Indiana Tax Sales, Part II: Redemption

My November 16, 2010 post discussed how lenders can and should be proactive in monitoring their commercial real estate loan collateral for delinquent taxes and tax sale status.  Today’s post addresses what to do upon the “oh no!” moment when the lender learns, after the fact, that a tax sale occurred.  Assuming the lender wants to keep its collateral in tact, the lender should exercise the statutory option to redeem as quickly as possible. 

Time to redeem.  Buyers at Indiana tax sales acquire a super-priority lien on the property for the amount paid.  Ind. Code § 6-1.1-24-9.  Buyers do not immediately receive a deed.  They simply receive a certificate from the County Auditor.  The lien trumps any and all other liens, including a lender’s mortgage lien.  The lien converts to a deed (title/ownership) after a statutory redemption period.  Depending upon the nature of the property and whether the County or a third party was the purchaser, the period can be 120 days or up to a year.  Generally, improved commercial property can be redeemed, with a 10% penalty, for up to six months, or for up to a year with a 15% penalty.  (I recommend that mortgagees and their counsel study the applicable tax sale statutes, I.C. § 6-1.1-24 and 6-1.1-25, for any specific questions.  The statutes are intricate and can be challenging to interpret.  I could never address every issue or nuance in one or two blog posts.) 

Redemption amount.  The amount required for redemption is covered by I.C. § 6-1.1-25-2.  Property sold at a tax sale can be redeemed for:  the “minimum bid” (meaning the pre-sale delinquent taxes, interest, penalties and sale fees) + a 10% penalty based upon the “minimum bid” + 10% per annum interest on any surplus paid (any amount paid over the “minimum bid”).  The 10% penalty becomes a 15% penalty after six months.  Note there will be a per diem interest amount if there was a surplus payment, so you’ll need that number to ensure the redemption check is correct.  On the other hand, if there was no surplus (a/k/a overbid), then there will be no per diem.

Redemption payee.  Redemption checks must be made payable to the County Treasurer and should be certified funds.  Upon receipt of the redemption payment, the Treasurer will provide a payment receipt and another official-looking document, sometimes labeled a “Quietus,” that documents the tax sale redemption.

Marion County (Indianapolis) information/guidelines.  Marion County’s website, http:\\www.indy.gov, has the following information , written in "plain English," that help explain the statutory procedure with regard to tax sales in Indianapolis:   

• Treasurer’s introduction
• Information for current owners of property
• Information for purchasers of tax sale certificates

Again, Indiana statutes applicable to tax sales are clouded and complicated, and I understand that they have been subject to revision fairly regularly over the years.  Secured lenders are advised to consult with their Indiana foreclosure counsel in the event they learn that their real estate collateral was unexpectedly sold at a tax sale.  Even though there is a grace period to redeem, the clock begins ticking immediately.  Ultimately, the lien from the sale can and will result in the issuance of a tax deed (title/ownership), at which point any prior mortgage lien is terminated. 

Mortgagees Beware: Only Owners Receive Notices Of Indiana Tax Sales

Typically, an owner of commercial real estate that has failed to make its mortgage payments to its lender also has failed to make its real estate tax payments to the county treasurer (assuming no escrow).  When the taxes become delinquent, the real estate can become eligible for a tax sale.  (The statutory scheme for Indiana tax sales is located at Ind. Code 6-1.1-24.)  Tax sales are not good, and I’ll expand on that point another day.  Today’s post provides a tip to mortgagees on how to learn about, and avoid, their real estate collateral from being sold out from under them. 

Super-priority.  Because a secured lender’s first-priority mortgage lien suddenly can be subordinated by a tax sale in Indiana – or even negated after a period of time - it is important for lenders/mortgagees to monitor the status of the real estate taxes on their loan collateral and take action (read:  advance the taxes), if warranted.  Although the lender can redeem, the expense for redemption is greater than the payment required to avoid the tax sale in the first place. 

