September 21, 2017

Understanding Property Tax Delinquency in Indiana Law

What happens if an Indiana property owner fails to pay property tax? If this is a persistent failure, the property owner will be subject to sanctions under Indiana Code §§ 6-1.1-24 and 25 et seq. The ultimate sanction — the “death penalty” — includes sale of the property at a tax sale, where title will be issued in a new party’s name and title and liens arising under the old property owner’s name can be wiped clean. On occasion, a property owner may be unaware that its property is in this kind of peril. In particular, owners of large numbers of properties — for example, cellular telephone operators — may inadvertently lose sight of the failure to pay property tax. 

A property owner addressing this kind of situation should be aware of several dynamics. Because the obligation to pay taxes and the framework for sanctions both arise under statute, courts are going to require compliance with the statute before foreclosing property rights and issuing a tax deed. In Indiana, for example, there are a number of pre-tax sale and post-sale tax notices that must be sent to the property owner and to persons with “substantial property interest of public record.” If these notices do not include the information required, are not sent in the timeframes required by the statute and are not sent to all the parties entitled to notice, then a tax deed is void and invalid. The whole process must start anew.

What complicates this is the idea, introduced by Indiana courts, that there must be “material compliance” with the statute. As materiality is determined on a case-by-case basis and can vary, depending on the subjective facts of a situation and the court weighing those facts, there is no clear answer as to what this means. For instance, if the notices are sent to the address most readily identified in the public record and to a party’s counsel (which is not required under the statute), that can constitute material compliance. However, the failure to attempt to provide notice to a party with a substantial interest does not materially comply — even if the notice would have been futile. Moreover, the extent to which the entity issuing notice must search for interested parties in order to materially comply with the tax sale statutes is difficult to clearly define. In a 2017 Indiana decision, the failure to search the property record more generally barred issuance of a tax deed even though the property interest was recorded outside the chain of title.

Confusing things further, Indiana also permits a one-year post-sale redemption period. That means that, even after a tax sale has occurred, the unpaid taxes and penalties can be paid for a year after a county sheriff conducts a tax sale — unlike sheriff’s sales in the context of mortgage or lien foreclosures, for example. And anyone can make the redemption tax payment, not just the owner. This is significant because, sometime, a mortgagee or other entity with a special interest in the real estate will want to make these payments. For a mortgagee, it is one way to preserve collateral that otherwise evaporates with the issuance of a tax deed.

A property owner dealing with tax delinquency issues in Indiana wants to understand rights and obligations as clearly and as quickly as the owner learns that a problem exists. Understanding deadlines and having an understanding of what Indiana law requires and permits is essential to preserving one’s rights and avoiding unfavorable outcomes.

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