In the case of Green Tree Servicing, LLC v. Auditor & Treasurer of Howard County, the Court of Appeals held that Howard County was not negligent in disbursing tax surplus funds to an outfit called Landmark Appraisals on behalf of the former property owner without first giving any sort of notice of the tax surplus to the mortgage holder on the property sold at tax sale.
The court reasoned that the mortgage holder, Green Tree, had been given notice of a pending tax sale prior to the sale. Green Tree had also been given notice that the tax sale purchaser was petitioning the court for a tax deed. There was no requirement that the mortgage holder be given yet another notice that a surplus had resulted from the tax sale prior to distributing it to the original property owner.
Theoretically, Green Tree can demand the surplus money (and more) from the original property owner to whom it lent the money. But, as a practical matter, if the property owner had property sold at tax sale, chances are that the person is not particularly solvent.
Landmark has an interesting business model. As I understand it, they scan public records for surpluses for tax sales. (A surplus results when the property is sold for more than the outstanding tax liability). They then contact the original property owner and offer to obtain the surplus on the property owner’s behalf in exchange for a percentage of the money obtained. At one point I came into contact with them in a similar situation (complicated by a foreclosure that took place somewhere during the tax sale process.) At that time, they didn’t appear to have looked very closely at whether other entities had obviously superior claims to the tax surplus money. And, to be fair, I don’t know that they have a duty to do so. However, if they don’t in fact do such investigation, I think they’re in danger of lawsuits from angry financial institutions who feel (rightly or wrongly) like Landmark is profiting from snatching away money to which the institutions are entitled.
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