In re: Carroll County 2012 Tax Sale (Indiana Utility Law)

An Indiana appellate court has recently upheld the judgment of a trial court, holding that a sewer lien could not be enforced by selling a property at a tax sale when that lien was the only lien that existed on the property.

In In re: Carroll County 2012 Tax Sale, 993 N.E.2d 635 (Ind. Ct. App. 2013), a regional sewer district (“SD”) serviced an area within which the property owners (“Owners”) possessed property. When the Owners did not pay their sewer bills on time, SD perfected a lien against the property and certified those liens to the county auditor and treasurer for collection with the property tax bill. The auditor and treasurer then applied for a judgment and order of sale for the property in the trial court due to satisfy unpaid property taxes and special assessments (the sewer bills). Soon after, the Owners paid the outstanding property taxes, leaving the only lien on the property to be the sewer lien.

Prior to the sale, the Owners wrote to the court to object to it. They stated that because SD’s lien was the only lien that existed on the property, pursuant to Ind. Code §13-26-14-4, it could not be sold at a tax sale. Section 13-26-14-4 states in part that “…rates, fees or charges made, assessed or established by the district are a lien…for municipal sewage works, on a lot, parcel of land, or building that is connected with or uses the works of the district…A lien under this chapter that is the only lien on a property may not be foreclosed.”

Owners filed a petition to remove the parcels scheduled to be sold at tax sale. The trial court concluded that while a sewer lien existed on the property, the above-mentioned statute prohibited foreclosure of that lien if that is the only type of lien on the property. The Indiana Court of Appeals affirmed the trial court’s judgment. In so doing, it looked to the definition of “foreclose,” which is a “legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” But SD argued that the statute has the potential to “bankrupt a regional sewer district.”

The Court responded to SD’s concern by noting that if the assessed fees are not paid within the fixed time period, they are considered delinquent and penalties are assessed. A civil action could then be brought by the municipality and a reasonable attorney’s fee may be recovered as well.

Jeremy Fetty is a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson with offices in Lebanon and Indianapolis. He often advises businesses and utilities (for profit, non-profit and cooperative) on organizational, human resources, and transactional matters and drafts and reviews commercial contracts.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.