2 weeks Ago
Polling stations during early voting at the on Tuesday, October 29, 2024. Facebook Twitter WhatsApp SMS Email Print Copy article link Save A handful of changes to Louisiana’s constitution are up for voters to decide on this week, among them an overhaul of the complicated system local governments use to deal with tax-delinquent property. Supporters of Amendment 4 say it will make the process fairer to property owners.
Opponents argue it will not help property owners, and will dissuade investors from putting money into underdeveloped or blighted areas. Right now, when a property owner does not pay taxes, the local sheriff holds a tax sale where investors bid on what percentage of ownership interest they are willing to accept. The bids start at 100% and go down to 1%.
The winning bidder pays all back taxes on the property and is issued a tax sale certificate. The back taxes then become a debt that the original owner must pay to the investor. That debt also accrues a one-time 5% penalty, and then 1% interest a month.
The owner may “redeem” the property by paying off that debt, and in doing so get all their ownership interest back. There is a three-year period where the original owner does not lose the property. If the owner hasn’t redeemed the property after three years, the investor may go to court to confirm their share of ownership.
Investors who bid 100% interest gain the property outright, said Katie Belanger, vice president of the Louisiana Land Title Association. She added that most bids are for less than 100% ownership, and many are for as little as 1%. In those cases, the original owner can settle with the investor to regain full ownership, Belanger said.
If the parties do not settle, the property goes up for sale at a sheriff’s auction, and the proceeds go toward the investor’s debt and then toward attorney’s fees, according to Balenger. The rest is divided according to the ownership interest of each party, she said. Often, the investor submits the lowest allowable bid, which is the money they are owed, and can get the property outright if no one else bids, according to Belanger.
Support for the new system The Dec. 7 election may change that process. Amendment 4 would switch Louisiana to a tax lien system, where investors bid on how much interest the tax debt would accrue.
The bidding would start at 1% a month and could only go down as far as 0.7% a month. The debt would still accrue the one-time 5% penalty.
If the original owner hasn’t paid off the debt after three years, the bidder could go to court to force a sale. Bids would start at two-thirds of the property’s market value. Once finished, the money would first go to paying off the investor and other creditors.
The original owner would keep the remaining proceeds. The amendment also changes language in the state Constitution to accommodate the new system. Passing it would trigger additional changes to the state statues that govern tax delinquency.
State Sen. Greg Miller, R-Norco, who sponsored the legislation to create the new system, said the current one is unfair to property owners. Most tax sale certificates are redeemed by the original owners, Miller said.
But if that does not occur, there can be cases where the investor comes to own a $100,000 property after paying just a few thousand dollars of tax debt. Under the current system, the investor may after three years request any amount of money from the original owners to buy back that investor’s interest, Belanger said. The state has had cases where an investor requests $10,000 to $20,000, even if they have just 1% interest, she said.
If the property goes up for auction, it usually sells for much less than its market value, Belanger said. After paying off the debtor and attorney’s fees, there is frequently little to no equity left to compensate the original owners, she said. Miller and others also believe Louisiana’s current process violates the U.
S. Constitution’s takings clause, which bars government from taking a property without providing just compensation to the owner. Those concerns arise from the 2023 U.
S. Supreme Court decision in Tyler v. Hennepin County.
The court ruled that Hennepin County, in Minnesota, violated a woman’s constitutional rights after selling her condominium and keeping the proceeds, which were higher than the women’s tax debt. Not everyone believes Louisiana’s system is constitutional, and the issue has not yet been litigated. Opposition Opponents of the changes say they would disincentivize investors and be worse for property owners.
B.J. Barrios, a title abstractor based in Marrero, notes that under the current system, the original owners retain some interest in their property if the investor has bid less than 100% interest in it.
The owner may get some equity after the sheriff’s auction, Barrios said. The new system would not guarantee property owners their share of equity, as bids would start at only two-thirds of the property’s market value. In some cases, the debt might be so large that the owner would not gain anything, Barrios argued.
Barrios also said the change could disincentivize small, local investors who intend to fix up dilapidated properties. Under the new system, they would no longer stand to gain any ownership interest and may avoid getting involved at all. Such investors are already struggling to compete with large investors, according to Barrios.
Typically, large investors only want the redemption money and are not interested in revitalizing property, he said. Large investors can afford to buy up large groups of properties at the lowest bid, Barrios said. If all but a few are redeemed, they still make their profit, he said.
Miller’s legislation, Act 774 and Act 409 of the 2024 regular session, passed with nearly unanimous support from the Legislature. The lone dissenter was state Sen. Eddie Lambert, R-Gonzales.
Lambert argues the new system could scare off investors because the lien would expire after seven years. And if investors don’t participate, local governments would lose out on tax dollars, he said. Miller disagrees, contending most people just want the redemption money and do not care about gaining ownership of the property.
The seven-year timeline is meant to encourage lien holders to take action when a property is not redeemed, Miller said, adding that many investors do not take the case to court because of costs..
