June 29, 2023 Article

Municipal Update: Maine Legislature Acts to Clarify Sales of Tax-Acquired Properties

Early this week, in response to the United States Supreme Court’s recent decision in Tyler v. Hennepin County, Minnesota (598 U.S. (2023)), the Maine Legislature passed emergency legislation establishing a new process for Maine municipalities to sell tax-acquired properties. The bill, L.D. 101, amends Title 36, section 943-C, to apply to all properties that go through the usual tax lien foreclosure process under Title 36, sections 942 and 943. Governor Mills is expected to sign the new law, which will become effective immediately and provide a uniform process for the sale of tax-acquired properties.

The bill uses the same basic sale process that was enacted a few years ago and formerly applied only to certain senior homestead owners. Its central elements are that municipal officers must provide the prior owners of tax-acquired property with advance notice of their intent to sell the property and that municipalities must distribute any excess sale proceeds to the property’s prior owner.

Municipal officers are required to notify prior owners of tax-acquired property of their intent to sell the property at least 90 days before listing it for sale. The prior owner then has 90 days in which to request, in writing, that the municipality list the property for sale through a licensed real estate broker. If the prior owner responds with a request for a brokered sale, the property must be listed through a licensed broker and sold by quitclaim deed at either the highest price offered or the broker’s anticipated sale price. If the prior owner does not respond or request a brokered sale, the municipal officers may sell the property in the manner of their choosing.

After the sale, the municipality is required to distribute any excess proceeds from the sale to the prior owner. The bill describes the types of costs and fees that may be deducted from the sale price to determine the amount of excess proceeds. Municipalities are permitted to deduct all taxes owed on the property, including any property taxes that would have been assessed between the date of foreclosure and sale of the property and all accrued interest, as well as any listing and broker’s fees, expenses related to the sale or maintenance of the property, any costs incurred in the tax lien and foreclosure process, and any unpaid municipal utility charges and fees. Notably, the bill also allows municipalities to deduct an administrative fee equal to 10% of the property taxes owed and their reasonable attorney’s fees related to the foreclosure and sale of the property.

In addition to these two requirements, the bill includes two new protections for sales of tax-acquired property. First, municipal officers are allowed to require the prior owner to execute a quitclaim deed conveying all of their interest in the property to the municipality before returning any excess proceeds to the prior owner. Second, any prior owner who receives excess proceeds automatically waives their right to contest the municipality’s foreclosure on the property under Title 36, section 946-B, which ordinarily gives prior owners up to 5 years to do so. These provisions are critical, since without them, marketable title cannot be offered and real estate brokers generally would not be interested in the listing.

Ultimately, the bill addresses several of the questions raised by the Tyler decision—most importantly, how municipalities may sell tax-acquired properties and how they should calculate any excess proceeds from those sales. However, it does not address other important issues, such as how long a municipality must list a property for sale before accepting an offer, how municipalities should treat tax-acquired properties that are converted or planned to be converted to a municipal use, like a public building or park, or whether municipalities should distribute any excess proceeds from more recent sales of tax-acquired properties. These issues will need to be resolved on a case-by-case basis.

Municipalities should review and amend their policies regarding disposition of tax-acquired properties to reflect the new reality of tax foreclosure sales. Preti Flaherty recommends contacting your municipal attorney with any questions and before listing any tax-acquired properties for sale or finalizing any sales of tax-acquired properties.