A primer for lawyers
By Melitta Drechsler
What happens to nonpayers of property taxes is a question many property owners—those with mortgages—have little reason to consider. Banks and mortgage companies often collect the money to pay for property taxes from mortgage payments and save that money in an escrow account. Then those institutions pay property taxes directly to the government from the escrow account.
When property taxes are not paid, however, the property owner will eventually lose his or her title to the property in an act known as “forfeiture.” The title goes to the state of Minnesota, and the county in which the property is located holds the property in trust for the state and manages the property. Property forfeiture is not to be confused with “foreclosure,” which is a completely different legal action and process.
Let’s consider how the property tax laws affect an imaginary taxpayer: Darla Anderson, living at 1234 West Seventh Street, St. Paul, Minnesota. Darla owns her single-family home outright, without any mortgage or other encumbrance on the property. She has owned her home for 15 years and has obtained a homestead classification, which provides for a lower tax rate for her property. The home has a tax value of $200,000. Darla always pays her property taxes on time, that is, the first half before May 16 and the second half before October 16—the due dates set forth in Minnesota Statutes Section 279.01, subd. 1. In January 2017, Darla began suffering from major depression, quit her job, and stopped paying many of her bills.
Year one of missed tax payments
When Darla missed the property tax payment due before May 16, 2017, her property tax payment was deemed late and she was assessed a penalty of 2 percent of the unpaid tax.1 When she did not make the payment by June 1, 2017, she incurred an additional penalty of 2 percent. And the penalties keep accruing when she does not make the payment: 1 percent each month, not to exceed 8 percent.
Since Darla lives in St. Paul, her property taxes are assessed by Ramsey County, which will send her a letter after the first missed payment. That is a courtesy letter; the law does not require Ramsey County to inform Darla of the missed payment at this point. Sadly, Darla’s continuing illness also led her to miss the tax payment due before October 16, 2017.
Months go by, and as of the first business day in January 2018, Darla still has not paid her 2017 property taxes. Those 2017 taxes are now delinquent. The Ramsey County Auditor will prepare a list of all properties in Ramsey County with unpaid taxes and send this delinquent tax list to the district court administrator for the 2nd Judicial District, which is the judicial district for Ramsey County.2 The county auditor has until February 15 to send this list to the district court. The filing of this list functions as a complaint by Ramsey County against each property on the list.
The district court administrator will sign a notice of delinquent taxes and return the notice and the delinquent tax list to the county auditor.3 The county is required to publish this list and notice in the legal newspaper selected by the county board of commissioners.4 The list and notice must be published twice, once per week; the first publication must be before March 20 and the second not less than two weeks later.5
If Darla happens to be reading the newspaper closely, including all the legal notices, she may see the notice of delinquent tax for her property. If she pays the delinquent tax owed, her property will be removed from the list when it is published the second time. The law requires the county to also mail a notice to Darla by March 20.6 If Darla fails to pay the delinquent tax within a certain period of time7 following this notice, the district court will enter judgment against her property in favor of the state of Minnesota. It’s important to note that Darla, within 20 days after the last publication of the notice, can also file an objection to the delinquent tax in district court.8 But taxpayers do not often object to the delinquent tax, as there are few defenses against property taxes.
If Darla still does not pay the delinquent tax by the second Monday in May 2018, the county auditor “shall bid in for the state” her property.9 This means giving the state of Minnesota a lien interest in her property. Darla then has three years (plus a 60-day grace period)10 to redeem her property from this tax judgment sale. Properties generally have a three-year redemption period, with a few exceptions.11
Year two of missed tax payments
Darla’s illness continues, and she again fails to pay her property taxes in 2018. As she already has delinquent taxes from 2017 that were published as required in 2018, her property will not appear again on the delinquent tax list that is published in the newspaper in 2019. The county auditor will simply incorporate the new delinquent taxes into the existing judgment and lien.
