Adverse Possessor Of Religious Nonprofit’s Land Does Not Need To Pay Property Taxes To Obtain Title To Land

The law of adverse possession allows persons to obtain legal title to property by occupying the property for at least five years, and satisfying other requirements such as the payment of taxes on the property.  In practice, the tax payment requirement prevents most occupiers from successfully obtaining title, but that did not stop a landowner who occupied a portion of the property owned by a neighboring religious organization that was exempt from paying property taxes.

A landowner who built a fence in the wrong place sued to quiet title, claiming adverse possession to the .44 acres held by the adjoining owner.  The appellate court ruled that the landowner met all requirements to gain title to his neighbor’s land, except that the landowner was excused from the requirement to pay property taxes during the adverse possession period because no taxes were imposed on the neighbor’s property.  (Hagman v. Meher Mount Corp. (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., April 3, 2013).

Facts

In 1987, a boundary fence was incorrectly placed in Ojai.  The fence extended beyond the border of actor Larry Hagman’s 30-acre parcel into a .44-acre portion of the 173-acre parcel belonging to a neighboring nonprofit religious organization, Meher Mount Corporation (“Meher Mount”).  As a religious organization that had irrevocably dedicated its property to education, Meher Mount was exempt from property tax from 1999-2004 under the California welfare exemption.  During that period Meher Mount paid a county mosquito vector control assessment totaling $12.08.  Hagman did not pay any property tax on the parcel.

Hagman sued Meher Mount in 2011 to quiet title, claiming that he had adversely possessed it for the required five year period.  Hagman moved for summary judgment.  Meher Mount opposed the motion and filed a cross-complaint against Hagman for trespass and ejectment, arguing that as a tax-exempt organization it was immune from adverse possession and that Hagman had failed to meet the adverse possession tax requirement by failing to pay the property taxes and the mosquito assessment.

The trial court granted Hagman’s motion for summary judgment, finding that only public entities and public utilities, not tax-exempt nonprofit organizations, are immune from adverse possession, and that because Meher Mount was not required to pay taxes on the property, Hagman was not required to either.  The court ruled that the mosquito assessment Meher Mount paid on the property was not a tax, because a tax is defined as raising general revenue, whereas the mosquito assessment was collected for the benefit of “specific real property.”    Meher Mount appealed.

Decision

The doctrine of adverse possession allows a party that does not have legal title to property to gain legal title if the party occupies the property in the required manner for the required period of time (in California, five years).  In California, it is also necessary to pay property taxes on the disputed land for the five year period, under Code of Civil Procedure section 325.   The Second District Court of Appeal observed that Meher Mount did not dispute that Hagman had met at least four of the five requirements:  he occupied the land under claim of right (not subordinate to the owner), in an open and notorious manner (occupying the land openly in a noticeable way), in a hostile and exclusive manner (occupying the land without the owner’s permission and without anyone else occupying it), and on a continuous and uninterrupted basis for the full five years.  The only remaining requirement in dispute was whether Hagman was required to pay taxes.  On this question, the court of appeal upheld the trial court’s decision that Hagman was not required to because no property taxes were assessed for him to have paid during the five years of possession.

The court examined Meher Mount’s arguments, beginning with the assertion that its land was protected under the California law exempting the property of public entities from adverse possession.  Meher Mount posited that because it is a “public benefit corporation” it is also a “public corporation” and therefore a “public entity.”  The court explained that Meher Mount conflated these terms, and that under California law, “public corporations” are defined as government entities, such as the State Bar and district agricultural associations.  Public entities, such as cities, counties, and public corporations, all share the element of possessing some degree of sovereignty.  In contrast, “public benefit corporations” are not created by the government and lack traditional sovereign powers such as the ability to raise taxes and condemn property. 

The court rejected Meher Mount’s policy argument that allowing adverse possessors to avoid the property tax requirement would undermine the public service purposes of nonprofit organizations by forcing them to devote more resources toward protecting their real property.  The court stated that if the Legislature had shared this opinion, it could have enacted it into law, and it was not the court’s place to rewrite the law to create an exception for public benefit corporations. 

Regarding the tax payment requirement for adverse possession, the court opined that the granting of a welfare exemption to a nonprofit organization means that taxes were neither assessed nor levied.  The property is not assessed, because due to the exemption it is not placed on the tax rolls, and even if it is placed on the roll, the assessment is later cancelled by the exemption.  The court applied the same reasoning in finding no levy of tax.  Meher Mount argued that from a policy perspective, the welfare exemption is granted to benefit nonprofits, not adverse possessors, but the court repeated its position that it was not free to rewrite the Legislature’s statutory handiwork.

The court disagreed with Meher Mount’s argument that the mosquito assessment was also a tax, noting that taxes are collected for general revenue purposes, whereas the assessment was for the specific purpose of abating mosquitoes.  Further, if the assessment were a tax, then the assessment would be void under Meher Mount’s welfare exemption, and Hagman would not have to pay it.  The court also observed that although the underlying policy of the tax payment requirement is to provide notice to the title holder of the adverse possessor’s interest in the property, that form of notice is minor compared to the notice provided by the adverse possessor’s open occupation of the land.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Jon E. Goetz | 805.786.4302

Brett L. Price | 661.864.3800

Topics:  Adverse Possession, Land Titles, Legal Title, Property Tax, Religion, Religious Institutions, Tax Exemptions

Published In: Nonprofits Updates, Residential Real Estate Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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