Super liens under scrutiny

WSB recently reported on the potential for abuse in the “super lien” process for foreclosing on tax delinquent properties sooner than state law normally allows.

If a property in Georgia becomes severely delinquent in taxes, the typical process is for the tax authority to bring the property for tax sale. During the sale, the minimum bid is the amount of taxes that are owed, and the bidding can go higher than that. The original owner may apply for the excess funds (the amount that was bid at sale in excess of the taxes owed), and the owner has a year in which he or she can redeem the property for the full amount bid plus a 20 percent premium. If the prior owner does not redeem the debt, the tax sale buyer can foreclose the right to redeem.

Due to the Georgia Supreme Court’s ruling in National Tax Funding v. Harpagon several years ago, an alternate method has been established in which foreclosure can occur by a third party earlier than the one year norm. This third party is another lienholder, such as a person or company that holds a medical lien or home maintenance lien on the same person who owned the property sold at tax auction. This lienholder or creditor is entitled to redeem the property. Once they have redeemed it, they are said to possess a “first lien” or “super lien” on the process. They are able to bar any further right to redeem by initiating foreclosure immediately.

Supporters of super liens say that they can be used to restore properties to tax-generating status faster. Critics say it harms the original owner’s ability to redeem the property themselves.

As tax collector for Decatur, we had a difficult situation where a tax sale buyer asserted that they did not have to pay delinquent city taxes because they had acquired a super lien by redeeming a property that had become delinquent in county taxes. Although super liens can help somebody who holds a secondary lien, one of my concerns is that other lien holders (including city governments) will not be made whole if there are not sufficient excess funds at sale.

There is definitely room for improvement and reform in the aftermath of Harpagon. WSB reports that Rep. Turner (R-Holly Springs) is advocating for legislation which would extend the redemption period to almost two years. Whether his proposal strikes the right balance remains to be seen.