UMATILLA COUNTY — Umatilla County has joined the defense of a class-action lawsuit against Oregon counties regarding surplus tax sales repayments from assets counties sold to cover back taxes.

The county board of commissioners voted unanimously on Dec. 20, 2023, to authorize the county to participate in the joint defense and retain outside counsel.

The county participated in similar litigation in 2020, sharing the cost of outside counsel and joining a defense with the 35 other Oregon counties. In a 2021 decision, the counties won, with the decision affirmed on appeal.

The law changed

The new lawsuit comes after a May 2023 U.S. Supreme Court decision, Tyler v. Hennepin County, asserting that when a county takes control of a property because someone doesn’t pay their taxes, once the county sells that property to recoup the taxes it is owed, any additional money the county receives beyond what it is owed must go to the former property owner who owed the taxes rather than be kept by the county for its own funds.

The 2021 decision that favored the counties is now superseded, and the new suit is asking for clarification on the decision’s historical impact. The 2023 suit defines the period of complaint as starting at least as far back as May 25, 2017.

The 2023 suit clarifies the recent Supreme Court finding, said Umatilla County Commissioner Dan Dorran in a media meeting after the board’s vote.

“Their clarification is that as a class action, folks that would’ve actually fallen into those rulings prior to two years ago would also be eligible for some repayment,” he said. “Well, that becomes almost undoable for counties that have already distributed those dollars to special districts throughout the country.”

The Oregon residents bringing the suit lost out on varying amounts of money due to their counties retaining proceeds from tax sales, as Oregon law requires.

Oregon Revised Statute 275.275 directly opposes the recent Supreme Court ruling, requiring instead that counties retain, for government use, all proceeds on sales of acquired properties. The May decision superseded state law, so Oregon counties no longer will keep the extra money from the sale of foreclosed properties.

The first plaintiff in the suit is Martin Lynch, who owed Lane County about $32,000 in taxes on his Springfield home when the county foreclosed on the property in early 2020. Then, Lane County sold it for $118,500, almost $87,000 more than Lynch owed.

Now, after losing his home and its equity, Lynch lives in a campground in Klamath County.

The other plaintiffs lost out on around $8,000 and $24,000 from Yamhill and Multnomah counties, respectively.

Feeling the impact

Paying back everyone who did not receive the surplus money from a county’s foreclosure sale from the past six years is not likely to be financially feasible, since according to the Association of Oregon Counties, the losses are not likely to be covered by the county’s insurance.

“Considering how tight county budgets are,” wrote Michael Burdick, the association’s legislative affairs manager, for its website, “fears are growing over how counties can possibly afford obligations associated with the lawsuits without making catastrophic cuts to critical services such as library, policing and public health programs, or even going bankrupt.”

In Umatilla County, Dorran said the county has not yet looked into what the implications of repayment would be.

“We have had the discussions of going back and making those calculations,” he said, “but we really haven’t had time to put that process yet in place. I wish it was as easy as pushing a button, but it’s not.”

The commissioners are unsure of how best to evaluate the cost to the county and to identify individuals who will receive repayment, so that process has not yet begun. For now, all foreclosure sales in the county have been stopped since the initial decision.

It’s unknown how many people in Umatilla County would be eligible for repayment at this point because it’s unclear whether and how far back people would be eligible for repayment before the court’s decision in June 2021.

Furthermore, Dorran said, many foreclosed properties in the county are sold for less than what is owed, so even if a few are sold for higher, the county could be losing money overall.

“As a county commissioner, I have to look at the county as a whole,” he said.

Sometimes, the offers for foreclosed properties are higher than what was owed to the county, but in a lot of cases, he said, the offers the county receives and accepts are less than what was owed so the property can go back into circulation.

As a county official, he said, thinking back to before the law changed, considering each foreclosure on a case-by-case basis for repayment doesn’t necessarily make sense because the county still could be losing money.

Still, this lawsuit from Lynch and the other two plaintiffs is likely to have a large impact on every county in the state.

It would be dire, Dorran said of the consequences of losing the suit. In some cases, it could bankrupt a county.

But for Umatilla County, the outlook may not be so bad. Doug Olsen, Umatilla County counsel, said depending on how many years will be noted for the statute of limitations — either two or six — it’s likely only a handful of people would be eligible for repayment each year.

“I haven’t gone back very far,” he said, “but I would think there’s one potential claim for this last foreclosure cycle where there were surplus funds.”

If there had been equity in the property, Olsen said, the owner would’ve sold it, so what the county tends to end up selling are undesirable properties. There are only one or two properties in the county sold for a surplus, he said.

Still, Olsen said the county joining the defense will help all the counties to have a focused, coordinated response to this situation, and so it will help establish guidelines going forward.

The plaintiffs are asking the U.S District Court of Oregon to determine repayment is owed prior to the date of the ruling, setting a potential cutoff as May 25, 2017, meaning the repayments would have a six-year statute of limitations, even though counties may have been following what the law was at the time.

The next steps

The commissioners now are preparing to authorize the estimation of repayment cost to the county and waiting to hear from Olsen about the expected cost of participating in the lawsuit. It’s likely that there will be a set base fee for all the counties with any additional fees being based on population size.

So far, Dorran said, all that’s been done is acknowledging that the county will participate in the December vote.

The issue of foreclosure sale surpluses, however, is not going away.

On Dec. 28, another suit was filed in the U.S. District Court for the District of Oregon, this time against Marion and Clackamas counties. It’s likely that Umatilla County will join that defense, as well, unless the cases are joined by a judge determining the class-actions are the same.