Compensation in urgent proceedings due to tax foreclosure disputed

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State law gave Harrison several options to pay her taxes and defend her stake in the property, and the U.S. Supreme Court has ruled that non-compliance claims will not arise, said Stephen Funk, an Akron-Montgomery attorney defended county in case.

“If you’ve lost your property through neglect, it’s not taking, it’s just a consequence,” he said. “This is the subject that we ultimately expect to win in court.”

Before quasi-state land banks were founded, an unsolved tax foreclosure procedure culminated in a sale by a sheriff, in which the proceeds initially satisfied all property taxes due and all remaining amounts were returned to the owners.

In 2010, state law went into effect that allowed expedited tax enforcement in counties with more than 60,000 residents. The process enabled the district audit boards to hand over property to a district land bank or municipality for redevelopment or resale – but with the control panel.

Harrison’s case was initially dismissed in federal court and appealed by Dann and Andrew Engel, a Centerville attorney who also works on the case. Last month, a ruling by the U.S. Sixth District Court of Appeals overturned the District Court’s dismissal, allowing the case to move forward. A subsequent district petition for a 6th district sample was rejected on Thursday.

The 576-square-foot bungalow on Dandridge Avenue in Dayton and adjacent property that also belonged to Harrison’s mother were foreclosed in 2017 and passed to the land bank, Montgomery County Land Reutilization Corp., which remains the owner in 2018.

In the absence of a sheriff sale, Harrison received no compensation, nor was the county collecting back taxes to use in public services, parks or schools, Dann said.

“So no taxes are levied. The property owner is deprived of his equity. The pledgee will be deprived of the money they owe, ”he said. “There are a lot of losers here”

Idea ‘missed’

Administrative tax foreclosures are “not all bad things,” and the process has reduced the number of dilapidated properties that lower the value of homes in certain neighborhoods, Engel said. But the process can sometimes hurt the same people it is supposed to help, Engel said.

“Many low-income people are hardest hit,” he said. “They usually live in lower-income parts of the county and the city of Dayton, and that was the case at Ms. Harrison’s house.”

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People who are in arrears on real estate taxes usually live on a fixed or very limited income and often struggle to understand the legal system or do not have the resources to bring proceedings in court, Engel said.

Engel estimates that deceased owners, many of whom did not have mortgages, are responsible for a quarter of Montgomery County’s administrative foreclosure cases, often due to tax liens that are relatively small compared to the property’s value.

“The government is just confiscating a lot of value,” he said. “Ultimately, the goal was solid, but I think the implementation failed because it took away people’s value. And even for people who can’t afford to pay their taxes, the constitution still means something. “

Taxes are not collected

A 2020 report by the Ohio Center for Investigative Journalism showed local governments are losing millions of dollars in property tax revenues to accelerated foreclosures. The investigation group examined thousands of foreclosures by the Auditors in the Montgomery and Cuyahoga counties, where the lawsuit is most prevalent in Ohio.

In 2019, the Montgomery County’s Office of Treasurer filed 207 Audit Committee cases totaling more than $ 2.25 million owed to the public purse when all cases were closed. In 141 of the cases, the estimated value of the home exceeded the amount of tax owed, potentially costing mortgage lenders and other mortgage holders nearly $ 2.8 million, according to the Eye on Ohio report. In Cuyahoga County, 3,856 revision cases filed in 2018 and 2019 threatened to lose $ 77 million in value to homeowners and banks. According to the report, selling a sheriff would have raised up to $ 9 million in tax revenue that could be used for charitable services.

Homeowners in the cases studied in Cuyahoga County owed a median of $ 1,249 in back taxes. In 855 cases, the amount overdue was less than $ 500, according to the Eye on Ohio investigation.

Funk said that property that ends up in the hands of a land bank is, by definition, in dire condition. Before the state took action, 99% of abandoned tax-deferred properties did not meet taxable value when sold by a sheriff, he said.

