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B.C. ombudsperson Jay Chalke

B.C. ombudsperson’s recommendations on tax sales aimed at ‘modernizing an ancient process’: lawyer

Monday, December 20, 2021 @ 9:39 AM | By Ian Burns

B.C.’s ombudsperson is calling on policymakers to change the way municipalities in British Columbia use tax sales to collect unpaid property taxes — recommendations the province is pledging to take action on.

In British Columbia, if an owner has failed to pay outstanding property taxes and the payment has become delinquent, a municipality is able to offer properties at an annual tax sale, which are conducted at the end of September. The property is then sold at auction to the highest bidder and the municipality is authorized to recover from the proceeds of the tax sale an amount called the “upset price,” which includes the amount of the tax arrears plus interest.

But the report from ombudsperson Jay Chalke, titled A Bid for Fairness, details the story of a 60-year-old woman identified only as Ms. Wilson, a “vulnerable member of the community in a disadvantaged position” whose “personal challenges” meant she was unable to pay her $10,000 property tax bill even though she had the funds. In Wilson’s case, her house was sold by the City of Penticton for $150,000, at a time when the fair market value of her house was assessed at $420,000. When the sale completed one year later, Wilson was evicted and lost approximately $270,000 of equity in her home.

Jay Chalke, B.C. ombudsperson

Jay Chalke, B.C. ombudsperson

Chalke said the results of the investigation were “disturbing.”

“[Wilson] just needed some extra assistance to pay her taxes,” he said. “The City of Penticton called Ms. Wilson once but did not contact the Office of the Public Guardian and Trustee or Interior Health, who have the legal mandate to make inquiries as to whether an adult is vulnerable and needs support or assistance. The City’s failure to reach out to one of these helping organizations contributed to a devastating and preventable loss.”

The City sent Wilson several notices detailing her unpaid taxes, but Chalke’s investigation found that there were errors in many of them, such as incorrect dates for payment. The report also said the notices failed to include key information that would have informed her about the consequences of the tax sale process — such as the fact her house would only be sold for a fraction of its value.

“Selling someone’s home to pay a relatively small tax debt is an extraordinary power and I expect when a municipality takes such action it is scrupulously accurate,” said Chalke. “The cumulative effect of the City’s multiple mistakes was to make the process unfair for Ms. Wilson.”

To that end, Chalke recommended a number of changes to the tax sale process, such as developing plain language template letters for tax sales; proper guidelines to notify a property owner before a tax sale occurs; amending the Local Government Act to require a municipality to provide notice by registered mail or personal service before a tax sale; examining whether the Act should establish a starting price at auction that reflects the assessed value of a property; and issuing best practice guidelines about how municipalities are to protect vulnerable property owners within the tax sale scheme.

And the province is pledging action. In a letter to the ombudsperson’s office, Deputy Minister of Municipal Affairs Okenge Yuma Morisho said Ministry accepted the recommendations “in concept” and staff would consult with their municipal counterparts to develop a response.

“As a result of our work together, the Ministry has a clearer understanding of the tax sale process and how it can be improved in relation to potential impacts specific to vulnerable persons,” Morisho said. “The loss of property in Penticton was very unfortunate and we look forward to working with municipalities and others to make improvements to the tax sale system.”

Michael Drouillard, Drouillard Lawyers

Michael Drouillard, Drouillard Lawyers

Michael Drouillard, a real estate lawyer based in Vancouver, said the tax sale process has been the same for decades and “is not modern, fair law.”

“The problem is that there isn’t a fair judicial process for giving notice of the tax sale, and the folks who get targeted by this are generally vulnerable people who may not have a mortgage because they are seniors who have paid it off,” he said. “Usually, for other people who have mortgages on their property, the bank will just pay the tax and foreclose on the property — but the foreclosure process in the courts necessarily saves their equity because in order to get a court-approved sale the court has to be satisfied that it is a fair sale price, and you can’t strip the debtor’s equity in the property.”

Making it so cities couldn’t be able to sell a property for just its tax value and cause the owner to lose their life savings would fundamentally change the process and make it fairer for the owner, Drouillard said.

“I think the recommendations are good because what they are doing is modernizing an ancient process,” he said. “But for my part I think you could send such a serious notice just by registered mail — I think you should have to personally serve them.”

And the Penticton City Council passed a motion Dec. 14 to reimburse Wilson to the tune of $140,922.99. Mayor John Vassilaki said he wanted to offer an apology to Wilson.

“The process by which ‘Ms. Wilson’s’ home was sold followed an unfortunate set of circumstances that occurred as a result of provincial legislation,” he said. “The City of Penticton acknowledges the part that it played in this process and is committed to working to improve provincial legislation related to property tax sales. There was, however, another side to this story, and we are disappointed in the ombudsperson’s conduct and his report.”

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