Minnesota Cities Magazine
More from Nov-Dec 2017 issue

Tax-Forfeited Properties: A Shorter Path to City Ownership

Tax forfeited propertiesBy Douglas Shaftel

Are there residential properties in your city that are vacant and in poor condition that have been identified for potential redevelopment? If ownership of those properties has forfeited to the state due to delinquent tax payments, subject to the redemption rights of interested parties, there is a tool available to expedite the process of obtaining public ownership.

Before properties that have been “sold” to the state under the statutory tax-forfeiture process can be conveyed to municipalities, a three-year redemption period must expire. During that three years, the owner or other interested parties can pay the delinquent taxes, penalties, and interest. But there is an underused tool that municipalities can take advantage of to potentially shorten that period to just five weeks.

Minnesota Statutes, section 281.173, affords cities, counties, port authorities, housing and redevelopment authorities (HRAs), and economic development authorities—collectively, the municipality— the right to ask a court to shorten the redemption period to five weeks. The statute’s purpose is to expedite a property’s return to productive use if it is negatively affecting a neighborhood. Hennepin County, Richfield HRA, and the City of Robbinsdale recently kicked the dust off this statute and used it to good effect.

Notice and hearing requirements
Because the action affects constitutional due process protections for people with rights to the property, the statute contains detailed requirements that include giving notice and providing an opportunity for interested parties to appear and object. The municipality must set a hearing date with the court (or, in Hennepin County, the Office of the Examiner of Titles) that allows plenty of time. Notice of the request for a shortened redemption period must be given to several potentially interested parties, including the IRS if there are federal tax liens present.

Service of a complaint and notice of a hearing must be provided by posting, publication, and hand delivery. At the hearing, the municipality must provide evidence of abandonment in the form of an affidavit of the sheriff, building inspector, or similar public official that includes photos depicting and testimony describing the property’s disrepair (e.g., doors broken off, utility service terminated, or trash accumulation).

Possible outcomes
If service of notice was properly performed, and no party appears at the hearing, the court will issue an order shortening the redemption period to five weeks.

The best possible outcome for the municipality is that no one appears, the five-week redemption period expires without redemption, and the state obtains absolute title to the property much sooner. The municipality can then acquire the property from the state.

If it acquires the property for public use, it will cost the municipality nothing more than transaction costs. If it acquires the property for redevelopment, the municipality must also pay market value.

If the owner or another interested party appears and convinces the court that the property has not been abandoned, the court will deny the request to shorten the redemption period. However, to prevent the state from eventually obtaining absolute title, the party would still need to repay the delinquent taxes, plus penalties and interest.

By forcing a recalcitrant owner or other interested party to appear in court, the process can still create an opportunity to directly negotiate the municipality’s acquisition of the property in exchange for limited consideration.

Generally, the time to obtain an order from the court should take 90–120 days. Circumstances, such as the death of the former owner or recorded IRS tax liens, however, can make the process more time-consuming and costly.

Additional resources
In Hennepin County, the court will refer the action to the Examiner of Titles, who will review all materials to ensure compliance with statutory requirements and, where appropriate, recommend that the judge execute the requested order. Hennepin County’s Office of the Examiner of Titles is well-versed in the process and provides forms on its website that can help guide an interested public entity.

Douglas Shaftel, Esq., is an attorney with Kennedy & Graven Chartered (www.kennedy-graven.com). Kennedy & Graven is a member of the League’s Business Leadership Council (www.lmc.org/sponsors).

Read the Nov-Dec 2017 issue of Minnesota Cities magazine

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