Court Finds Lien Holder Not Entitled to Redeem Real Estate Subject to Tax Foreclosure

When a homeowner fails to pay property taxes, Ohio law requires the County Treasurer to commence foreclosure proceedings before the property can be sold at Sheriff's auction in order to satisfy delinquent taxes.

Ohio law also requires all lien holders to take affirmation steps in the tax foreclosure proceedings to protect their interest in the property, by filing an answer to the foreclosure complaint, and by participating throughout the proceedings, including bidding at the Sheriff's sale.  

At a tax foreclosure sale in Ohio, unlike a mortgage foreclosure sale which requires an opening bid on the property of two-thirds of the appraised value of the property, the opening bid will be the amount of the delinquent taxes only, which could be considerably less than the value of the property.

It is imperative for lien holders who wish to protect their lien interest in the property to give the proper attention to tax foreclosure cases by reaching out to counsel immediately upon receiving such a summons. Counsel can ensure that the proper pleadings are filed timely in the proceedings and that the lender is aware of the tax sale, as well as advise the lender regarding bidding strategies to be taken at the sale.   A recent Court of Appeals decision in Ohio's Fifth District highlights the importance of handling tax foreclosure cases properly. 

The case of In re Foreclosure of Liens for Delinquent Taxes v. Parcels of Land Encumbered with Delinquent Tax Liens, 2013-Ohio-1400, related to a property which had a mobile home located upon it. The Treasurer commenced a tax foreclosure and the mortgage lien holder was joined as a party to the foreclosure proceedings.  Although the mortgage lien holder failed to file its answer timely, the Court permitted the mortgage lien holder to intervene in the case to file an answer and cross-claim.  The mobile home and real estate were offered for sale by the Sheriff separately. Ultimately, the mortgage lien holder purchased the mobile home at the Sheriff's sale, but at a separate Sheriff's sale, failed to bid on the real estate and the real estate was sold to a third party.

Upon discovering its mistake, the mortgage lien holder attempted to redeem the real estate by depositing with the court the amount necessary to pay the delinquent property taxes.

Ohio Revised Code Section 5721.25, provides that after a tax foreclosure proceeding has been instituted, but before the filing of an entry of confirmation of sale, any person entitled to redeem the land may do so by tendering to the county treasurer an amount sufficient, as determined by the court, to pay the taxes.

The purchaser of the real estate appealed the trial court's decision to permit the mortgage lien holder to redeem the real estate.   The Court of Appeals determined that the mortgage lien holder was not intended by the statute, as a person entitled to redeem the real estate.  The court found that "the intent of the statute is to provide the owner with an opportunity to redeem the property if they so desire. [The mortgage lien holder] was notified of the sale of the land and in fact purchased the mobile home located on the property. [The mortgage lien holder] had an opportunity to protect its interest in the land by bidding at the sale."

The mortgage lien holder argued on appeal that it had the right to advance monies to pay the taxes pursuant to the terms of the mortgage.  Nevertheless, the Court rejected this argument because the homeowner had no interest in redeeming the property.  The Court of Appeals found that the mortgage lien holder's failure to take the appropriate action to bid at the sale, and then its attempt to usurp the sale process by attempting to redeem the real estate, undermined the integrity of the Sheriff sale process.

To ensure that a lien interest is properly protected in a tax foreclosure proceeding, it is necessary for the lien holder to engage counsel immediately upon receiving the summons.  A lien holder should not sit on the summons until the sale occurs and then expect to be able to redeem the property.  The best practice for the lien holder is to take this pro-active approach to ensure that the proper legal steps are taken in the tax foreclosure proceedings prior to the Sheriff's sale.