Legal Question in Real Estate Law in California

Real property on which taxes are delinquent becomes �tax defaulted property� by operation of law and declaration of the tax collector. ��Tax-defaulted property� is real property which is subject to a lien for taxes which, by operation of law and by declaration of the tax collector, are in default and from which the lien of the taxes for which it was declared tax-defaulted has not been removed.� (Rev. & Tax. Code, � 126.)

The property remains subject to the original owner�s rights of redemption until those rights are terminated. �Tax-defaulted property may be redeemed until the right of redemption is terminated.� (Rev. & Tax. Code � 4101.)

If the property is not redeemed within five years after it becomes tax defaulted, the property is subject to sale by the tax collector.

Five years or more after the property has become tax defaulted, the tax collector shall have the power to sell and shall attempt to sell in accordance with Section 3692 all or any portion of tax-defaulted property that has not been redeemed, without regard to the boundaries of the

parcels, as provided in this chapter, unless by other provisions of law the property is not subject to sale.

(Rev. & Tax. Code � 3691 subd. (a).)

The original owner�s rights to redeem the property terminate prior to a sale to a private party from the tax collector, unless the property is not sold. �The right of redemption shall terminate at the close of business on the last business day prior to the date the sale begins.� (Rev. & Tax. Code � 3707 subd. (a).) If the property is not sold, the original owner�s right to redeem the property is revived. �The right of redemption revives if the property is not sold.� (Rev. & Tax. Code � 3707 subd. (d).)

A sale of property at a tax foreclosure sale conveys title free and clear of any encumbrances, except liens for taxes and assessments. �The deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale �.� (Rev. & Tax. Code � 3712.)

After the tax foreclosure sale, the only remedy is to file an action to set aside the foreclosure sale, if their was in irregularity of the sale. There is a one year statute of limitation to file that action. �A proceeding based on alleged invalidity or irregularity of any proceedings instituted under this chapter can only be commenced within one year after the date of execution of the tax collector�s deed.� (Rev. & Tax. Code � 3725.)

What Mr. Roach's recital of a bunch of legalese means is, yes, the tax sale deed eliminates the rights of everyone but the buyer at the tax sale who receives the tax sale deed.

Mr. Roach supplies you with a detailed analysis of the applicable law. I think he would agree, what it means is that the property was tax sold to the state [county is part of the state], it was not redeemed by paying taxes due for years after it was "sold' to the state, so as long as notice was given of the sale to the trust, then the sale was valid and the trust no longer has a right to redeem the property. The beneficiaries may have a cause of action against the trustee.

If the tax sale produces "excess proceeds," the former owners can get in line to be paid. However, a tax sale is an inefficient way to dispose of real estate. The trustee of this trust may have been negligent in not paying the taxes when due, or redeeming the property prior to the sale. If the sale hasn't taken place yet, the current trustee should consider redeeming the property as an option. If the trust or beneficiaries don't want the property. it's probably better to redeem and sell in an ordinary commercial listing-and-sale transaction. After the sale, the trust's ownership interest is wiped out, and the winning bidder will get a tax deed shortly after payment of the full bid price (which generally must equal the taxes due, and often is not much more).

Revenue & Taxation Code section 4675 says, inter alia, "(a) Any party of interest in the property may file with the county a claim for the excess proceeds, in proportion to his or her interest held with others of equal priority in the property at the time of sale, at any time prior to the expiration of one year following the recordation of the tax collector's deed to the purchaser." and

"(e) No sooner than one year following the recordation of the tax collector's deed to the purchaser, and if the excess proceeds have been claimed by any party of interest as provided herein, the excess proceeds shall be distributed on order of the board of supervisors to the parties of interest who have claimed the excess proceeds in the order of priority set forth in subdivisions (a) and (b). For the purposes of this article, parties of interest and their order of priority are:

"(1) First, lienholders of record prior to the recordation of the tax deed to the purchaser in the order of their priority.

"(2) Second, any person with title of record to all or any portion of the property prior to the recordation of the tax deed to the purchaser."

The trust would presumably fall into category (2), above.