Court rules national bank should have pursued state court options to avoid transfers of abandoned property to county land banks.

Court rules national bank should have pursued state court options to avoid transfers of abandoned property to county land banks.

A national bank seeking to avoid transfers of abandoned property to county land banks should have pursued other remedies available in state court before seeking to compel appropriation proceedings, the Supreme Court of Ohio ruled today.

In a unanimous decision, the Supreme Court denied US Bank Trust’s petitions for writs of mandamus alleging that there was an unconstitutional “taking” of private property when counties handed over property with delinquent taxes to land banks. In each case, the fair market value of the property exceeded the amount of taxes owed, and the bank argued it is entitled to the difference between the fair market value and the delinquent taxes.

Writing for the Court, Justice Patrick F. Fischer noted that in two of the three instances, the bank had the ability to contest decisions by the local government to transfer the abandoned properties but took no steps to do so. US Bank’s challenge to a transfer by Lucas County was rejected because the bank did not own the property until a year after it was granted to the land bank and its prior owner did not contest the transfer, Justice Fischer concluded.

The Court did not address whether the 2006 law allowing counties to transfer properties with delinquent taxes to land banks rather than sell them at auction could result in an unconstitutional taking of private property.

Chief Justice Sharon L. Kennedy and Justices R. Patrick DeWine, Michael P. Donnelly, Melody J. Stewart, and Jennifer Brunner joined Justice Fischer’s opinion. Twelfth District Court of Appeals Judge Matthew R. Byrne, sitting for Justice Joseph T. Deters, also joined the opinion.

Bank Seeks Compensation Years After County Transfers
The Supreme Court consolidated three challenges filed by US Bank into one case. In each case, the bank claims its rights were violated by the use of a state law allowing a court or county board of revision to transfer abandoned property to a “county land reutilization corporation,” known as a “land bank,” without attempting to sell the land.

In 2017, Summit County initiated the process when it foreclosed on an Akron residential property that owed $4,020 in delinquent taxes. US Bank owned the property at the time the county filed its complaint with the board of revision, and county records indicated the property’s fair market value exceeded the amount of taxes owed.

The board of revision heard the complaint in November 2017. US Bank did not appear at the hearing. The board issued a default judgment and, under the process in state law, ordered the land to be transferred to the land bank after a 28-day “alternative redemption period.” That period gave US Bank or any other interested party time to object to the transfer. No one challenged the transfer and the deed was given to the county land bank in January 2018.

In December 2020, US Bank sought a writ of mandamus from the Ninth District Court of Appeals, arguing the transfer constituted a taking of private property under the U.S. and Ohio constitutions. It asked the appeals court to compel the county to initiate an appropriations proceeding under the state’s eminent domain laws to determine how much the county owed US Bank for taking its land. The Ninth District rejected the request, finding US Bank “had plain and adequate remedies at law” that allowed them to contest the transfer.

Bank Raises Two More Challenges
After the unsuccessful appeal in 2020, US Bank filed two more challenges in Cuyahoga and Lucas counties in 2021.

The Cuyahoga County case dealt with a property that the county foreclosed on in June 2017, where nearly $1,499 in unpaid taxes was owed. US Bank did not own the property at the time, but was assigned the mortgage in September 2017. The next month the board of revision conducted a hearing and US Bank did not appear, nor did the borrower. When no objections were filed during the 28-day redemption period, the land was transferred to the county land bank.

US Bank sought a writ from the Eighth District Court of Appeals nearly four years later, arguing the transfer was an unconstitutional taking of property. The Eighth District ruled the bank lacked standing to bring the case because it was not the owner when the county started the foreclosure process. The court also ruled no constitutional provision or state law prevents the state from retaining any proceeds from the land that exceed the amount of delinquent taxes.

In Lucas County, foreclosure began in December 2016 on a Toledo property that owed $7,267 in unpaid taxes. At the time, Federal Home Loan Mortgage, known as “Freddie Mac,” held a mortgage on the property. The board of revision conducted a hearing in March 2017 on the foreclosure and Freddie Mac did not appear at the hearing. The property was transferred to the land bank in April 2017. A year later, US Bank acquired the mortgage, which had more than a $50,000 balance on the loan.

US Bank asked the Sixth District Court of Appeals to order the county to pay for taking the property. The Sixth District ruled that Freddie Mac did not take advantage of the process to challenge the transfer, and the chance to challenge the transfer was not available to US Bank.

US Bank appealed all three decisions to the Supreme Court, which agreed to hear the case.

Supreme Court Analyzed Land Bank Transfer Laws
In the Supreme Court opinion released today, Justice Fischer explained that under traditional Ohio law, a county treasurer can enforce a tax lien on real property by initiating foreclosure proceedings. If the delinquent taxes are not paid, then the property is sold at auction. When the property is sold, the county collects the unpaid taxes, and if the sale price exceeds the amounts owed, the excess funds may go to the owner or to any other creditor that had a right to collect payments from the owner.

In 2006, state lawmakers adopted an alternative method for collecting tax liens on abandoned property, the opinion noted. Instead of seeking to sell the land at auction, the county could transfer the land to a county land bank. When transferring land, the county does not collect any unpaid taxes and no funds are collected through property sales. The land bank obtains the land free and clear of any taxes or debts owed to prior creditors.

US Bank argued the county is unfairly gaining property that is far more valuable than the taxes owed. The land banks are now free to sell the property and retain the profits, the US Bank maintained. Had the property been sold at auction, then the mortgage holder would have received any proceeds that exceeded the amount owed for unpaid taxes.

The Court stated the law allowing the transfer of abandoned property to land banks provides several opportunities to challenge the transfer. Landowners and “lienholders” such as financial institutions are notified of the county’s intent to foreclose. Those parties are also notified of the hearings to attempt to transfer the property to the land banks.

The opinion points to R.C. 323.69(B)(2), which indicates any owner of property may request the case be moved to common pleas court. Once the case is in court, the parties can raise any objections to the county’s foreclosure actions and may raise any other issues pertinent to the abandoned land at issue.

The Court found US Bank had multiple remedies in the foreclosure actions that it did not pursue.  The Court noted that US Bank had a right to raise the taking issue by requesting a transfer of the proceedings to the courts of common pleas in Summit and Cuyahoga counties. The Supreme Court also mentioned that the US Bank could have avoided the transfer entirely by redeeming the properties by paying the delinquent taxes. And US Bank also could have appealed decisions by the boards of revision to approve the foreclosures, the opinion noted. US Bank could have avoided any alleged taking by asserting its rights allowed by state law, the Court concluded.

“US Bank has not shown that it could not have protected its security interest in the properties through the available court proceedings,” the opinion stated.

2021-1090, 2021-1091, and 2021-1181. State ex rel. US Bank Trust Natl. Assn. v. Cuyahoga Cty., Slip Opinion No. 2023-Ohio-1063.

View oral argument video of this case.

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