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May
30

Utah Tax Sales Require Due Process

State Supreme Court finds that due process error bars statute of limitaitons on title challenge.

The Utah Supreme Court has affirmed the right of property owners to challenge tax sales conducted without constitutionally adequate notice to the property owner, even when the challenge takes place after the prescribed statutory limitations period has expired.

The court’s Jan. 10, 2017, decision in Jordan vs. Jensen overruled its 1955 decision in Hansen vs. Morris, where it had held that once the limitations period had passed, the purchaser of a tax deed could retain title against a challenge from an earlier deed holder even when the tax sale had violated due process.

The case centered on the question of whether or not a taxing entity’s failure to provide adequate, constitutionally required notice to an interested party of a tax sale prevented the application of a statute of limitations specific to tax title challenges.  Utah law prohibits parties from challenging a tax title holder’s ownership of real property more than four years after the property was conveyed.

In Jordan vs. Jensen, the property at issue was sub-surface mineral rights that had been severed from the surface interests in 1995. The owner of the surface estate failed to pay property taxes between 1995 and 1999, and Uintah County seized the property and sold it in a tax sale in 2000. The purchaser of the tax deed then sold the property to the Jensens.

The Jordans were the owners of the severed mineral interest and neither they nor their predecessors had ever received notice of tax assessments for the mineral estate, nor did they receive notice of the surface owners’ failure to pay taxes or of the tax sale. Although the mineral interest had been severed from the surface interest in 1995, the 2000 tax deed purported to convey the land without reservation or exceptions.

A lessee of the Jordans’ mineral rights secured two title opinions in an effort to ensure that the Jordans actually owned the leased mineral interests. Both attorneys expressed their concerns that the mineral estate might have passed to the Jensens under the tax deed.

When the Jordan's became aware of the title concerns in 2013, they asked the Jensens to sign a mineral rights quitclaim deed to settle the issue. The Jensens responded by claiming ownership of the mineral estate for the first time.

The Jordans filed a complaint to quiet title, alleging that the mineral interest could not have passed as a result of the tax sale because the Jordans never received notice of the sale. The Jensens counter-claimed, seeking title to the mineral interest and alleging that the Jordans’ action was barred under Utah’s judicial code because more than four years had passed since the tax sale.

In the code’s chapter on statutes of limitations, Section 206 prohibits a party from challenging conveyance in a tax sale after the passage of four years, as follows: “An action or defense to recover, take possession of, quiet title to, or determine the ownership of real property may not be commenced against the holder of a tax title after the expiration of four years from the date of the sale, conveyance, or transfer of the tax title to any county, or directly to any other purchaser at any public or private tax sale.”

The Jensens invoked this provision in defense against the Jordans’ action to quiet title, claiming that inasmuch as the tax sale had occurred more than four years prior to the lawsuit, the Jordans could not challenge the validity of the tax sale. The Jensens argued that the tax sale would have been voidable for failure to provide notice within the four-year period, but that the limitations period protected the tax title from legal challenges after that time.

Both parties filed motions for summary judgment. Neither disputed that the county failed to provide constitutionally adequate notice of the sale. Therefore, the only issue was whether that deficiency prevented the application of Section 206.

The district court held that the four-year limitations period did not apply because the county had violated constitutional requirements of due process by not providing notice to the Jordans of the tax sale, and that failure prevented the mineral interest from passing at the tax sale. The Jensens appealed the district court’s decision to the Utah Supreme Court.

On appeal, the Jensens relied on Hansen v. Morris (1955), wherein the court rejected a due-process challenge to the predecessor to Section 206. In that case, the Utah Supreme Court  held that the application of the four-year limitations period was constitutional even when “statutory steps required to perfect a tax title have not been taken, such as failure to give notice of sale, failure of the auditor to execute affidavits, etc.

The Jordan court acknowledged that the Hansen court had rejected a due-process challenge to the application of Section 206, but found that three subsequent United States Supreme Court decisions required reversal of Hansen.

In Mennonite Board of Missions vs. Adams (1983), state law provided a two-year redemption period after a county tax sale. However, the U.S. Supreme Court held that the mortgagee was deprived of due process and the two-year limitations period did not apply because the mortgagee had not received notice of the tax sale.

In Schroeder vs. City of New York (1962), a statute required an aggrieved party to sue for damages within three years after the city diverted water. Schroeder sued more than three years after diversion had occurred, but the court held that the limitations period did not apply because the city had not given Schroeder notice that it had diverted the water.

In Tulsa Professional Collection Services Inc. vs. Pope (1988), the court held that non-claim statutes requiring creditors to submit claims to the executrix within two months were limitations periods that required actual notice before they could bar a creditor’s claim.

