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Essential Information About Tax Sales.

JohnMenszer2-Exposure-1000931Lately, I am getting a lot of calls about tax sales. It is no coincidence that CivicSource recently conducted a property tax auction in Orleans Parish. Tax sales involve a lot of moving parts and unfortunately they don’t all work together. Let’s look further into this.

After the tax sale while you are waiting for the three year redemption period to run you are going to have to protect your investment by paying each subsequent year’s taxes.

However, if the property has housing violations you as the tax sale purchaser may receive notices from New Orleans Code Enforcement about a hearing.  If you do not remediate these issues the property may be burdened with fines and penalties.  Even worse, the City will not accept your payment of subsequent year’s taxes without payment of the Code Enforcement lien. This is horribly unfair – to expect a non-owner to fix up a property – but it is how the City operates.

There are two roads to reward with a tax sale.  If the owners redeem the property within the three year redemption period you make a nice return.  Your investment back, plus 5% penalty and 1% per month interest.  Twelve (12%) interest is not bad in this economy.

If they do not redeem, what next? The law provides that you can quiet the title to your tax sale purchase. This is the lure for many people – to get property inexpensively. But there are problems here too. The due process clauses in our Federal and State Constitutions work against the tax sale purchaser. As currently interpreted by our courts due process requires that reasonable attempts be made to notify every stake holder in the property prior to the tax sale.  Often, this doesn’t happen.  Most title companies just assume that tax titles are flawed and will not write title insurance on it.

I find that the people who invest in multiple tax sale certificates do best at these auctions. They win on some and lose on others. The purchasers of sole tax sale certificates sometimes lose their entire investments.

Should I be afraid of Zombie Real Estate?

JohnMenszer-0690It happens so often. I ask clients if they own a home and they say, “No, but I am buying one from the bank.” There is a popular misconception that when you are paying a mortgage, you don’t own the property until it is fully paid for. In fact, when you buy a piece of real estate on credit you are owner from the time the ink dries on the paper.

The three essential documents involved in a credit purchase of real estate are: the Act of Transfer, the Note and the Mortgage. The Transfer, also known as the Deed, transfers ownership from the seller to the purchaser. The Note is a statement of the amount the purchaser owes and the terms of repayment. The Mortgage is a security agreement that ties the note to the real estate, giving the lender certain rights over the property. Among those rights is the option to foreclose if the Note becomes delinquent.

Notice, I said “option to foreclose” because here is where the Zombie Real Estate comes in. There are unknown numbers of these foreclosure horrors where it is the bank’s refusal to foreclose which sets the owner down the path to perdition. Zombie Real Estate is property that nobody wants which keeps racking up costs for the owner.

I read of a property owner in Ohio who fell behind to JP Morgan Chase due to ill health. He received a foreclosure suit and proactively moved out before the date of the sheriff sale to live with his daughter. Then the bank quietly dropped the suit. Two years later he started getting bills for taxes, waste removal, weed control, and was threatened with demolition costs.

In depressed markets banks are walking away from properties. If they foreclose they have the legal costs and the expense of keeping up the real estate owned (known in the trade as “REO’s). In not foreclosing the bank can reap accounting and tax benefits from the government and sell the debt at a deep discount to debt collectors, who then hound the owners.

In my practice I once had a case of Zombie Real Estate in a bankruptcy. A client had a piece of investment real estate that he wanted to give back to the lender, as well as a lot of hospital bills and other debts that justified filing a Chapter 7. We filed his case and listed his intention to surrender this property to the bank. Unfortunately, before the lender could foreclose the property was damaged and the lender decided not to foreclose after all. The wrecked property sat for years with the City racking up liens and charges. The Note on the property was discharged in the bankruptcy, but since the City’s liens and charges dated from after the bankruptcy they were fresh obligations to the debtor.

You can’t force a bank to foreclose if it doesn’t want to and you can’t make them accept a donation, a dation or a quitclaim, unless they sign the document. What you own may not be so easy to get rid of.

 

What You Should Know About Code Enforcement.

Code Enforcement is serious business in New Orleans. An Administrative Judgment can cause you to have:
Your property seized and sold at public auction. JohnMenszer-0296
Daily fines of hundreds of dollars per day.
A lien filed against your property.
The fine and penalties added to your tax bill.

In New Orleans, the Municipal Code was amended as of April 10, 2014, making occupied and vacant property subject to the “Minimum Property Maintenance Code”. See this link to the Municode website, specifically Sections 6 and 26:
https://library.municode.com/index.aspx?clientId=10040

It is a violation of the Code to have:
Weeds in excess of 18 inches.
Substantially peeling, flaking or chipped exterior paint.
A gutter that discharges water onto a neighbor’s property.
A window that doesn’t operate or has a substantially cracked glass.
A screen with holes or breaks.
Peeling, chipped or flaking interior paint.
An inoperative or unlicensed motor vehicle.
A hot tub or pool without a 6 foot high fence with self-latching gate.

The Code Enforcement process can be initiated by an inspector or by a neighbor’s call to 311. At the hearing, the owner can present evidence and photographs to show work in progress. The Code Enforcement Bureau has discretion to continue the hearing, if substantial progress is shown, or render a Judgment. If found in violation the Bureau will issue a Notice of Judgment and levy a fine which is subject to stiff penalties beginning in 30 days if the fine is not paid. After 30 days the Judgment is recorded in the Land Records Division of the Clerk of Court (formally Notarial Archives and the Mortgage Office.) The Bureau has discretion whether to have the Sheriff of Orleans seize and sell the property at public auction.

The Owner is best served by bringing the property into full compliance. The administrative process allows appeals of a Judgment to Civil District Court, but only a suspensive appeal, which requires the posting of a bond, will protect the property from seizure and sale. Paying the fine (and penalty) will terminate the current case, but the property is subject to being re-cited for violations. Repeat offenders may have increased penalties.

As I said before, “Code Enforcement is serious business in New Orleans.”

Real Estate Liens and Judgments — How to Cancel Them?

Liens and Judgments that are recorded in the Land Records Division of the Clerk of Court of Orleans Parish are indexed under the names of the parties. They act as clouds on the titles of real estate owned by the parties cast in judgment. Fortunately, there are several ways to cancel them.

Note: Formally, the Land Records Division of Orleans Parish was divided between the Notarial Archives, the Mortgage and the Conveyance offices. Now, all documents in Orleans Parish are filed once, in one place, making Orleans conform to the practices of other Louisianan parishes.

Here are the major ways to cancel a Judgment:

1. Consent of the parties – usually upon payment or settlement of the Judgment balance.

2. Prescription – the effect of recordation ceases 10 years from the date of the Judgment,
unless it is re-inscribed..

3. Order of a Bankruptcy Court – upon motion and hearing the Bankruptcy Court may order the cancellation for a debtor’s lack of equity in the property.

4. Erasure by State Court – usually by a Mandamus proceeding for the failure of the
Clerk to take action.

Here are the major ways to cancel a Mechanics’ Lien:

1. Release by the Lien Filer.

2. Order of the Court in Suit to Compel Release.

3. Prescription if more than a year has passed and no lis pendes (notice of suit) has been filed in Land Records.

Here are the major ways to cancel City Code Enforcement Liens:

1. Consent of the parties – upon payment of the fine, penalty and costs or settlement..

2. Order of the Court – after filing a timely appeal in a lawsuit.

Here is the way to cancel a Federal IRS Lien:

1. Consent of the IRS after notification of prescription or payment.

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