Title Defect: Unpaid Taxes and Assessments

Title Defect: Unpaid Taxes and Assessments

by Alexia Constantaras and Suzanne C. Odom, Montgomery & Andrews, P.A.

A.  General.

Generally, to cure unpaid taxes and assessments one must pay them and then obtain and record a release of the tax lien in the county clerk’s records for the county in which the real property is located.  Be sure to request from the title company the up-todate amount for such taxes and assessments, including any applicable interest, and penalties.  Also be sure to obtain the receipt and/or proof of payment of the taxes and assessments.  Arrangements can be made at the closing of the real estate transaction to pay any outstanding taxes or assessments.  The Internal Revenue Service or the state taxing authority may be willing to accept the seller’s net proceeds in exchange for a release, even if that amount is less than the amount of the tax lien.

B.  State Tax Liens.

New Mexico levies an ad valorem real estate tax upon privately-held real estate within the State of New Mexico.  The ad valorem real estate tax becomes a lien on real property on January 1st of the year for which it is levied, but the tax bills are not sent out until November.  The taxes for the full year become due and payable around November 10 (and it may vary around the state).  The first half becomes delinquent December 10 and the second half becomes delinquent May 10 of the following year. Section 7-38-61 NMSA (1978) provides that real property taxes which are delinquent for more than two years may be subject to a tax sale.  Once sold, there is no right of redemption, but the former owner may be entitled to sales proceeds received in excess of the amount required to pay the delinquency.  There is a ten-year statute of limitations on tax sales.  NMSA 1978, §7-38-81.  Real property may not be sold and proceedings may not be initiated for the collection of property taxes that have been delinquent for more than ten years. NMSA 1978, §7-38-81(A).  Property taxes that have been delinquent for more than ten years, together with any penalties and interest, are presumed to have been paid. NMSA 1978, §7-38-81(C).  The county treasurer shall indicate on the property tax schedule that all such property taxes and penalties and interest have been “presumed paid by act of the legislature.” Id.

State statute provides that state income taxes, state gross receipt taxes, and state payroll taxes may be filed as liens against real estate in the State of New Mexico.  The statute of limitations with respect to state income taxes and gross receipts taxes is ten years.  A lien for state payroll taxes (which are levied by a warrant and levy), does not have an expiration period.

C.  Special Assessments.

Special assessments are governed by NMSA 1978, §§ 4-53-1 and 4-55A-1.  Assessments can be for any type of improvement, a street addition or a sewer line.  The governmental entity, city or county determines if and when an assessment is necessary.  Owners of record in the area of the assessment are notified of the city’s or county’s intent to create the assessment and a notice is recorded in the county where the project is located, identifying the real properties that will be affected if the Assessment District is approved.  The assessment is then placed into a Special Assessment District where it is scheduled to be heard at the next city or county council meeting for action.  If the assessment is approved, it is filed with the county clerk’s office and automatically becomes a lien on all affected property relating back to the date the notice was recorded.  The affected property owners are responsible for payment of the assessment after the work has been completed.  An assessment can be paid in full or the city or county may establish a payment plan to clear the lien.  When paid in full, a release of lien must be filed with the county clerk’s office to remove the lien from the property of the owner.  Liens for special assessments are enforced in the same manner as a lien for unpaid ad valorem real estate taxes.

In addition to Special Assessment Districts, there are also local conservancy and irrigation districts which impose assessments, such as the Middle Rio Grande Conversancy District in Bernalillo County.

D.  Federal Tax Liens.

Federal tax liens have to be satisfied in order to cure title.  Federal tax liens are perfected by recorded notice, except as follows: If perfected by Notice of Federal Tax Lien filed on or after November 5, 1990, a federal tax lien remains enforceable for ten (10) years following the date of the tax assessment.  Re-filing of the Notice within either the 10th year or 30 days following expiration of ten years will maintain unbroken priority from the date that the original Notice was filed.  If the federal tax debt remains unpaid, a new Notice of Federal Tax lien can still be filed after final expiration (10 years plus 30 days) of an earlier Notice, but such a newly perfected federal tax lien has priority only from its date of filing. See 26 U.S.C.A. §§ 6501, 6502.  Thus, a federal tax lien that was filed on or after November 5, 1990, may be disregarded if more than ten (10) years and thirty (30) days have elapsed since the earlier of the “date of assessment” shown of record or the recording date, unless the lien has been refilled.  A federal tax lien may also be disregarded when the “Last Day for Refiling” has passed, unless the lien has been refiled.

One can quickly ascertain whether or not a particular recorded Notice of Federal Tax Lien is still a viable lien, simply by referring to Column e, entitled “Last Day for Refiling”, in the body of the Notice of Federal Tax Lien.  If each date listed in this column has passed, the Notice has expired as a lien against real property.  Any new filing of a Notice, either prior to or after expiration of the earlier one, will appear in the County Clerk’s records as a separate federal tax lien.

The federal lien for collection of estate tax is an inchoate lien (enforceable without any filing the real estate records).  Everyone dealing with a decedent’s real property is considered to be on notice of this automatic lien.  The lien expires ten (10) years from the decedent’s date of death. See 26 U.S.C.A. § 6324.

Federal tax liens are typically filed against the name of the individual. An individual may file an Application for Certificate of Discharge with the District Director of the Internal Revenue Service and the IRS will frequently grant a discharge of the real property from a federal tax lien if it determines that it has no equity in the real property.