I was going to use a picture of an animated doll and make a joke about how I was referring to a different kind of adverse possession. But that seemed creepy, so I didn’t. You’re welcome.
Sen. Koch has introduced SB 121 regarding adverse possession. Adverse possession is a somewhat odd but venerable concept in real estate law that essentially says that if you use someone else’s real estate long enough and they let you, it becomes yours. One can imagine, in days of yore, an absentee landowner with vast tracts of land who was so inattentive that someone else farmed it for a decade or two without noticing. In that case, maybe it’s best that someone doing something productive with the land becomes the owner. I don’t know if that’s exactly how the concept became enshrined in our law, but I think it’s probably pretty close.
In any case, there is now a formula of elements that have to be present before land can be adversely possessed. The elements are sometimes framed in different ways, but they include the fact that the possession must be open, actual, continuous for ten years or more, and adverse to the person who holds title to the land. There is another requirement that the legislature added to the common law element in the 1920s: a person claiming possession has to pay taxes on the land for that period. Often this element gets fudged a bit — in that, a fair amount of adverse possession takes place around the edges: say, you put up a fence that goes over your property line into the neighbor’s real estate. You don’t pay any more for the extra land, but you (and the government) think you’re paying what you owe. In that case, the taxation element will be satisfied. But, if you squat on a random tract of land, don’t get kicked off but don’t pay taxes, you won’t acquire the land.
There is an exception to the taxation element currently in place for governmental entities – presumably on the assumption that they wouldn’t normally have to pay real estate taxes in any case, so it shouldn’t be an element of adverse possession for those entities. SB 121 extends that logic to “501” entities who wouldn’t be required to pay taxes to enjoy adverse possession. (The number “501” comes from section 501 of the Internal Revenue Code where you’ll find various types of tax-exempt organizations, such as the 501(c)(3) charitable organizations.)
This certainly isn’t my area of expertise, but I think this goes a little too far. I understand the logic, but I think the 501 entities still generally have to pay taxes on real estate if it isn’t being used for an exempt purpose. (Maybe a generally charitable organization has property that it’s using for straight up profiteering. Maybe a church opens a gym and makes money off of membership fees.) So, I’d be inclined to recommend an exempt purpose requirement to get the 501 entity out from under the tax payment requirements.
In property class in law school adverse possession seemed like a very opaque concept. Interesting to think about but not having much real world application. But as you alluded too, it works on the edges. Adverse possession, over time, cures a lot of properly line issues and cleans up the real estate records.
If you build your fence a few feet over onto the neighbor’s property, the matter is effectively settled after 10 years and your have adversley possessed and now own the strip. Our property law professor never explained the doctrine that way (we had to read ancient English cases for the concept), but that seems to be the practical effect of the law.
Your addition that the relevant property be held for an exempt, as opposed to a nonexempt, purpose, makes sense. It is possible that the drafters did not consider that nuance.
I just wonder where this comes from. He didn’t just wake up one morning, enlightened that this would be a great idea that would somehow serve the common good. I wish I could follow that money.
Yes, Stuart, I was wondering the same thing.
The author is a private practice attorney, and I’ve wondered which of his clients benefits from this law. Each bill has a backstory.
Doug, I served one term as Marion County Assessor. One item on my plate that made me worry constantly was the review of applications for property tax exemptions. There was constant confusion by applicants who wanted their property taxes exempted because they were exempt from federal income tax under 26 U.S.C 501. Indiana law does not grant the property tax exemption based on the nature of the entity owning the property, but, as you correctly say, based on the exempt use of the property. This bill would allow a claim of adverse possession for an adjacent property, even though no application was reviewed to determine the use of the property that is being taken by adverse possession. Presumably, the claimed property might be properly taxed, because it does not have an exempt use, and perhaps there has been an accumulation of unpaid taxes.
As for the comment that we follow the money, I suspect this is a proposal that would favor a real estate developer who minimally meets the requirement for exemption for low income housing, and who is acquiring and developing properties in blighted areas with high vacancies. These developers qualify for an exemption if a certain percentage of their housing stock is sold or rented to low income residents. The main point here is that not all of the housing stock must be dedicated to low income residents, so there is some profit motive.
This bill would allow those developers an easier means to acquire property.
This bill extends the adverse possession law too far, based on a misunderstanding of exemption law. After seeing the exponential expansion of the number of properties claiming exemptions, I would oppose any further expansion.
Thank you for paying attention to this proposal.
Thanks for adding the voice of experience!