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Councilors ask staff to review tax-foreclosure proceeds after Karst property sale
Summary
Councilors asked staff to research whether net proceeds from tax-foreclosed property sales should be returned to prior owners after recent court and statutory developments, citing a local auction of the Karst property as an example.
Several councilors and a resident raised concerns Feb. 14 about the distribution of proceeds from tax-foreclosed property sales, citing a specific case (the Karst property) in which auction proceeds exceeded outstanding taxes and related costs.
Steve said the Karst property sold at auction for about $150,000 while the taxes, fees and collection costs amounted to roughly $20,000, leaving roughly $115,000 in net proceeds. He said the city retained the proceeds under the law in effect at the time and asked whether recent court decisions require the city to return net proceeds to former owners.
Patrick, the city attorney, said a recent U.S. Supreme Court decision and state-level statutory changes mean municipalities can no longer profit from tax foreclosures in the same way; however, he said the case is not retroactive. He explained that if the city still owns property when the new law or court guidance becomes effective, proceeds from future sales should be distributed to former owners after the city recovers its costs, but sales that were completed before the decision are not automatically subject to the new rule.
What the committee asked staff to do Charlie and other staff said the city assessor is carrying a SMART goal to catalog city-owned properties and identify those acquired through tax liens. The committee asked staff to produce an accounting of city-held properties, clarify legal exposure for past sales and propose options for handling proceeds or restitution where applicable. Members asked for a fuller report and proposed that this inventory and legal analysis be presented to council in May.
Context cited at the meeting Speakers said the tax-foreclosure code previously allowed municipalities to retain proceeds after foreclosure. Committee members said that recent legal changes have altered that practice in many states, and they requested staff analysis of which sales are affected and what administrative steps would be needed to return proceeds in cases where the law requires it.
Ending Staff committed to compile property and sales data, legal analysis and options for council consideration. The committee scheduled a follow-up briefing in May to discuss accounting, possible restitution and policy changes.
