A property owner in Maricopa County failed to pay taxes due on the property for 1993. The County sold the resulting tax lien to a buyer in 1995. The buyer later paid taxes due on the property for 1994, 1995, and 1996.
The lien buyer filed an action to foreclose the lien in early 2007. At that time, arguably the lien had expired. Under Arizona law, if the buyer of a tax lien does not file a foreclosure action within ten years of purchase, the lien expires. See A.R.S. §§ 42-18208(A); 42-18127(A). But statutory expiration dates can sometimes be tolled. As of 2007, Arizona courts had not addressed whether the ten-year expiration date is tolled when the lien buyer pays additional property taxes after purchase.
After the lien buyer filed the foreclosure action, the County sent the property owner a letter listing how much the buyer had paid in taxes and stating that this was “the amount due and payable in order to redeem your property.” The property owner paid this redemption amount but told the County he did not actually owe the money in light of the ten-year expiration statute. The County forwarded the property owner’s payment to the lien buyer, and the foreclosure action was dismissed.
Then the property owner sued the County for unjust enrichment. He argued that the tax lien expired in 2005 because the lien buyer had not filed a foreclosure action within ten years after purchase; thus, the County improperly forced him to redeem an expired lien. The County argued that the tax lien remained valid because the lien buyer had paid additional property taxes after purchase, which tolled the ten-year expiration date. Although the County prevailed in superior court, the Court of Appeals rejected the County’s tolling argument, held that the tax lien expired in 2005, and remanded for further proceedings.
On remand, the County moved for summary judgment on different grounds. The County pointed out that it no longer possessed the property owner’s redemption payment, having forwarded it to the lien buyer. The County also argued that the property owner could have avoided paying the redemption payment by challenging the validity of the lien in the lien buyer’s foreclosure action. The superior court granted the County’s motion.
A split panel of the Court of Appeals affirmed. Unjust enrichment is available only if the defendant was unjustly enriched. Here, the County was not enriched by the property’s owner’s redemption payment because the County immediately forwarded the payment to the lien buyer under color of law. The County thought, albeit mistakenly, that it was required to forward the payment to the lien buyer because the lien was still valid.
Also, unjust enrichment is an equitable remedy. Here, equitable considerations favor the County. There was no evidence that the County forced the property owner to pay the redemption amount. (Indeed, the County had no incentive to do so, since the lien buyer had already paid the property taxes.) Moreover, the property owner could have challenged the validity of the lien in the lien buyer’s foreclosure action. Had he done so, he would have been successful and the lien buyer would have suffered the consequence of waiting too long to file a foreclosure action. In contrast, allowing the property owner to seek restitution from the County after paying the redemption amount would give him a windfall at the County’s expense. He would retain both the property and the tax payments, and the County would suffer the consequence of the lien buyer’s tardiness.
Dissenting, Judge Perkins reasoned that the County was in fact enriched by the property owner’s redemption payment because it received the payment. That the County later gave the payment to a third party does not change the analysis, since the County was under no legal obligation to give the payment away.
Presiding Judge Johnsen delivered the opinion, in which Judge Cattani joined. Judge Perkins concurred in part and dissented in part.
Posted by: Josh Whitaker