“In this situation, it goes directly to the state,” said Funk. “If it were sold to a third party, it would be a speculator and it would be foreclosed again because they didn’t pay taxes either. So many of these properties go through foreclosure cycles. “

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Mike Grauwelman, executive director of Montgomery County Land Reutilization Corp., said the properties transferred and renovated to Montgomery County Land Bank will almost certainly be productive again and generate new property taxes. Program participants are screened, take home ownership courses and must make improvements in good time or the real estate bank can take the property back.

“If something is sold at the sheriff’s sale, it may or may not be renovated. When we buy a property, we know what is going to happen to it, ”he said. “Our program is designed to effectively guarantee that the bottom line on this property will be improved.”

Ask about ‘beans’

When he ordered US District Court judge Thomas Rose to dismiss the case in 2019, Montgomery County described Harrison’s case as an “improper and merciless attempt” to bring a “revenue claim” into lawful prosecution and enforcement of administrative tax foreclosure proceedings by Montgomery County .

The county said Harrison did not deny or contest the proceedings or lodge a timely administrative complaint. It was not until more than a year later, when the property was transferred to the land bank, that Harrison made a “revenue” claim, claiming that the market value of her property exceeded the total amount of tax owed and that she is therefore entitled to reclaim the difference .

“Years later, people who had no interest in the property at the time and who have left are asking Montgomery County’s taxpayers to bring them a financial windfall if they fail to pay their own taxes,” Funk said.

Harrison moved into the house as a sixth grader when her mother, Frances Brooks, bought the bungalow. She moved out when she was 18, but Harrison said her brother, who died in September, had lived in the house for the past few years, tending the house and mowing the grass – but apparently not paying property taxes.

Now 71, Harrison says she doesn’t understand why the district continues to fight the case for less than $ 3,000, of which she would get only $ 891 after court costs and fees.

“It could have been fixed,” she said. “It’s like the third year. For what? For beans. “

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Engle said a simple solution would protect property owners’ rights while also providing the remedy state lawmakers intended.

“Maybe it’s as simple as if the property’s value exceeds taxes, you have to put the property up for sale,” he said. “Do you really have to take it with you for sale in the case of properties where taxes are higher than their value? I think there is a better argument that you don’t in this situation. But if there is a certain equity of the property owners, it is only fair for the property owner to make this available to the market through a sale by a sheriff. “

Supreme Court showdown possible

Then and Engel are also representing a small mortgage company in a similar lawsuit filed in the Montgomery County appeals court last month. American Homeowner Preservation LLC, which held the bond on a piece of property on Annapolis Avenue in Dayton, claims that it was foreclosed on foreclosure in 2017. Tax arrears at this point were more than $ 32,000 and the auditor’s estimate was $ 48,120, which exceeded the total. Impositions “according to the lawsuit for more than $ 15,000.

So far, the US Supreme Court has not ruled on a similar case. Dann and Engel appealed a previous “stock theft” case to the Supreme Court that the judges refused to hear.

However, a 2019 Supreme Court ruling “reformulated” the grounds for the US District Court of Appeals for the Sixth District so Harrison can continue to sue in federal court.

Harrison has not questioned Ohio’s right to collect delinquent taxes and has not tried to stop foreclosures or even get them back home, wrote Jeffrey S. Sutton, chief judge of the Sixth Circuit.

“Harrison is only denying Ohio’s seizure of excess equity, an amount in excess of taxes owed,” he wrote in the court’s opinion.

A recent decision by the Michigan Supreme Court “upset” the issue for the US Supreme Court, Engel said.

The Michigan court ruled last year in Oakland County, where authorities seized a $ 24,500 home to settle a tax arrears of $ 8.41, and concluded that such a “forfeiture “Qualified as income under the state constitution and the owners are entitled to compensation for all taxes. Disposal proceeds from foreclosures in excess of outstanding taxes, interest, penalties and fees related to the sale.

“I believe this issue will come to the Supreme Court sometime in the next five years,” Engel said. “More and more states are adopting these types of programs and the problems will keep cropping up.”

Then Dann said that the constitutional rights behind the revenue clause of the Fifth Amendment go back to the American Revolution.

“If the government has to take something for the common good, like economic development, like converting an empty house into a productive house, then it has to pay whoever owns the property,” Dann said. “You can’t just grasp what really happened here.”

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