Proper communication with owners is critical before auctioning homes off to recover taxes, courts say

Ninety-nine-point-nine percent of the time, experts say B.C.'s tax sale program works as it should. It's one of the only options local governments have to recover property taxes after they go unpaid for several years. 

The taxes make up the lion's share of revenue for many municipalities — if they're not paid, there's less money for essential services.

But 0.1 per cent of the time, tax sales go wrong.

The story of a woman whose house was auctioned off by the city of Penticton over a small tax debt before anyone realized she was too vulnerable to understand what was happening has brought fresh scrutiny to the provincial municipal sales tax laws.

Lawyers, judges and advocates say tax sales are a necessary tool for municipalities, but clear communication from the city to the homeowner throughout the process is absolutely essential to be fair to homeowners. 

But, some warned, the level of notice currently acceptable under the law can still be too complicated for everyone to understand — leaving some at risk of falling through the cracks.

"There's going to be certain people who are vulnerable in society who, for whatever reason … won't understand the process," said lawyer Reece Harding, who has worked in municipal law for nearly 30 years. 

"It can be a pretty harsh outcome, there's no question about it." 

The Wilson case

The Ombudsperson's report this week involved a woman, identified only as "Ms. Wilson," who lost her home and hundreds of thousands of dollars in equity after falling behind on a little more than $10,000 in property taxes in 2015 and 2016.

Wilson could afford to pay the bills, but had "life-long health issues" and needed help making the payments. Her sister had power of attorney, the report said, but she wasn't informed about what was going on.

The city auctioned Wilson's house — then assessed at $420,000 — for $150,000 in 2017. 

Wilson, then 60, was evicted by the police.

In B.C., municipal governments have the "extraordinary power" to collect outstanding property taxes by selling the house at auction two years after the taxes were first due. The minimum bid at auction is only the amount of the unpaid taxes, interest, penalties and some fees — no matter the actual value of the home.

Strict rules for notifying homeowners

Given the drastic consequences for the owner, the law and the courts have strict communication requirements for governments moving forward with a sale. There's nothing requiring advance notice to a homeowner before the sale, but they need to be notified after the auction.

At that point, homeowners need to be told in writing they have a one-year redemption period: if they can pay what's owed before the deadline, they can save their property from the highest bidder.

"My experience is they do a pretty darn good job at [meeting the bar]," said Harding, a partner at Young Anderson.

The ombudsperson, Jay Chalke, found the city sent Wilson the letters and notices it was required to send — but made at least one mistake in the majority of the 15 pieces of paperwork.

One said she only had three months to claim her portion of the proceeds from auction when she really had nine, while another was mailed to an old address entirely.

Proper communication 'fundamentally important,' courts say

In recent years, cities have lost court battles over tax sales for less.

Two sales in Maple Ridge, B.C., in 2017 collapsed because of the way notices were mailed.

Staff sent written notices about the sale of two condos to the registered owners of both homes, but the letters were dropped off at the addresses instead of being hand-delivered to the owner. 

The court found last year there was no evidence either homeowner actually received the delivery.

Two years later, the sale of a company's property near Highway 99 in Pemberton, B.C., was thrown out after a B.C. Supreme Court justice found an accidental error on a notice from the village was enough to invalidate the sale. 

In that case, the village's senior accounting assistant had written a deadline for a redemption payment as Sept. 30 instead of Sept. 29.

Both rulings stressed how "fundamentally" important it is that municipalities follow the "essential" requirements for giving proper notice to a T.

"It is imperative that municipalities give people the right information, particularly when you're dealing with such a significant thing as someone's land and possibly their home," said Rachel Schechter, a lawyer who represented the property owner on the Pemberton case

Law needs improvement, lawyers agree

Paperwork mistakes aside, Chalke said the system failed in Wilson's case because there was no requirement for the city of Penticton to check whether Wilson might need help — staff should've asked, he said, but they didn't have to under the law.

The City of Penticton said staff did not realize Wilson was vulnerable. It disagreed with the report's findings that staff treated the senior unfairly, and a statement said its legal counsel would be contacting Chalke's office to better understand why some details about the city's position were not included in the final report.

​​Chalke made six recommendations to prevent another case like Wilson's. He said the provincial government should update the Local Government Act to require municipalities to develop plain-language notices for property owners about tax sales and develop guidelines for local governments to better protect at-risk homeowners.

Schechter and Harding agreed the legislation would benefit from an update — Schechter in terms of the way auction prices are decided, and Harding in terms of options for municipalities who might want to cancel a sale, which is currently difficult to do.

The lawyers agreed cases like Wilson's are "exceptionally rare," but when they happen, the consequences are heart-wrenching.

"When it does go wrong, it can go very wrong," Schechter said.