Notice of forfeiture
Even if Darla pays her 2018 property taxes, she will still need to pay her 2017 property taxes to avoid having her home forfeited to the state of Minnesota. If she is unable to come up with the money to pay those delinquent taxes, her redemption period will expire in May 2021.
Many individuals struggle with the expenses of maintaining a home, including the expense of property taxes. It is vital that you impress upon your clients the severe consequences of failing to pay taxes.
The law requires the county to provide notice of forfeiture in four different ways.12 Two of the methods of notice are specifically to reach Darla as owner and occupant so that Darla is aware of the consequence of failing to pay her property tax. The other two methods are intended to notify possible mortgagees or other lienholders in the property. Minnesota Statutes Section 281.23 starts with requiring the county auditor to post a notice of expiration of redemption in the auditor’s office; the form of the notice is set forth in the statute.13 Then the auditor must publish this notice for two successive weeks in the official newspaper of the county.14
Once the notice has been published, then the county auditor sends the notice by certified mail, return receipt requested, to the property owner.15 The auditor also has the county sheriff (or other adult at least 18 years old) personally serve the notice to the occupants of the property.16 These two forms of notice are intended to ensure that someone like Darla who owns and occupies her property is aware that her property will forfeit to the State of Minnesota in a relatively short period of time unless she takes action.
Sometimes governments make more efforts at notification than required by law. For many years, in addition to the statutorily required notices, Ramsey County would send an additional letter to the property owner prior to forfeiture. Also, Ramsey County property tax department staff would try to reach property owners on the phone to alert them and explain the process if necessary. In 2021, for the first time, Ramsey County staff made personal visits to properties pending forfeiture to ensure that property owners and occupants understood the legal action that was about to occur. It was overall a worthwhile effort. One situation in particular stands out: The property occupants were renters who did not speak English. So presumably they did not understand the notice posted on their door. County staff explained the forfeiture process and were able to obtain contact information for the landlord. After County staff contacted the landlord, the landlord paid the delinquent taxes and avoided forfeiture.
Forfeiture
If Darla still fails to pay the delinquent tax owed on her property, her property will forfeit to the State of Minnesota. At that point, she no longer owns her home. County staff may ask her to leave her home and evict her from the home if she refuses to leave. Alternatively, county staff may allow her to stay if she pays rent or if she enters into a repurchase contract, as described in further detail below.
Options to avoid forfeiture
Perhaps Darla decides she wants to get caught up on her taxes to avoid losing her home. She has a few options.
Confession of judgment
Darla could opt to enter into a “confession of judgment” (CJ) for the delinquent taxes—essentially a payment plan for taxes. The CJ will combine all of Darla’s delinquent taxes into one amount.17 Then Darla will be able to make installment payments over a 10-year period.18 At the time Darla enters into the CJ, she will make a down payment of one-tenth of the amount of the delinquent taxes, costs, penalty, and interest, and pay the current year taxes that are owed.
By entering into the CJ, Darla waives any defenses or objections she may have to the tax judgment on her property. Darla must also continue to pay the property tax that is due each year.19 If she misses any payment under the CJ, the CJ will be cancelled.20 She may enter into another CJ after that, but she is limited to two CJs per set of taxes.21
Bankruptcy
Another option is to file for bankruptcy. A bankruptcy case results in an automatic stay on all collection efforts by any creditor, including governmental units.22 A bankruptcy case would also stay any forfeiture process. Property taxes are ad valorem and run with the land, and therefore would be a secured claim in a bankruptcy case.23
Darla can choose to file a Chapter 7 bankruptcy case, which will result in a liquidation of her assets to pay her creditors.24 The money that results from the liquidation may be sufficient to pay her property taxes. If Darla begins working again, she can also choose to file a Chapter 13 bankruptcy case, which is available to those who have regular income. Chapter 13 allows debtors to enter into a payment plan to repay all of their debts, which include property taxes.25
In any bankruptcy case, the county auditor would file a proof of claim for the delinquent taxes owed.
