When property seized in a drug case is sold, where does the money go and are lienholders protected?

Texas AG Opinion JM-550: Drug Forfeiture Proceeds

Plain-English summary

The Cameron County Attorney asked what a sheriff must do with the money from selling property, like a vehicle, that was forfeited in a drug case under article 4476-15, section 5.08. The concern was that two parts of the statute seemed to point in different directions: one part (subsection (b)(2)) sends sale proceeds to the state comptroller for the state's general funds, while another part (subsection (f)) keeps proceeds in a special fund for the seizing law enforcement agency. The county attorney also worried that if subsection (f) controlled, lienholders might lose the protection the act otherwise gives them. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

The AG found no real conflict once the statute is read as a whole. The key is who the court forfeits the property to. At a forfeiture hearing under section 5.07, a court can order property forfeited either to the state or to a state agency or political subdivision that employs peace officers. If the property goes to the state, section 5.08(b)(2) applies and the proceeds go to the comptroller as general funds. If it goes to a law enforcement agency instead, section 5.08(f) applies and the proceeds go into a special fund the agency uses for investigating crimes. So the two provisions cover different situations and do not contradict each other. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

On the lienholder question, the AG was clear: secured parties are still protected. Section 5.08(f) is an alternative only to section 5.08(b)(2), the part about the final balance, not to all of subsection (b). Section 5.08(b)(1), which sends proceeds first to bona fide lienholders to the extent of their interest, still applies before any money reaches the agency's special fund. That reading keeps intact the general rule in section 5.03(c) that forfeiture is subject to the interest of a secured party who neither knew of nor consented to the illegal use, and a 1985 amendment adding "except as provided by subsection (f)" to section 5.08(b)(2) confirmed it. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Texas forfeiture law was later recodified into the Code of Criminal Procedure, and the Controlled Substances Act was recodified into the Health and Safety Code. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule mentioned here.

Common questions

Where does the money from selling drug-forfeited property go?

It depends on who the court forfeited the property to. If forfeited to the state, section 5.08(b)(2) sends the proceeds to the state comptroller as general funds. If forfeited to a law enforcement agency or a political subdivision that employs peace officers, section 5.08(f) puts the proceeds in a special fund the agency uses for investigating crimes. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Do lienholders get paid before the sheriff's department keeps the money?

Yes. The AG concluded that section 5.08(f) does not let a seizing agency receive sale proceeds until the claims of bona fide secured parties are satisfied. Section 5.08(b)(1) directs proceeds first to lienholders, and that step comes before the special-fund distribution in subsection (f). Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Weren't subsections (b)(2) and (f) contradictory?

No. The AG read them as covering different situations rather than conflicting. Subsection (b)(2) governs proceeds when property is forfeited to the state; subsection (f) governs proceeds when property is forfeited to an eligible law enforcement entity. A 1985 amendment adding "except as provided by subsection (f)" to subsection (b)(2) made the relationship explicit. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Background and statutory framework

The Controlled Substances Act (article 4476-15, V.T.C.S.) provides for the forfeiture of property used in connection with drug offenses. Section 5.08 sets out what happens to forfeited property and its sale proceeds. Subsection (a) covers controlled substances and paraphernalia; subsection (b) directs that other forfeited property be sold at public auction by the sheriff, with proceeds delivered to the district clerk and paid first to bona fide lienholders (subsection (b)(1)) and then, as to the balance, forwarded to the state comptroller "except as provided by subsection (f)" (subsection (b)(2)). Subsection (c) lets a state or local law enforcement entity keep and use forfeited property that is free of any security interest, and subsection (f), added in 1981, places money and proceeds forfeited to seizing agencies in a special fund used solely for criminal investigation. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

The AG traced the statute's history to show subsection (f) was meant to fit the existing structure, not override it. In the 1973 version property could be forfeited only to the Department of Public Safety, which kept property free of security interests or sold encumbered property and paid lienholders first, then the comptroller (Acts 1973, 63rd Leg., ch. 429). Amendments in 1977 and 1979 let courts forfeit property to agencies employing the seizing officers, and the 1981 addition of subsection (f) let those entities receive sale proceeds (Acts 1981, 67th Leg., ch. 268). Reading subsection (f) together with subsections (b) and (c), and with section 5.03(c)'s protection of secured parties, the AG concluded subsection (f) is an alternative only to subsection (b)(2), so the lienholder priority in subsection (b)(1) survives. The 1985 amendment to subsection (b)(2) (Acts 1985, 69th Leg., ch. 227) confirmed that reading. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Citations and references

The opinion cited the following authorities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Statutes:

• V.T.C.S. art. 4476-15 (Controlled Substances Act), §§ 5.03(c), 5.05, 5.07, 5.08(a)-(c), (f)
• Acts 1973, 63rd Leg., ch. 429; Acts 1977, 65th Leg., ch. 492; Acts 1979, 66th Leg., ch. 37 (forfeiture recipients)
• Acts 1981, 67th Leg., ch. 268 (adding § 5.08(f))
• Acts 1985, 69th Leg., ch. 227 (amending § 5.08(b)(2))

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0550
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0550.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

September 23, 1986

Honorable Benjamin Euresti, Jr.
Cameron County Attorney
974 E. Harrison Street
Brownsville, Texas 78520

Opinion No. JM-550

Re: Disposition of funds received from the sale of vehicles forfeited under section 5.08 of article 4476-15, V.T.C.S.