According to the Utah Supreme Court, these U.S. Supreme Court. cases established that “a statute providing a limitations period will not apply when it is triggered by constitutionally defective state action.” There was no dispute that the Jordans had not received constitutionally sufficient notice of the tax sale, or that the tax sale constituted state action. Thus, the court held that the Jordans had the right to challenge the Jensens’ claim to title in the mineral interest and that “the county’s failure to provide notice prevented the Jordans’ mineral interest from passing at the tax sale.”

Stephen Young Sept 2014Hunsaker Pamela

Steven P. Young, Partner and Pamela B. Hunsaker, Of Counsel, serve the Salt Lake City law office of Holland & Hart which is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys. 

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Nov
09

Why Timeshares Shouldn't Be Taxed Like Condominiums

The perceived similarity between condominiums and timeshare projects often leads tax assessors to treat those properties as identical.  “If it looks like a duck, quacks like a duck and walks like a duck, then it probably is a duck,” right?

But when it comes to property assessments for taxation, looks can be deceiving.  Fundamental differences between timeshares and condominiums can lead to significantly divergent value calculations.  All too often, it falls to the taxpayer to see that the assessor acknowledges and accounts for those factors in order to accurately assess timeshare properties.

In 2015, an assessor increased the assessment for a timeshare project at a Utah ski resort by 10 percent from the previous year.  The property owner appealed the assessment and provided evidence of the project’s fair market value.  The assessor challenged that evidence, however, based in part on an increase in sale prices for condominiums during previous years.

Under Utah law, the value of a wholly-owned condominium does not provide a meaningful comparison to the value of a timeshare project for several reasons.  First, such a comparison assumes that units within a timeshare project could be resold as wholly-owned condominiums.  This is impossible, given the legal structure of timeshare properties.  Once a timeshare project is put into place, it cannot be altered.  Unlike condominiums, individual units can never be sold.

Although the Utah assessor identified a 30 percent increase in per-unit condominium sale prices near the project, there was not a similar 30 percent increase in timeshare sales.  The only consistent figure shared by timeshares and condominiums each year is the number of units subject to foreclosure.

Second, treating timeshares like condominiums fails to take into account the costs associated with operating a timeshare project.  Utah law recognizes that timeshares are significantly different from condominiums and requires assessors to exclude costs that are unique to timeshare properties.

Specifically, those factors include any intangible property and rights associated with the acquisition, operation, ownership and use of the timeshare interest or timeshare estate.  The assessor must also exclude fees and costs associated with the sale of timeshare interests and timeshare estates that exceed those fees and costs normally incurred in the sale of other similar properties.  Other excluded costs include the operation, ownership and use of timeshare interests and timeshare estates, vacation exchange rights, vacation conveniences and services, club memberships and any other intangible rights and benefits available to a timeshare unit owner.

Sales commissions for timeshares are typically about 18 percent, whereas sales commissions for condominiums are closer to 6 percent.  Because the law requires an adjustment for costs and fees which “exceed those fees and costs normally incurred in the sale of other similar properties,” the property owner is entitled to remove the excess 12 percent portion of commissions.

There are other fees and costs for operating a timeshare that, by law, may be deducted from the value.  Those fees and costs may be difficult to identify or to allocate to individual units, but would include fees and costs for customer service, management costs necessitated by the existence of numerous owners, accounting and similar expenses.

A third distinction is that the assessor may need to make a personal property adjustment for timeshare property.  In Utah, the personal property of timeshares is separately assessed and, to avoid double taxation, must be excluded from the real property assessment.  In the pending Utah appeal, the assessing county challenged the property owner’s proposed personal property adjustment because it exceeded the reported value for the project’s personal property tax assessment.

In Utah, personal property assessments reflect depreciation schedules, which are rough estimates of the depreciated value of certain classes of personal property.  When those schedule-based values diverge from fair market value, an adjustment removing the fair market value of that property (for purposes of the real property assessment) will not perfectly correspond to the personal property tax assessment.  Nevertheless, a fair market value assessment of the timeshare property should include an appropriate adjustment for personal property which is otherwise taxable.

Timeshare units are simply incomparable to wholly-owned condominiums.  Under Utah law, the most appropriate way to value timeshare units is to look at sales of similar timeshare units, making adjustments consistent with the tax code.  Laws in other states may require similar adjustments.

When reviewing local assessments of timeshare properties for comparison, be aware of the distinctions between condominiums and timeshares, and ensure that proper adjustments were made in each.  If those timeshare assessments are comparable to assessed values of condominiums, then the assessor likely neglected to account for the unique characteristics and expenses associated with timeshares.

Pamela B. Hunsaker serves as counsel in the Salt Lake City office of law firm Holland & Hart and is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys.  She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Hunsaker Pamela

Pamela B. Hunsaker serves as counsel in the Salt Lake City law office of Holland & Hart and is a Montana, New Mexico, Utah and Wyoming member of American Property Tax Counsel, the national affiliation of property tax attorneys. She can be reched at This email address is being protected from spambots. You need JavaScript enabled to view it..

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