If a county is forced to buy property at a back-taxes auction and the property catches fire or floods during the one-year redemption window, who pays for the damage?

Subject

Opinion No. 15-40, County's Liability as Purchaser for Damages to Property During Redemption Period, April 23, 2015

Plain-English summary

When property goes to a delinquent tax sale in Tennessee and nobody bids the minimum amount, state law forces the county to step in and bid the unpaid taxes, interest, penalties, and costs. The county becomes the "owner" of the property for the next year, but during that year the original owner (or other parties with a redemption right) can pay everything off and get the property back. Senator Yager asked what happens if the property burns down or gets damaged by a flood during that one-year redemption window. Who eats the cost?

The AG said: the county. As the tax-sale purchaser, the county has a duty to maintain the property and avoid "permissive waste," meaning it cannot let the place deteriorate from neglect (no roof repairs, no boarding up, no winterizing). If the original owner does redeem the property within the year, the county can recoup reasonable preservation costs, property taxes, insurance, HOA dues, and code-compliance expenses from the redeemer. But if nobody redeems, the county is stuck with the property, the damage, and any cleanup costs. A fire or flood that lowers property value during the year falls on the county too, with no statutory mechanism to shift the loss.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

In particular, note that the opinion itself recounts a major restatement of Title 67, Chapter 5, Part 27, by Public Chapter 883 (effective July 1, 2014). The legal regime around tax sales and redemption has continued to evolve. Counties facing fact-specific questions about post-sale property management should consult current versions of Title 67, Chapter 5, and county technical assistance service (CTAS) guidance.

Common questions

Why is the county forced to buy these properties at all?

State law (Tenn. Code Ann. § 67-5-2501 and § 67-5-2506) requires the clerk of the court, on behalf of the county or other tax entity, to bid the amount of unpaid taxes, interest, penalties, and costs at the delinquent tax sale whenever no other bidder comes in with the same or higher offer. The purpose is to make sure that delinquent properties do not simply sit unsold and that the public is at least nominally made whole on the unpaid taxes.

What does the county have to do with the property during the year?

The county mayor takes charge of the property under Tenn. Code Ann. § 67-5-2507(a)(1). For the one-year redemption window, the county must hold the land and use it only "in a manner that will not result in waste." That includes the common-law duty to avoid "permissive waste," meaning preventable deterioration. The Court of Appeals in State v. Delinquent Taxpayers (2006) described that as keeping the property in "the same general condition that it was at the time of possession." It does not require improvements. It does require basic preservation, like roof repairs, furnace maintenance, exterior paint, and gutter maintenance.

If the original owner redeems the property, can the county get its preservation costs back?

Yes. Tenn. Code Ann. § 67-5-2701(e) lets the tax-sale purchaser recover from the redeeming party reasonable preservation costs, property taxes paid, reasonable insurance, improvements, HOA dues, and the costs of complying with judicial or administrative orders for building code or zoning compliance. So if the county spends money on the property and then someone redeems, it gets reimbursed.

What if nobody redeems and the property is severely damaged?

The county loses. After the redemption period, the county is the owner, and the statute provides no mechanism to shift damage or cleanup costs to anyone else. Public Chapter 883 in 2014 reenacted the relevant provisions but did not change this fundamental allocation.

Is the county required to insure the property?

The opinion does not impose an insurance requirement, but it confirms reasonable insurance is one of the costs the county can pass through if the property is redeemed (Tenn. Code Ann. § 67-5-2701(e)). Given the county's exposure to uninsured loss, insurance during the redemption period is at least worth considering.

Background and statutory framework

Tennessee's delinquent property tax framework lives in Tenn. Code Ann. Title 67, Chapter 5. When property tax goes unpaid, the property is eventually sold at a county-conducted tax sale. The court clerk, acting for the taxing entity, must bid the unpaid taxes and related costs if no third-party bidder steps up (Tenn. Code Ann. §§ 67-5-2501(a)(2), (b)(2); 67-5-2506(a)(2), (b)(2)). The county then takes charge of the property under Tenn. Code Ann. § 67-5-2507(a)(1) and must "put it only to such use as will not result in a waste of such land" during the one-year statutory redemption period (Tenn. Code Ann. § 67-5-2507(a)(2)).

After the redemption period ends, the county mayor must arrange for disposition of the property "as expeditiously and advantageously as possible" (Tenn. Code Ann. § 67-5-2507(a)(3)), unless the county legislative body decides to retain the property for a public purpose (Tenn. Code Ann. § 67-5-2507(b)(11)).