Dear Mr. Euresti:

You ask our opinion on the following question:

May the Cameron County Sheriff deposit the money received from the sale of [property that has] been forfeited in accordance with article 4476-15, section 5.08, V.T.C.S., to be used for law enforcement purposes only, or, must the sheriff deliver the said proceeds to the Cameron County District Clerk for forwarding, after paying to any parties holding an interest in the property (in the form of a security interest or lien) the 'value' of such property interest, to the Texas State Comptroller?

The Controlled Substances Act, article 4476-15, V.T.C.S., provides for the forfeiture of various kinds of property used in connection with violations of the act. V.T.C.S. art. 4476-15, § 5.03. You suggest that there is a conflict within section 5.08 of the act concerning the disposition of the proceeds from the sale of forfeited property. Section 5.08 provides, in pertinent part:

Sec. 5.08. (a) Regarding all controlled substances, raw materials, and drug paraphernalia which have been forfeited, the district court shall by its order direct a law enforcement agency to:

(1) retain the property for its official purposes;

(2) deliver the property to a government agency or department for official purposes;

(3) deliver the property to a person authorized by the court to receive it; or

(4) destroy the property that is not otherwise disposed in the manner prescribed by section 5.081 of this Act.

(b) All other property that has been forfeited, except the money derived from the sale, manufacture, distribution, dispensation, delivery, or other commercial undertaking violative of this Act, and except as provided below, shall be sold at a public auction under the direction of the county sheriff after notice of public auction as provided by law for other sheriff's sales. The proceeds of the sale shall be delivered to the district clerk and shall be disposed of as follows:

(1) to any bona fide lienholder, secured party, or other party holding an interest in the property in the nature of a security interest, to the extent of his interest; and

(2) the balance, if any, after deduction of all storage and court costs, shall be forwarded to the state comptroller and deposited with and used as general funds of the state except as provided by subsection (f) of this section.

(c) The state or an agency of the state or a political subdivision of the state authorized by law to employ peace officers may maintain, repair, use, and operate for official purposes all property that has been forfeited to it if it is free from any interest of a bona fide lienholder, secured party, or other party who holds an interest in the property in the nature of a security interest. The department or agency receiving the forfeited vehicle may purchase the interest of a bona fide lienholder, secured party, or other party who holds an interest so that the property can be released for use by the department or agency receiving the forfeited vehicle. The department or agency receiving the forfeited vehicle may maintain, repair, use, and operate the property with money appropriated to the department or agency for current operations. If the property is a motor vehicle susceptible of registration under the motor vehicle registration laws of this state, the department or agency receiving the forfeited vehicle is deemed to be the purchaser and the certificate of title shall be issued to it as required by Subsection (e) of this section.

. . . .

(f) All money, securities, certificates of deposit, negotiable instruments, stocks, bonds, businesses or business investments, contractual rights, real estate, personal property and other things of value, and the proceeds from the sale of an item described in this subsection that are forfeited to the seizing agencies of the state or an agency or office of a political subdivision of the state authorized by law to employ peace officers shall be deposited in a special fund to be administered by the seizing agencies or office to which they are forfeited. Except as otherwise provided by this subsection, expenditures from this fund shall be used solely for the investigation of any alleged violation of the criminal laws of this state. . . . (Emphasis added).

V.T.C.S. art. 4476-15, § 5.08.

You suggest that sections 5.08(b)(2) and 5.08(f) are contradictory because section 5.08(b)(2) places proceeds from the sale of forfeited property into the state's general revenue fund, whereas section 5.08(f) places proceeds into a special fund for the use of the seizing agency of the state or agency or office of a political subdivision to whom the property was forfeited.

We find no such conflict in section 5.08. Section 5.08 must be read in the context of the entire act. Section 5.07 of the act provides for a forfeiture hearing. At a forfeiture hearing the court may order the seized property forfeited (1) to the state or (2) to an agency of the state or to a political subdivision of the state authorized by law to employ peace officers. V.T.C.S. art. 4476-15, § 5.07(a), (d). The proper disposition of sale proceeds depends on whether the court orders property to be forfeited to the state or to one of the other eligible entities. Section 5.08(f) governs the disposition of proceeds from a sale if the court orders the seized property forfeited to an eligible entity other than the state. Section 5.08(b)(2), which governs disposition of proceeds "except as provided by subsection (f)" governs disposition of proceeds from the sale of property forfeited to the state. Therefore, section 5.08(b)(2) and section 5.08(f) are not in conflict.

