A real estate company's purchase at a tax sale of townhouses owned by the Los Angeles County Housing Authority is not valid, the Second District Court of Appeal has ruled.
How could real estate owned by a public agency get sold for nonpayment of taxes? Erroneously.
During the 1980s, E.A. Reeves Partnership contracted with the state to build a low-income townhouse project on lots 14, 15 and 16 of the Springdale Tract, along Willowbrook Avenue, in South Central Los Angeles. After the housing was built, Reeves conveyed the property to the state. However, a scrivener's error in the grant deed omitted reference to parcels 15 and 16. When the state sold the project to the county Housing Authority in 1990, the error was perpetuated.
The Housing Authority notified the county auditor of ownership by a tax-exempt entity, but failed to tell the county assessor, which continued to send tax bills for lots 15 and 16 to Reeves. The taxes went unpaid, and in 1995 Hector Nevarez acquired the two lots at a tax sale. When Nevarez failed to pay taxes, the assessor conducted another tax sale in 2003, at which L&B Real Estate acquired lots 15 and 16 for $99,000.
When L&B learned that the Housing Authority was asserting ownership, L&B filed suit to clear up the title. The Housing Authority filed a counter-complaint contending the tax deed was void. Los Angeles County Superior Court Judge Alice Altoon ruled that the property could not be sold at a tax sale and the Housing Authority was the owner.
Ordinarily, public property is exempt from taxation and, therefore, cannot be sold for nonpayment of taxes. On appeal, L&B argued that the usual rule did not apply because the Housing Authority had waived its tax exempt status by not complying with the Revenue and Taxation Code, because state law required L&B's and Nevarez's tax deeds to be presumed valid, and because the Housing Authority's attempted to invalidate the tax deed too late.
A unanimous three-judge panel of the Second District, Division Eight, rejected all three arguments.
The statutes cited by L&B for the proposition that the Housing Authority waived its tax exempt statues (Revenue and Taxation Code §§ 5082.1 and 4987) are inapplicable, the court ruled. The first section concerns cancellation of tax liens when property is acquired by the government, while the second regards cancellation of wrongly imposed taxes.
As for the presumptive validity of the tax deeds, the court said, "Among the jurisdictional prerequisites to a valid tax deed is property legally subject to being taxed." In this instance, there was no tax liability.
To L&B's argument that there was a one-year statute of limitations, the court said the time limit does not apply because "the defect in title was jurisdictional. The Authority remained in possession of the property since 1990."
Only in a footnote did the court cut to the chase: The townhouse project straddles all three lots, and a large "Community Development Commission, County of Los Angeles" sign sits in front. L&B did not obtain a title report until after the sale, and that report mentioned documents in the chain of title indicating that all three lots were intended to be conveyed originally.
"In short, L&B either knew or should have known it was buying property that belonged to the Authority," Justice Laurence Rubin wrote for the court.
A lawsuit in Los Angeles County Superior Court in which L&B seeks return of the $99,000 purchase amount is pending.
L&B Real Estate v. Housing Authority of the County of Los Angeles, No. B189740, 07 C.D.O.S. 3981, 2007 DJDAR 5013. Filed April 16, 2007.
For L&B: Michael Ezer, Ezer, Williamson & Brown, (310) 277-7747.
For the Housing Authority: Wayne Grajewski, Brown, Winfield & Canzoneri, (213) 687-2100.