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Subrogation in Taxes or Assessments

Subrogation is the process of replacing one creditor with another.  The substituted person is provided with the same rights as of the original person.  The subrogation of rights is not possible without prior written permission.

A person who has an interest in a property can pay taxes and assessment that are due from another on the land.  In doing so, the person is subrogated to the lien of the state or of the public taxing bodies[i].  Generally, the rights of subrogation are statutorily granted[ii].  When a person pays taxes for another, a lien will be formed in favor of the person.  The person will be protected under equitable subrogation even if there is no statutory backing or personal liability[iii].

When there is no written agreement for subrogation, no person can pay the taxes or assessment of a property in which that person has no interest[iv].  In addition to that, when a third party who has no interest in a property pays taxes on the property without any agreement for subrogation, the person cannot be granted any subrogation rights.  If there is no prior agreement, subrogation can be denied even if the party paid the taxes on the request of the owner of the property[v].  Subrogation may not be allowed in cases where the third party had knowledge about his/her status being subordinate to superior tax liens[vi].

When a person pays taxes for a property by mistake, s/he is in the same position as a volunteer.  However, protection under the doctrine of subrogation cannot be awarded to such persons when they have no interest in the property[vii].  In cases where the taxes of a property are wrongly assessed in the name of another person, that person is not liable to pay the taxes.  If that person pays such taxes, the person will not be entitled to rights under subrogation.  This is because the person has no legal or moral liability to pay taxes that are mistakenly assessed[viii].  However, when a person has a mistaken knowledge about ownership of a property, the person can claim subrogation rights after paying taxes[ix].  According to equitable subrogation, responsibility of a mistake can determine the results of the mistake[x].

Generally, the rule is that persons paying taxes on another’s property can be subrogated to the rights of the state or other public taxing bodies.  This rule can be applied when taxes are paid by tax certificate holders[xi], judgment creditors, agents, stockholders, officers of corporations[xii], and surface owners.  In certain cases even if the interest in the property is temporary and unlikely to vest remaindermen and contingent remaindermen also can be subrogated to the rights of a state or public taxing body.

Vendors and purchasers including purchasers at a foreclosure sale or at a sale under a deed of trust can also obtain rights under subrogation[xiii].  Further, when a property is sold subject to a tax lien, the person buying the property will have no subrogation rights on payment of the pending tax.

A mortgagee pays taxes of a mortgaged property to protect his/her interests over the property and to preserve the title from forfeiture to the state or an individual tax purchaser.  Generally, when a mortgagee pays taxes of a mortgaged property s/he will be subrogated to the lien of the state or public taxing bodies[xiv].  Even if the payment of taxes by a mortgagee is invalid, the rule of subrogation prevails as protection for mortgagees.

[i] Willmon v. Koyer, 168 Cal. 369 (Cal. 1914)

[ii] In re Baltimore Pearl Hominy Co., 294 F. 921 (D. Md. 1923)

[iii] Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478 (Ariz. Ct. App. 2004)

[iv] Pacific Tel. & Tel. Co. v. Pacific Gas & Electric Co., 170 Cal. App. 2d 387 (Cal. App. 1st Dist. 1959)

[v] Employes’ Bldg. & Loan Ass’n v. Crafton, 63 Okla. 215 (Okla. 1917)

[vi] Hillsborough Inv. Co. v. Tampa, 149 Fla. 7 (Fla. 1941)

[vii] Scott v. Silverleaf Dev., Inc., 1988 Tex. App. LEXIS 2157 (Tex. App. Houston 1st Dist. Aug. 25, 1988)

[viii] McGlew v. McDade, 146 Cal. 553 (Cal. 1905)

[ix] Franklin Bldg. & Loan Co. v. Peppard, 97 Utah 483 (Utah 1939)

[x] Martin v. Hickenlooper, 90 Utah 150 (Utah 1936)

[xi] Colonial Hill Co. v. Mortgage Bond & Trust Co., 174 Ga. 204 (Ga. 1932)

[xii] In re Receivership of Baldwin Lumber Co., 176 La. 909 (La. 1933)

[xiii] McCollum v. Lark, 187 Ga. 292 (Ga. 1938)

[xiv] Kemp v. Cossart, 47 Ark. 62 (Ark. 1885)


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