Owners only.  The problem is that, in Indiana, only borrowers (mortgagors), and not lenders (mortgagees), automatically receive notice of an upcoming tax sale.  See, I.C. 6-1.1-24-4.  This makes monitoring the status of the real estate tax situation challenging for lenders, particularly when dealing with uncooperative borrowers. 

Written request.  The Indiana Code does, however, provide a mechanism for mortgagees to receive certain notices.  I.C. 6-1.1-24-3(b) deals with notices of the sale:

At least twenty-one (21) days before the application for judgment is made, the county auditor shall mail a copy of the notice required by sections 2 and 2.2 of this chapter by certified mail, return receipt requested, to any mortgagee who annually requests, by certified mail, a copy of the notice.

I.C. 6-1.1-24-1(d) similarly provides for the mailing of a list of properties eligible for sale: 

Not later than fifteen (15) days after the date of the county treasurer's certification under subsection (a), the county auditor shall mail by certified mail a copy of the list described in subsection (b) to each mortgagee who requests from the county auditor by certified mail a copy of the list.   

So, if the mortgagee, on an annual basis, sends the required letter to the county auditor requesting tax sale information, the mortgagee should automatically receive written notice of both the property’s eligibility for a tax sale and of the date of the tax sale itself. 

No guarantee.  Please note that both sections 3(b) and 1(d) contain language stating that the auditor’s failure to provide the requested notice will not invalidate an otherwise valid sale.  

Cost/benefit analysis?  Whether the benefits of receiving the statutory notices exceed the costs (time and expense) of sending the annual letters is unknown to me.  The important point is that the option is available should mortgagees choose to utilize it.  Otherwise, lenders will need to be proactive with both the borrower and the county treasurer to ensure that the taxes are being paid and, if not, to determine when the tax sale is scheduled.  I welcome comments or emails from anyone who has had experiences with the statutory letter requests, particularly any comments on how effective they’ve been in monitoring for tax sales.            

4 Years, 233 Posts

On November 1, 2006, I began publishing this blog.  Four years and 233 posts later, Indiana Commercial Foreclosure Law continues to be a very rewarding and instructive project for me.  Whether you read via subscribed email, RSS feed, Twitter,  Facebook or a simple Google search, I've appreciated the traffic, which continues to grow, together with the feedback.  I remain committed to my blog and don't intend to shut it down any time soon, if ever. 

Remember to click on the "About" link to see my bio, picture, contact information and link to my firm Wooden & McLaughlin's website.  Very soon, a link to my blog through my firm's website will feature a new look and feel, but the content and features will remain the same.      

Also bear in mind that the "Archives" section along the side of the home page allows you to review posts by month, but more importantly permits you to conduct a word search of all prior content on this blog.  This is like having Google specific to this blog.  You can research each and every blog post back to 11-1-06.  Remember that, among other things, I post on all published Indiana state and federal court judicial opinions relevant to the field of commercial foreclosure law.  How do I find the cases?  I have permanent computer searches set up on the Lexis legal research system.  Lexis delivers emails to me whenever a court publishes a new decision.  Readers will always be up to speed on any relevant legal developments under Indiana law (although admittedly I'm currently a few months behind due to the press of my "day job"). 

Don't forget the option to sign up for an RSS feed and/or subscribe to receive posts by email.  These are efficient and painless ways to have Indiana Commercial Foreclosure Law articles delivered to you.  By the way, the email feature is secure, and it will never result in any further contact by me.  Please pass these subscription programs along to your friends and colleagues.  Again, links to Twitter and Facebook also are available if that's how you get your media.

My vision was to provide a "one-stop shop" for secured lenders involved in the foreclosure of commercial real estate mortgages, enforcement of security interests and collection of business debts in Indiana.  I gear my content toward workout professionals and representatives of commercial lending institutions.  Naturally, in-house counsel and Indiana creditor's rights lawyers also may benefit from my efforts to provide an on-line resource for this specialized area.  Please keep reading and spread the word.  And, feel free to contact me with any ideas as to how I can improve. 

Finally, I'd like to thank my colleague Mike Valinetz, who for the past several months has been my second pair of eyes for proofreading my posts.  I have appreciated your time, Mike.