MEMORANDUM
FROM:
Sid Hemsley, Senior Law Consultant
DATE:
August 1, 2008
RE:
Property Maintenance Liens/ Extinguishment of Liens Generally
The City has raised this question: If a piece of property against which there is a property
maintenance tax lien sold at a tax sale, is that lien extinguished if the money reflected by the lien
is not collected by the time of the tax sale? I researched similar questions in 1997 for a city
attorney, and in 2007 for Mike Tallent. But my update of that research based on your question
uncovered a recent Tennessee Attorney General’s Opinion 08-96, which has a bearing on that
question.
The main purpose of my 1997 research was which of a tax and mortgage lien was
superior. But I said this about the effect of a tax sale and the passage of the one year period of
redemption, which I have set off in italics below:
Tennessee Code Annotated, section 67-5-2504 provides that:
A tax deed of conveyance shall be an assurance of perfect title to
the purchaser of such land, and no such conveyance shall be
invalidated in any court, except by proof that the land was not
liable to sale for taxes or that the taxes for which the land was sold
aid for the sale....
However, there is a statutory one year period of redemption for property sold for
delinquent taxes in Tennessee. [Tennessee Code Annotated, section 67-5-2601.] The property
may be redeemed by “any person who owns a legal or equitable interest in the property sold at
the tax sale and creditors of the taxpayer having a lien on the property....”
But once the one year period of redemption has expired, the purchaser takes the property
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free and clear. In Moore v. City of Memphis, 195 S.W.2d 623 (Tenn. 1946), the City of
Memphis bought property at a delinquent tax sale, and the period of redemption (then two years)
expired. The plaintiff alleged, inter alia, that she was entitled to the excess of the sale over and
above the amount paid by the City of Memphis. Citing Williams Code, Sections 1609 and
1592.3, [codified in pertinent part in Tennessee Code Annotated, section 67-5-2504.], the Court
held that:
Title to said property was, for all purposes, given to the City of
Memphis by said sale and the expiration of the period of
redemption, and thereafter the City of Memphis owned said
property as would any other owner. It did not hold said property
as a trustee for the complainant, but was entitled to sell said lot as
required by law at its reasonable market value. Williams Code
(Supplement), section 1592.3. The laws with regard to such sales
make no provision for payment of any part of the sale price to the
complainant. [At 625.]
My 2007 research is reflected in my attached memorandum to him.
In updating that 1997 research, I found Tennessee Attorney General’s Opinion 08-96. It
actually addressed the question of whether a tax sale for a piece of property extinguishes an
easement on the property. But in opining that the answer was no, TAG 08-86 addressed the
question of what liens remain attached to property after a tax sale:
Tenn. Code Ann. ' 67-5-2501(a)(1) (2007) provides that a court
may order a sale of the property for delinquent real property taxes.
This statute specifically states that a tax sale is “subject to the
equity of redemption” and does not list any other items to which
the sale is subject. Additionally, the tax deed constitutes Aan
assurance of perfect title to the purchaser of the land [.] Tenn. Code
Ann. ' 67-5-2504(b) (2007). Thus the effect of a tax sale is that it
extinguishes junior liens. See Obion County ex rel. N. Fork
Drainage Dist. v. Massengill, 177 Tenn. 477, 151 S.W.2d 156,
157-58 (1941). (termination of lien for special assessment upon
tax sale).
Obion County v. Massengill still reflects current law. There the question was whether a
tax sale extinguished a drainage assessment unpaid at the time of the tax sale. The Court held
that the answer was yes. To begin with, declared the Court,
In an effort to facilitate the collection of taxes the Legislature has
provided Code Section 1609, Chapter 136, Acts of 1929 as
follows:
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“A tax deed of conveyance shall be an assurance of perfect title to
the purchaser and of said land, and no such conveyance shall be
invalidated in any court, except by proof that the land was not
liable to sale for taxes or that the taxes for which the land was sold
have been paid before the sale....” [At 158]
In addition, continued the Court, a drainage assessment was not a tax.
There is a clear and manifest distinction between a tax and a
special assessment. A tax is imposed for a general or public
purpose. It is levied for the purpose of carrying on the government.
It is a charge on lands and other property which lessens its value,
and in the proportion in which the owner is required to pay is his
pecuniary ability diminished. This is the sense in which the term
“taxation” is used and understood. On the other hand, a special
assessment contains none of the distinctive features of a tax. It is
assessed or levied for a special purpose, and not for a general
purpose... [At 159]
It should be apparent that “Code Section 1609, chapter 136, Acts of 1929" reflects what
we have seen above is presently Tennessee Code Annotated, ' 67-5-2504(b). Furthermore, the
distinction between taxes and special assessments in Obion County v. Massengill is also parallel
to the distinction made in Tennessee (and other states) between taxes and fees. In City of
Tullahoma v. Bedford County, 938 S.W.2d 408 (Tenn. 19197), it is said that:
Whether the charge for depositing waste in a landfill is a tax or a
fee, even though denominated a tax, is determined by its purpose.
A tax is a revenue raising measure levied for the purpose of paying
the governments general debts and liabilities. Memphis Retail
Liquor Dealers’ Ass’n v. City of Memphis, 547 S.W.2d 244, 24546 (Tenn. 1977). See City of Knoxville v. Lee, 159 Tenn. 619,
623, 21 S.W.2d 628, 629-30 (1929). 16 Eugene McQuillin, The
Law of Municipal Corporations, ' 44.02 (rev.3d ed. 1994). A fee
is imposed for the purpose of regulating a specific activity or
defraying the cost of providing a service or benefit to the party
paying the fee. [At 412] [Citations omitted.]
It seems clear from Obion County v. Massengill that the definition of a tax lien is narrow,
and that nothing but tax liens adhere to property after a tax sale. It is equally clear that while a
property maintenance lien is supposed to be collected with property taxes, is it not a tax lien. The
proceeds of the property maintenance tax line is not used to pay the government’s general debts
and liabilities, but such proceeds are more akin to “fee” for administering police power
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programs dealing with property maintenance problems.
The “junior” liens are apparently all liens except the tax liens. TAG 08-86 points to
Tennessee Code Annotated, ' 67-5-2101(a) (2007) which provides that:
[t]he taxes assessed by the state of Tennessee, a county, or
municipality, taxing district, or other local governmental entity,
upon any property of whatsoever kind, and all penalties, interest,
and costs accruing thereon, shall become and remain a first lien
upon such property from January 1 of the year for which such taxes
are assessed.... See also Willingham v. Gallatin Group, Inc. 2001
WL 134599, *5-* (Tenn. Ct. App. Feb. 16, 2001) (discussing
priorities as applicable to property taxes but not business taxes.)
These tax liens are “a lien upon the fee in the property, and ... any
and all other interests in the property ... of any nature whatever.”
Tenn. Code Ann. ' 67-5-2102(b) (2007).
It strikes me that the consequences of those statutes is that the one year period of the
equity of redemption does not even apply to a property maintenance lien because it is not a tax
lien. There is a separate equity of redemption statute found at Tennessee Code Annotated, title
66, chapter 8, but that statute applies only to real property sold for debt rather than for delinquent
taxes. Read altogether, the above materials indicate that if for some reason the property
maintenance lien is not paid by the time of the tax sale (whether or not the expiration of the one
year period of redemption has occurred), that lien, being a “junior” lien is extinguished.
However, I have been told that many, if not all, chancery courts, do not issue final tax deeds for
one year after the tax sale.
I have also attached TAG 08-86 for your perusal.
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