Buyers Bore the Risk of a Bad Tax Sale When Nothing Was Owed

By: Chris Mincher


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When a government screws up, affected third parties are often left to deal with the fallout. After the so-called “Heartwood cases” in 2004 and 2008, buyers of property in a tax sale are left holding the bag when it turns out the underlying taxes were never owed in the first place. Just how rigid that rule is was recently reiterated in Al Czervik LLC, et al. v. Mayor & City Council of Baltimore, though the opinion does set the stage for some potential other avenues of relief in future cases.

The plaintiff in Al Czervik was the winning bidder for property in Baltimore City in a 2019 tax sale, and eventually obtained a judgment foreclosing the owner’s right of redemption. Ten days later, however, the City realized that there weren’t any unpaid property taxes on the property after all, and asked the Circuit Court to — consistent with the rulings in the Heartwood cases (Heartwood 88, Inc. v. Montgomery County and Howard County v. Heartwood 88, LLC) — declare the tax sale void and vacate the judgment. The buyer raised all kinds of objections to this, including that the City’s request was barred by laches (i.e., it was raised too late), and also failed procedurally because it wasn’t raised in the answer to the buyer’s complaint and otherwise wasn’t a proper ground to reopen the judgment.

Another big issue was whether the buyer was entitled to be reimbursed for interest, expenses, and fees pursuant to Maryland Code, Tax-Property Article, § 14-848, which states that, when a tax sale is declared void, the buyer gets repaid the purchase price along with interest, any taxes paid, and all related expenses. An exception was created in the Heartwood cases, however, denying interests and costs when the sale was void from inception because there weren’t unpaid taxes to begin with. Ultimately, the Circuit Court rejected the buyer’s arguments, finding it had revisory power over its prior judgment pursuant to Md. Rule 2-535, and that the voiding of the tax sale wiped out the other procedural concerns. Importantly, the Circuit Court also denied the buyer interest and costs.

The Appellate Court wasn’t too interested in relitigating the Heartwood cases, holding to the premise that a tax sale purchaser assumes the risk that the tax sale was never authorized to begin with. Essentially, if there was never any underlying legal basis for the tax sale, it is a “jurisdictional defect in the judgment,” and all the buyer’s gripes about timing and procedure are irrelevant. So, while conceding that the City’s “negligence” in conducting the erroneous tax sale was “frustrating,” the Appellate Court left the rule in the Heartwood cases unchanged, and interest and costs remain unavailable in those circumstances.

A new issue of interest, however, got additional attention worth noting. In the trial court, the City admitted that, although there weren’t property taxes that were owed, there was an unpaid $200 environmental citation, which, legally, is treated the same as a tax. In those circumstances, and as long as the property isn’t occupied by the owner, the City can — but doesn’t have to — hold a tax sale.

At the Appellate Court, the buyer argued that this made the tax sale voidable, but not automatically void. As such, TP § 14-848 would still require that the buyer be reimbursed for interests and costs. Unfortunately, however, the buyer hadn’t taken these positions in the trial court and failed to object to City’s explanation that the property wasn’t subject to a tax sale.

Because of this, and even though it accepted that the buyer’s contention about the citation “would have had some merit had it been raised and litigated,” the Appellate Court held that the “theory must await another day.” And as is often the case in appellate opinions, crucial guidance can be a little hidden. As explained in footnote 10, the buyer wanted $3,144.42 from the City in interest and costs for the entire tax sale, including as to supposed property taxes that were never actually owed, but the City would only collect $200 for the unpaid citation. Not surprisingly, the Appellate Court was a little skeptical that the statute was intended to operate that way.

One final remark by the Appellate Court is worth noting as well. The “interesting question” was raised as to whether a trial court could, on the basis that there weren’t unpaid taxes, undo a judgment of foreclosure after the Md. Rule 2-535 revisory period of 30 days — when a judgment can only be revised for fraud, mistake, or irregularity. And that’s also keeping in mind TP § 14-845(a), which also says that a judgment in a tax sale foreclosure can’t be reopened except on the ground of lack of jurisdiction or fraud in the conduct of the proceedings.

So, what are some lessons here for purchasers at tax sales? For one, don’t be too quick to overlook other liens that may exist and potentially trigger the right to be reimbursed interest and fees. Aside from that, however, buyers should make sure they are appropriately factoring in the risk of governmental error — especially if there are jurisdictions that don’t have the greatest track record of getting their accounting straight.