Defeating Liens After a Tax Deed Purchase
Purchasing tax delinquent land from the Arkansas Commissioner of State Lands has become incredibly popular among savvy real estate investors. Often, tax delinquent properties are sold at a fraction of their actual value. To make these purchases profitable, however, a wise investor or purchaser must understand and follow the legal requirements in order to gain “marketable title” following such a purchase. This is accomplished by “quieting title” to the property through the court system.
Before initiating an action to quiet title, we always start by obtaining title work from a reputable title agent within the county. As we handle tax sale confirmation and quiet title actions across the entire state, we work with title companies in all seventy-five Arkansas counties. Often, these title companies discover liens filed against our client’s property. Generally, and with very few exceptions, we are able to defeat these liens. Different types of liens, however, require different action.
Mortgage liens are the most common lien placed upon tax-delinquent property. After all, if tax debtors are not paying property taxes, chances are good that they have not made their mortgage payment, either. Mortgages are generally easy to discover as they are filed within the county records. In the vast majority of cases we see, the Commissioner of State Lands has already noted the existence of a mortgage and has placed the mortgage company or bank on notice of the pending sale. In the event that the mortgage company or bank received proper notice (as defined by the courts of the state of Arkansas and recently by the United States Supreme Court), then the bank or mortgage company will lose its mortgage priority if it does not pay the taxes, redeem the property, or purchase the property at the tax sale. When this occurs, we are generally able to remove the lien from the property.
State Tax Liens:
Arkansas State tax liens, such as those placed upon property by the Commissioner of Revenues, are also common. Like mortgage liens, state tax liens are also generally removed from property if the Commissioner received proper notice of a pending tax sale. The Commissioner of State Lands has little difficulty locating these liens and generally provides proper notice to the Commissioner of Revenues. For this reason, I have never failed to remove one of these liens in any of the tax sale cases I have filed.
Liens filed by the Internal Revenue Service are a little more tricky. This is because the IRS has what is known as a “super priority lien”. This means that an IRS lien will take priority over nearly all other liens. There are a few exceptions, and one BIG one in this context. The Federal government has chosen to subordinate its lien position to that of state ad valorem taxes (real property taxes) filed by any county or state. This means that the county taxes being collected by the Commissioner of State Lands may have priority over the IRS lien, and therefore destroy the IRS lien, depending upon the timing of the IRS lien filing. IRS liens are less common, but I certainly see them in handling tax sale confirmation actions. As most parcels sold by the Commissioner of State Lands are severely delinquent, to the tune of four years or more, prior to sale, we are often able to defeat IRS liens unless an IRS lien is very old and has been filed for many years.
Judgment liens are also commonly seen in tax sale confirmation and quiet title cases. A Judgment against an individual will attach to all real properties owned by that person within the same county. Also, many attorneys will register their judgments against these individuals in other counties to ensure that the lien attaches to all real property held by the Defendant. The Land Commissioner’s lien or county tax lien is generally superior to judgment liens, but the Commissioner must notify judgment lien holders of the tax sale in order to remove the judgment lien from the property. It is also important to note that judgment liens expire ten years from the date they are filed unless they are renewed. In the event that a judgment lien has expired, it can be removed from the property within the quiet title action.
The most common question I receive from tax parcel purchasers is “why do I need to quiet the title.” The answer to that question is pretty simple. By quieting the title, tax purchasers confirm and strengthen their own title to the property, remove liens or other claims against the property, protect themselves and their investment from liability, and strengthen their investments by making their purchase far more valuable. Finally, and perhaps most importantly, upon completing a quiet title action, purchasers are able to purchase title insurance protecting themselves and their investments from future claims. A tax deed purchaser who buys inexpensive lots, land, or homes from the Land Commissioner, and then invests thousands in restoring the property or building upon those properties, risks the possibility of losing his or her investment without title insurance. For this reason, I always advise purchasers to consider title insurance before investing funds.
Greg Brown of Harrington, Miller, Kieklak, Eichmann & Brown, P.A. routinely consults with investors prior to and following a tax sale purchase to assist purchasers in making informed decisions and effectively acquiring title to these properties. He represents tax sale purchasers across the State in all seventy-five Arkansas counties.
J. Greg Brown
Harrington, Miller, Kieklak, Eichmann & Brown, P.A.