Pay your Taxes before your Lender Redeems your Property

A mortgage holder has the right to redeem (take back) real property that is the subject of a real estate tax foreclosure when the owner does not pay taxes on the land, according to the recent decision of the Ohio Supreme Court in In re Foreclosure of Liens for Delinquent Land Taxes v. Parcels of Land Encumbered with Delinquent Tax Liens, Slip Opinion No. 2014-Ohio-3656).

The facts of this case are relatively straight forward. In June, 2003, Brandi and Troy Wagner executed a promissory note and mortgage in favor of Vanderbilt Mortgage and Finance to finance their purchase of a mobile home and land in Coshocton County. The Wagners failed to pay taxes on their property, so the county treasurer initiated a tax foreclosure proceeding for delinquent taxes (in the amount of $825.84). Because the Wagners did not respond to the foreclosure complaint, the trial court granted the treasurer’s motion for default judgment and ordered the sheriff to sell the property.

Although not explained in the record, the sheriff held two sales of the property; one at which Vanderbilt purchased the mobile home. At the other sale, James Matchett purchased the property with a winning bid of $15,100 and then deeded the property to Alan and Janette Donaker. Before either sale of the land was confirmed, however, Vanderbilt filed a notice to redeem the property and a motion to vacate the prior sales and foreclosure.

The trial court granted Vanderbilt’s motion, thereby vacating and setting aside the sale and entry of foreclosure. The trial court determined that Vanderbilt (a mortgage holder with a recorded interest in the property) was a “person entitled to redeem” under Ohio Revised Code Section (“R.C.”) 5721.25.

The Donakers and the Coshocton County Treasurer then appealed the trial court’s decision to the Fifth District Court of Appeals. The court of appeals held that Vanderbilt was not entitled to redeem the property, and reversed the judgment of the trial court.

Vanderbilt then appealed to the Ohio Supreme Court which characterized the issue
before the court as whether or not Vanderbilt, as a mortgage holder, qualifies as “any person entitled to redeem the land” under R.C. 5721.25.

Pursuant to the second paragraph of R.C. 5721.25: “any person entitled to redeem the land (emphasis added) may do so by tendering to the county treasurer an amount sufficient, as determined by the court, to pay the taxes, assessments, penalties, interest, and charges then due and unpaid, and the costs incurred in any proceeding instituted against such land under Chapter 323 or this chapter of the Revised Code, and by demonstrating that the property is in compliance with all applicable zoning regulations, land use restrictions, and building, health, and safety codes.”

Appellee Alan Donaker contended that the only reasonable interpretation of the statute is one that precluded anyone but the property owner from being a “person entitled to redeem” under R.C. 5721.25 and that broadly interpreting the phrase “any person” would thwart the intent of sheriff’s sales by allowing mortgage holders to sit and do nothing until after the sheriff’s sale.

Vanderbilt contended that when read in conjunction with R.C. 5721.181, which provides the form of notice required for tax foreclosure proceedings—the phrase “any person entitled to redeem the land” under R.C. 5721.25 includes “any owner, or lienholder of, or other person with an interest in the property” because those exact words are utilized in R.C. 5721.181.

The Supreme Court of Ohio agreed with Vanderbilt, reasoning that when statutes are clear and unambiguous, they must apply the statutes as written. The court cited previous cases holding that: (1) the court must “give effect to the words used, refraining from inserting or deleting words,” and (2) that the meaning of “any” [in a statute] is “every” or “all.”

The court also backed up its decision by contrasting R.C. Chapter 2329 (which governs judicial foreclosure proceedings such as mortgage foreclosure) with the language governing tax foreclosures in R.C. 5721.25. In R.C. 2329.33, the Ohio General Assembly specifically limited the right of redemption to “the debtor.” But in R.C. 5721.25, the legislature instead utilized broader language by granting the right of redemption in a tax foreclosure proceeding to “any person entitled to redeem.”

Acknowledging that their decision might be interpreted as unfair to property owners,
the court justified its holding by concluding that “any perceived inequity caused by our holding to purchasers or property owners like the Wagners must be balanced against the rights of others with competing interests, including those of a mortgagee, or lienholder, to protect its interest in the property where a mortgagor, or property owner, has fallen
delinquent in tax payments.”

What’s the moral of this story? Pay your taxes…at least before your county files a foreclosure action and your lender redeems your property.

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