Also, your question seems to imply that if section 5.08(f) controls the disposition of proceeds, persons who hold security interests in forfeited property lose their protection under the act. In other words, your question implies that when property is sold that has been forfeited to an eligible entity other than the state, proceeds do not first go to satisfy the claims of secured parties. We do not think that is a correct reading of the act.

Section 5.08(f) itself makes no reference to the rights of secured parties. Therefore, one might conclude upon reading section 5.08(f) in isolation that a secured party is not protected if seized property is forfeited to any entity other than the state. The act as a whole, however, makes clear that the rights of secured parties are to be protected in all forfeiture proceedings.

Section 5.03(c) of the act states:

A forfeiture of property encumbered by a bona fide security interest is subject to the interest of the secured party if he neither had knowledge of nor consented to the act which caused the property to be subject to forfeiture.

See also V.T.C.S. art. 4476-15, § 5.05(b)(2), (3), (e), (g), (h); § 5.07(c), (d). We do not think that section 5.08(f), which was added to the act in 1981, was intended as an exception to section 5.03(c).

Section 5.03(c) and other provisions regarding the protection of secured parties have been in article 4476-15 since it was enacted in 1973. Acts 1973, 63rd Leg., ch. 429, at 1132. In the 1973 version of article 4476-15 property could be forfeited only to the Department of Public Safety. Id. at 1161. DPS could keep and use the property if it was free of a bona fide security interest. Id. at 1162. If the property was encumbered by a security interest, it had to be sold, and the proceeds were to be distributed first to secured parties and then to the comptroller to be deposited in the state general revenue fund. Id.

In 1977 the legislature amended section 5.07 of the act to allow a court to order that seized property be forfeited either to the state or to "any agency or unit of government employing the seizing officer." Acts 1977, 65th Leg., ch. 492, at 1269. In 1979 the legislature changed that language somewhat to allow forfeiture to the state or to "an agency of the state or to a political subdivision of the state authorized by law to employ peace officers." Acts 1979, 66th Leg., ch. 37, at 60. When the legislature made those amendments to section 5.07, it also amended section 5.08(c) to permit any agency or office to whom the property was forfeited to keep and use the property if it was free of any bona fide security interest. Acts 1977, 65th Leg., ch. 492, at 1270; Acts 1979, 66th Leg., ch. 37, at 61. It was not until 1981, however, that the legislature added section 5.08(f), allowing an entity other than the state to receive proceeds from the sale of forfeited property. Acts 1981, 67th Leg., ch. 268, at 705.

We think that section 5.08(f) was intended to fit into the existing structure of the act and that it must be read in conjunction with section 5.08(c) and section 5.08(b). Section 5.08(f) governs how entities other than the state may use forfeited property and proceeds from the sale of forfeited property. It does not provide for when property may be retained, when it must be sold, or how it is to be sold. Therefore, section 5.08(f) must be read together with section 5.08(c), which sets out when forfeited property may be retained and when it must be sold, and section 5.08(b), which sets out how forfeited property is to be sold. Section 5.08(c) states that a seizing agency or office may keep and use property only if it is free of any bona fide security interest. If the property is not free of any bona fide security interest, it must be sold in order to satisfy the claims of secured parties. Section 5.08(b), which applies to all property that has been forfeited other than property described in section 5.08(a), governs the sale except insofar as the distribution of the balance of the proceeds is concerned. Cf. § 5.08(b)(2); § 5.08(f). In other words, section 5.08(b)(1), which directs proceeds to go first to secured parties, must be followed before the provision in section 5.08(f) concerning distribution of proceeds comes into play. Thus, the provision in section 5.08(f) concerning proceeds from the sale of forfeited property is an alternative to section 5.08(b)(2) only, not to section 5.08(b) in its entirety.

A 1985 amendment to section 5.08(b)(2) supports our construction of section 5.08. In 1985 the legislature amended section 5.08(b)(2) to add the language "except as provided by subsection (f) of this section." Acts 1985, 69th Leg., ch. 227, at 1867. We think that the addition of that language to section 5.08(b)(2) makes clear that language in subsection (f) regarding disposition of proceeds from the sale of forfeited property is an alternative to subsection (b)(2) only, not to subsection (b) in its entirety. When subsection (f) is read as providing an alternative to subsection (b)(2) alone and not subsection (b) in its entirety, the general principle set out in section 5.03(c) -- that the act is intended to protect bona fide security interest -- is left intact.

SUMMARY

Article 4476-15, section 5.08(b)(2), controls the disposition of proceeds from a sale of forfeited property if a court has ordered the property forfeited to the state. Section 5.08(f) controls the disposition if a court orders the property forfeited to an agency of the state or a political subdivision of the state authorized by law to employ peace officers.

Article 4476-15, section 5.08(f), does not permit an agency or office to receive proceeds from the sale of forfeited property until the claims of bona fide secured parties have been satisfied.

Very truly yours,

Jim Mattox
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General