The duty to avoid permissive waste comes from common law as restated by the Court of Appeals in State v. Delinquent Taxpayers, No. M2004-00951-COA-R3-CV, 2006 WL 3147060 (Tenn. Ct. App. Nov. 2, 2006). That decision defined permissive waste as failing to exercise reasonable care to preserve and protect the future estate or interest of another, and gave concrete examples like failing to repair a roof or replace a failing furnace.

Public Chapter 883, effective July 1, 2014, repealed and reenacted Part 27 of Chapter 5. The redemption-cost reimbursement rules now live in Tenn. Code Ann. § 67-5-2701(e), letting purchasers recover reasonable preservation costs, property taxes, insurance, HOA dues, improvements, and certain code-compliance costs.

Citations

• Tenn. Code Ann. §§ 67-5-2501(a)(2) & (b)(2) and 67-5-2506(a)(2) & (b)(2) (mandatory county bidding)
• Tenn. Code Ann. § 67-5-2507(a)(1) (county mayor takes charge)
• Tenn. Code Ann. § 67-5-2507(a)(2) (no waste during redemption period)
• Tenn. Code Ann. § 67-5-2507(a)(3) (disposition after redemption)
• Tenn. Code Ann. § 67-5-2507(b)(11) (county may retain for public purpose)
• Tenn. Code Ann. § 67-5-2701(e)(1)-(5) (costs recoverable from redeeming party)
• Tenn. Code Ann. § 67-5-2701(e)(3) (reasonable cost to avoid permissive waste)
• State v. Delinquent Taxpayers, 2006 WL 3147060 (Tenn. Ct. App. Nov. 2, 2006)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-40.pdf

Original opinion text

County's Liability as Purchaser for Damages to Property During Redemption Period

Question

When the county is required by state law to submit bids on properties being auctioned due to failure to pay back taxes, does the county have any financial or legal liability for properties in which bids have been accepted but the one-year period of redemption has not ended? For example, if a fire or a natural disaster damages one of those properties during the one-year redemption period, who is financially or legally liable for that damage?

Opinion

The county, as the purchaser at the tax sale, is liable for any damage to the property occurring during the one-year redemption period, provided the right of redemption is not exercised during that time period.

ANALYSIS

As a general rule, the clerk of the court, acting for the county or other tax entity prosecuting a delinquent tax suit, is required to "bid the debt ascertained to be due for taxes, interest, penalties, and the costs and fees incident to the collection thereof, where no other bidder offers the same or larger bid." Tenn. Code Ann. § 67-5-2501(a)(2) & (b)(2); see also Tenn. Code Ann. § 67-5-2506(a)(2) & (b)(2). In effect, these provisions require the county to be the successful bidder at a tax sale as to those properties for which minimum bids are not received. Id.

When the county acquires properties in this manner, "[i]t is the duty of the county mayor to take charge of all the lands bought in by the county." Tenn. Code Ann. § 67-5-2507(a)(1). During the one-year redemption period following confirmation of the sale, the county is required to hold the land and to put it "only to such use as will not result in a waste of such land." Tenn. Code Ann. § 67-5-2507(a)(2). After the one-year redemption period has elapsed, the county mayor is required "to arrange for the disposition of every tract of such land as expeditiously and advantageously as possible," subject to certain statutory requirements. Tenn. Code Ann. § 67-5-2507(a)(3). Alternatively, the county may "decide to retain ownership and possession of such property" if the county legislative body determines that it is "in the best interests of the county to use the property for a public purpose." Tenn. Code Ann. § 67-5-2507(b)(11).

You have asked who is financially or legally liable for damage to property acquired by a county at a delinquent tax sale when such damage occurs during the one-year statutory redemption period. The Court of Appeals has described the responsibilities of a tax-sale purchaser to maintain property during the one-year redemption period. In addition to any applicable statutory requirements, a tax-sale purchaser has a "common-law obligation to refrain from committing 'permissive waste'" during the redemption period. State v. Delinquent Taxpayers, No. M2004-00951-COA-R3-CV, 2006 WL 3147060, at *7 (Tenn. Ct. App. Nov. 2, 2006) (no perm. app. filed). In this context,

"waste" connotes unreasonable conduct by a person in rightful possession of real property that results in the destruction or permanent physical damage of the property and in substantial diminution in the value of other persons' interests in the property. . . . Waste can be caused either by acts of commission or acts of omission. Thus, "voluntary waste" results from deliberate, affirmative acts by the possessor of property. On the other hand, "permissive waste" results from the failure of the possessor of property to exercise the reasonable care to preserve and protect the future estate or interest of another.

