As the quest continues for County Assessors to get more assessments for taxes, a practice has become evident that could impact the Company, as well as your office, by reason of the certification of personal property taxes that may be due to the County onto the real property tax rolls. On the surface this may look like no problem could result, but there are several hidden dangers that need to be explored.
Nature of the Law
Personal property taxes are assessed against various personal property including, but not limited to automobiles, airplanes, office equipment, agricultural equipment, machinery, etc.
Montana statutes provide that the lien of personal property taxes are a lien upon realty provided in MCA 15-16-402:
"(2) The taxes upon personal property based upon a taxable value up to and including $10,000 are a first and prior lien upon the real property of the owner of the personal property."
For amounts in excess of $10,000 the statute goes on to provide that the amounts are also a first lien upon the realty subject to the provisions relating to the first mortgagee each year filing a required notice with the County Treasurer.
Exceptions to Title
The exceptions used in Schedule B of policies need to be broad enough to cover both real and personal property taxes. In states where escaped assessments are also a lien upon the real estate relating back to the date of what should have been the original date of levy, the exceptions relating to escaped assessments also need to be broad enough to cover both real and personal property taxes.
This becomes particularly important when issuing loan policies. Many lenders give specific requirements as to the language to be used on their policies. This language should be scrutinized to consider the effect of personal property taxes. For example, a lender requiring an exception of:
"Real property taxes becoming a lien subsequent to the Date of Policy"
would fall within the group needing modification. The language could well be changed to :
"Taxes becoming a lien subsequent to the Date of Policy."
This language might be used where the taxes are paid at time of issuance of the policy.
Title examiners who use exceptions for taxes that specifically identify "Real property taxes . . ." or "Taxes shown on the real property rolls . . ." may need to change their exception consistent with their applicable statutes. The general exception approved by the Company used in title commitments in all of the states listed above is as follows:
"Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public record."
As noted, you may need additional exceptions or need to enlarge this language to cover specific problem areas.
Tax Searching Problems
Frequently, the only place to search for personal property taxes for the current year is in the office of the County Assessor. It is common that the Assessor will not allow access to the personal property taxes until certified to the real property tax rolls. Even then, the County Treasurer may only make a mark in their books or check a box in their computer software as to the next tax billing to be issued. It is common that the title company may be searching only prior billing information and would not then be apprised of the new billing status for the next billing. It is not uncommon to find the first notice of the certification on the actual tax billing.
It is just as common that the tax searcher misses the mark indicating personal property taxes are certified and/or included within the assessment sent out to the land owner. Problems result when the land has been transferred to a new owner. The Assessor can in most instances remove the personal property from the tax roll and reassess the personal property taxes to another property, but they are under no obligation to do so. Further, when personal property taxes remain unpaid and end up on the real property tax roll, it is indicative of possible deeper financial problems of the taxpayer.
The closer in many cases collects taxes then due and, also may collect for later payment, taxes to become due. It is common for the closer to obtain the information used based upon a computer printout from the County Treasurer's computer or by copy of a tax notice from that office. In many cases, the Treasurer has made marks directly onto the face of the original tax billing showing the personal property taxes due, but the computer fails to show the amounts. In this case, the Treasurer may keep a separate book listing all of the certifications.
The closer may have received an instruction from the lender to collect amounts sufficient to pay the then current taxes to become due. A later finding that the search missed the personal property taxes being added to the tax roll could result in expensive embarrassment.
Closers are sometimes lulled into a false sense that a mobile home is now to be treated as real property when they find the assessment on the real property tax rolls. The only reason they were placed on the real property tax rolls in the first instance might have been due to an act of the Assessor believing that adequate security existed for their payment. The closer then does not take adequate precautions to properly create a lien in favor of a lender on the mobile home. The presence of an assessment for a mobile home on the tax billing has no bearing on the changing of the nature of the property from personal property to real property.
Some lenders in recent years have been surprised to learn that the Assessor determined to place personal property on the tax rolls, and the landowner decided to not pay the taxes. Consider the case of a trucking company that has many trucks, the amount due on any one truck could equal the entire real property assessment. The lender might then find several years of delinquent taxes when they decide to foreclose their deed of trust or mortgage, and as a result, have seriously jeopardizes security in the land. As long as proper exceptions were taken in the loan policy and the trustee's sale guarantee, no problem should result from this situation for the title company.
Please review with your personnel how your county treats personal property taxes and review your exceptions and closing practices to insure that such procedures are adequate.