Repurchase after forfeiture
If Darla’s property forfeits and she loses title to her home, the law gives her the opportunity (but not the right) to buy back the home from the state by working with county government. If Darla wants to make installment payments, Darla will enter into a repurchase contract with the county auditor, which must be approved by the county board of commissioners.26 Darla would have to pay back all of the delinquent taxes, plus assessments, penalties, interest, and costs. She can pay in installments over a 10-year period.27 Or she may pay back the entire amount at once.
During the time Darla is making payments under her repurchase contract, the county will most likely allow her to stay in her home. If she misses a payment, the county will cancel her contract.28 The county may then sell her property to a third party or a governmental unit as described in Chapter 282 of the Minnesota Statutes. Darla will have no right to the proceeds in that sale of the property she formerly owned.
Conclusion
Many individuals struggle with the expenses of maintaining a home, including the expense of property taxes. It is vital that you impress upon your clients the severe consequences of failing to pay taxes. Here are a few ways that you can assist:
1. Research whether your client may be eligible for lower property tax rates. There are a variety of different programs to lower property tax rates, chief among them the homestead classification. More information can be found at https://www.revenue.state.mn.us/property-tax-programs
2. Pay property taxes early. If your client is struggling with cash flow issues, encourage the client to prioritize taxes and pay property taxes prior to their due dates of May and October. Then the client will not have to pay penalty and interest on outstanding balances. The client can make partial payments until the due date without penalty.
3. Pay attention if your client informs you that they have fallen behind with their taxes. First, property owners may seek a waiver for penalties for one missed payment in the current tax year.29 The County Board of Commissioners also has authority to abate property taxes, costs, penalties, and interest, for clerical errors or due to hardship, for the current year and the two prior years.30
4. Encourage your client to enter into a confession of judgment with their county auditor’s office.
5. If your client is not eligible for a confession of judgment, consider the possibility of filing for bankruptcy.
Your County Auditor’s Office is your best resource for help with property taxes. Do not hesitate to reach out to them with your property tax questions.
MELITTA DRECHSLER is an assistant county attorney in the Ramsey County Attorney’s Office. She supports Ramsey County Property Tax, Records and Election Services, as well as Information Services (IT) and the 911 Center, among other departments. Prior to joining Ramsey County, Melitta was corporate counsel for Taylor Corporation and an associate at Briggs and Morgan, P.A.
Notes
1 Minn. Stat. Sec. 279.01, subd. 1(a).
2 Id. Sec. 279.05
3 Id. Sec. 279.06
4 Id. Sec. 279.08, .09.
5 Id. Sec. 279.09.
6 Id. Sec. 279.091
7 Twenty days from the later of the filing of the affidavit of publication or the affidavit of mailing. Minn. Stat. Sec. 279.16.
8 Id. Sec. 279.15
9 Id. Sec. 280.01
10 Id. Sec. 281.33
11 Id. Sec. 281.17, subd. (a). See also Sec. 281.173 and 281.174. Properties in targeted communities that are not homesteads have only a one-year redemption period. Id. Sec. 281.17, subd. (b). Property owners in targeted communities are perhaps unaware of their communities’ status as such. Targeted communities are those which meet one of four criteria set forth in Minnesota Statutes Section 469.202 subd. 2.
12 Id. Sec. 281.23
13 Id. Subd. 2
14 Id. Subd. 3
15 Id. Subd. 5
16 Id. Subd. 6
17 Id. Sec. 279.37, subd. 1
18 Id. Subd. 2.
19 Id.
20 Id. Subd. 9.
21 Id. Subd. 10.
22 11 USC §362
23 Minn. Stat. Sec. 272.31, 11 USC § 506
24 11 USC §704(1)
25 13 USC §1322
26 Id. Sec. 282.241, subd. 1.
27 Id. Sec. 282.261. subd. 1
28 Id. Sec. 282.304, subd. (b).
29 Id. Sec. 279.01 subd. 2.
30 Id. Sec. 375.192, subd. 2.