|March 24, 2014|
Previously published on March 2014
With the increasing number of tax sales being annulled across the State of Louisiana due to lack of constitutionally required pretax sale notice to record owner(s), mortgage holder(s) and/or other lien holders of record, I am frequently asked by tax sale purchasers: Who is responsible for the return of our investment and interest now that our tax sale title has been annulled? Article VII Section 25(C) of the Louisiana Constitution provides that a judgment annulling a tax sale shall not have effect until the tax sale purchaser is reimbursed the purchase price and subsequent taxes paid plus interest at a rate of 10% per annum and states in relevant part as follows: “[n]o judgment annulling a tax sale shall have effect until the price and all taxes and costs are paid, and until ten percent per annum interest on the amount of the price and taxes paid from the date of respective payment are paid to the purchaser; however, this shall not apply to sales annulled because the taxes were paid prior to the date of the sale.”
The Louisiana Fourth Circuit Court of Appeal recently applied this constitutional provision in Mooring Tax Asset Group LLC v. James and judicially created an exception to the rule that a tax sale purchaser must be paid the constitutionally required reimbursement plus interest before the judgment annulling the tax sale can be effective. See James, 2013-0607, *8-9 (La. App. 4th Cir. 11/6/13); 129 So.3d 653, 658-59. In James, the Court refused to allow the tax sale purchaser to obtain reimbursement of the tax sale purchase price, subsequent taxes paid and interest on those amounts as required by the Louisiana Constitution from the current owner of the property upon annulment of the tax sale. Id. The Fourth Circuit recognized that Louisiana jurisprudence has established that the tax sale purchaser’s right of reimbursement is strictly limited to the tax debtor at the time of the tax sale. Id. Thus, the current property owner of record and defendant in the tax sale confirmation action in James, who was not the tax debtor or property owner at the time of the tax sale, was not obligated to reimburse the tax sale purchaser and “breached no duty owed” to the tax sale purchaser by failing to pay the reimbursement amount. Id. The Fourth Circuit further affirmed the trial court’s decision to give immediate effect to the judgment of nullification even though the tax sale purchaser was not reimbursed the tax sale purchase price and the subsequent taxes paid plus interest due to the tax debtor failing to be a party to the action. Id.
It is respectfully submitted that the opinion of the Fourth Circuit in James is contrary to the Article VII Section 25(C) of the Louisiana Constitution as it provided immediate effect to the Court’s nullification of the tax sale without the tax sale purchaser obtaining reimbursement plus interest. As noted by Judges Belsome and Jenkins in their dissents in James, the judgment of nullity cannot be effective until the tax sale purchaser is paid the reimbursement amount owed to it. Id. at 659. Thus, the case should have been remanded for further proceedings and joinder of the tax debtor in the case. The James decision was a harsh result to the tax sale purchaser in the case. Often entities and/or persons that fail to pay real estate taxes are in a financial crisis, insolvent and/or are absent parties. With the tax sale being immediately set aside and the current property owner having no incentive to pay the reimbursement as the title is cleared of the tax sale encumbrance, the tax sale purchaser in James may very well never obtain its reimbursement plus interest despite the Louisiana Constitution mandating that the tax sale purchaser be paid prior to the judgment of nullity being effective.
It should be noted that the James case was decided under the pre-2009 overhaul of laws regulating tax sales. The 2009 amendments, which control tax sales after January 1, 2009, provide increased rights for tax sale purchasers to obtain reimbursement of their investment. A tax sale purchaser may now obtain reimbursement of the purchase price and arguably subsequent taxes paid from the tax collector under Louisiana Revised Statute § 47:2153(C)(1) and other law when the tax collector fails to give proper notice.