1992 that the existing process was constitutional, but a U.S. Supreme Court case in 2006 rejected the 1992 rationale, though that rejection was in a case about notices to property owners that weren’t de­livered.

Orlosky, who does tax sale work across Indiana, came onto the case to appeal.

Last summer, the Indiana Court of Appeals upheld the trial court.

Orlosky petitioned the Indiana Supreme Court to take the case, and justices agreed. The Muncie attorney consid­ered that auspicious since 90 percent of the time the Supreme Court turns down requests for appeals.

The Supreme Court also vacated the Appeals Court ruling pending its own decision, a move that justices did not have to make, and that also gives Orlosky hope.

Orlosky thinks if the prior decisions are up­held, tax sales would be out of financial reach for counties. County audi­tors would have to do title searches on all prop­erties up for tax sale.

“It would involve a lot of work and expense,” he said. “It would just be impossible.”

The Indiana Associa­tion of Counties agreed and filed amicus briefs in the case on behalf of treasurers and auditors throughout the state.

Orlosky estimated that at typical rates for a lien search run as much as $250. Last year, Dela­ware County offered more than 1,000 proper­ties at tax auction. That math computes to a quar­ter million dollars.

The county could tack on the cost to properties sold, but half the proper­ties don’t sell (the really worthless hovels). County treasurer John Dorer is more sanguine should the county be required to do more, confident that the title searches won’t be that much, and would actu­ally clean up any ques­tions.

“I’ve been in court too much over tax sales,” he said. “The whole issue is notification.” But Orlosky also told the Supreme Court if the ruling is upheld, every property owner with a mortgage whose proper­ty sold in a tax sale could reclaim title to the prop­erty, even if the property had been resold to a le­gitimate buyer.

Larry Riley teaches English at Ball State Uni­versity. Email him at lri­ley@bsu.edu.

We will also be having another speaker. He is Gary Paul. He is an agent for State Farm. I have known him for many years and believe that with changing times it is always nice to have and insurance agent as a Member. He has shown enough interest that he will be joining our membership.

I spoke with Ona Sites the other day and met her for lunch. I was able to explain how important our association is to a Landlord and how much help she can expect from the wonderful Members of our Association that she felt she wanted to join our group before we left. Please be sure to make our 2 new Members welcome.