Brief Fact Summary.
Plaintiff sued to foreclose on its liens that secure covenants to pay yearly assessments to finance Plaintiff’s operations when Defendant did not pay the assessments. The trial court granted Plaintiff’s motion for summary judgment. The court of appeals affirmed. Defendant appealed.
Synopsis of Rule of Law.
When the government acquires title to property through a tax foreclosure proceeding, it takes the property subject to preexisting servitudes, including any obligation to pay assessments to a homeowners association.
Westwood Homeowners Association (Plaintiff) maintains the streets and common areas of Westwood, a planned unit development. The lots in Westwood are subject to covenants to pay yearly assessments to finance Plaintiff’s operations, and the covenants are secured by liens on the property. The owners of 15 of the properties failed to pay their property taxes, so Lane County (Defendant) acquired title to the properties in 1988. Defendant did not pay the assessments to Plaintiff, and in 1990 Plaintiff brought suit to foreclose on its liens on the properties. Defendant claimed that it had title to the property free of the covenant to pay the assessments, due to a statute providing that properties acquired in tax foreclosure proceedings are free of “liens” and “encumbrances.” Both parties moved for summary judgment, and the trial court entered summary judgment for Plaintiff. The intermediate appellate court affirmed, and Defendant appealed to the state supreme court.
Whether a homeowners association may continue to levy assessments against a property after it has been acquired by the government through a tax foreclosure proceeding.
Yes. The court of appeals’ ruling is affirmed. When the government acquires title to property through a tax foreclosure proceeding, it takes the property subject to preexisting servitudes, including any obligation to pay assessments to a homeowners association.
This is a question of statutory interpretation. The relevant statute provides that when the government acquires title to property through a tax foreclosure proceeding, it takes the property free of any “liens” or “encumbrances.” Plaintiff’s power to levy assessments against the properties, although enforced via liens, is not a “lien” within the meaning of the statute because it does not fit within the commonly used definition of “lien.” A lien is a claim upon property to secure payment of a debt. Plaintiff instead has the power to demand that an assessment be paid every year. Nor is Plaintiff’s power to levy assessments an “encumbrance” within the meaning of the statute. The context in which the term “encumbrance” is used suggests that it refers solely to claims for money or security interests upon the property. Additionally, when properties are sold in tax sales, their values are determined by considering existing interests upon the property, including any power to make assessments on the property. Because a property’s value (and purchase price) is reduced if it is subject to any power to make assessments, the buyer takes the property subject to the power to make assessments. Finally, there are other reasons to believe that the statute was not intended to allow the government to take properties free of servitudes: such assessments allow the associations to improve their communities, and the government will have the benefit of any servitudes in favor of the properties it acquires. Also, allowing the government to take properties free of servitudes would raise constitutional issues because it would deprive the owners of the dominant estates of the value of the servitudes. The statute allowing Defendant to take the property free of “liens” and “encumbrances” allows it to take the property free of the assessments that were levied before the tax foreclosure sale, but does not remove Plaintiff’s power to continue to levy the assessments. Defendant is obligated to pay the assessments levied after it acquired the properties.