Id. (citations omitted).

Under this standard, the possessor of property purchased at a tax sale "must keep the property in the same general condition that it was at the time of possession." Id. The purchaser has no obligation to make improvements to the property, but the purchaser cannot "allow a structure to deteriorate for lack of repair." Id. Examples of permissive waste include, but are not limited to, "the failure to make roof repairs, the failure to replace a furnace to prevent damage from freezing, the failure to paint the exterior of a structure, and the failure to replace or maintain gutters." Id., at *8 (citations omitted).

If the property is redeemed before the expiration of the one-year redemption period, the purchaser in possession may recover from the redeeming party "[r]easonable cost paid by the purchaser to avoid permissive waste of the parcel." Tenn. Code Ann. § 67-5-2701(e)(3). Thus, while the purchasing party has the obligation to incur certain costs to avoid permissive waste during the one-year redemption period, the purchaser has the ability to recover these costs from the redeeming party. Id. In contrast, if no party with the right of redemption timely acts to redeem the property, the purchaser at the tax sale becomes the owner of the property and remains responsible for all costs associated with the property during the one-year redemption period and thereafter. Absent redemption, no mechanism exists for the purchaser to recover these costs from another party.

The same rules apply when the county is the purchaser at the tax sale. When the county acquires property at a tax sale, it is required to take charge of the land and to hold and use it in a manner that will not result in waste. Tenn. Code Ann. § 67-5-2507(a)(1)-(2). After the one-year redemption period has elapsed, the county becomes the owner of the property and is authorized to sell the property, subject to the statutory requirements for conveying the property, or to retain ownership and possession of the property. Tenn. Code Ann. § 67-5-2507(b)(1)-(11). Under these circumstances, the county remains responsible for any costs associated with the land during the one-year redemption period.

Your request specifically asks about damage caused by a fire or a natural disaster during the one-year redemption period. If no one timely acts to redeem the property, the county will have to bear the costs associated with the damage to the property, including any required cleanup costs or costs incurred to preserve the property's value. Similarly, if a fire, flood, or other natural disaster results in the property's diminution in value, the county ultimately will have to bear this loss if no redeeming party appears to reclaim the property.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

MARY ELLEN KNACK
Senior Counsel

Requested by:
The Honorable Ken Yager
State Senator
G19 War Memorial Building
Nashville, Tennessee 37243

Footnotes:

1. Formerly, this common-law obligation was codified at Tenn. Code Ann. §§ 67-5-2704(a) and 67-5-2705. Title 67, Chapter 5, Part 27, was repealed and reenacted in 2014 by Public Chapter 883, which took effect July 1, 2014. Prior to its repeal, Tenn. Code Ann. § 67-5-2704(a) required the party redeeming the property to pay the tax-sale purchaser any moneys "expended to preserve the value of the property." As reenacted, Tenn. Code Ann. § 67-5-2701 now requires the redeemer to pay, inter alia, the "[r]easonable cost paid by the purchaser to avoid permissive waste of the parcel." Tenn. Code Ann. § 67-5-2701(e)(3).

2. The redeeming party additionally may be required to reimburse the tax-sale purchaser for other expenses incurred during the redemption period, including property taxes, reasonable insurance payments and improvements, homeowner's association dues, and expenses of complying with a judicial or administrative order requiring compliance with applicable building code or zoning regulations. Tenn. Code Ann. § 67-5-2701(e)(1)-(5).

3. Prior to its repeal, Tenn. Code Ann. § 67-5-2705 provided that "[n]o person in possession of real property subject to the appropriate redemption period . . . shall commit waste, and such persons shall take reasonable steps to prevent waste." In repealing and reenacting Title 67, Chapter 5, Part 27, the General Assembly removed this affirmative statutory obligation from the code but did not replace it with substantially equivalent language. The Court of Appeals' decision, however, indicates that a tax sale purchaser has a common-law obligation to refrain from committing permissive waste during the redemption period and that the prior version of the statute was merely a codification of this obligation. State v. Delinquent Taxpayers, at *7. Moreover, Tenn. Code Ann. § 67-5-2507 has not been amended in recent years, and it continues to require the county to hold the land and to put it "only to such use as will not result in a waste of such land."