Thirteen South Ltd. v. Summit Village, Inc.

• Decision Date: 30 December 1993
• Docket Number: No. 23585,23585
• Citation: 866 P.2d 257,109 Nev. 1218
• Parties: THIRTEEN SOUTH LTD., Appellant, v. SUMMIT VILLAGE, INC.; Roy Darrow and Guardian Services, Inc., Respondents.
• Court: Nevada Supreme Court

Page 257

866 P.2d 257

109 Nev. 1218

THIRTEEN SOUTH LTD., Appellant, v. SUMMIT VILLAGE, INC.; Roy Darrow and Guardian Services Inc., Respondents.

No. 23585.

Supreme Court of Nevada.

Dec. 30, 1993.

Stephens, Knight & Edwards, Reno, for appellant.

Perry & Spann and Douglas R. Rands, Reno, for respondents Summit and Darrow.

Sheerin, Walsh & Keele, Carson City, for respondent Guardian Services.

OPINION

PER CURIAM:

Appellant Thirteen South, Inc. ("Thirteen South") argues that its purchase of a lot in a tax foreclosure sale extinguished real covenants burdening the lot. It brought this action against Summit Village, Inc., a neighborhood homeowners' association ("the Association"), seeking to invalidate covenants, including a covenant requiring the owner of the lot to pay dues to sustain neighborhood facilities and services. In a motion for preliminary injunction, Thirteen South asked the district court to enjoin the Association from selling the lot to satisfy a private lien for delinquent payments due the Association. The district court denied the motion. We hold that a tax sale does not extinguish covenants burdening neighboring lots in a subdivision. Accordingly, since Thirteen South enjoys no reasonable likelihood of prevailing on the merits of its claim at trial, we affirm the district court's order.

The Summit Village subdivision ("Summit Village") was created in 1966. A Limited Partnership later recorded "Conditions, Covenants and Restrictions" ("CC & Rs") covering lots in the subdivision. The CC & Rs created the Association to manage the subdivision, and required, inter alia, that lot owners pay assessments to the Association for the repair and maintenance of common areas, for the cost of recreational facilities, and for insurance premiums and other services, such as trash and snow removal. The CC & Rs also allowed the Association to levy a lien on a burdened lot to secure the payment of delinquent Association assessments, and they authorized judicial and extra-judicial sale to satisfy such liens.

The lot in issue, number 471 ("the lot"), is a vacant, undeveloped lot in Summit Village. Prior to 1988, the owner of the lot failed to pay real property taxes assessed by the County. After expiration of the statutory redemption period, the county treasurer sold the lot in a tax foreclosure sale to Edward Dimmick. Dimmick then sold the lot to appellant, Thirteen South. In the interim, the Association filed a private lien for nonpayment of Association dues, and proceeded with an extra-judicial sale of the lot to satisfy the lien. Thirteen South filed this action, arguing that it was not burdened by the CC & Rs, and sought to enjoin the sale of its lot through a motion for preliminary injunction.

Thirteen South has shown that it would lose title to real property in an extra-judicial sale. Thus, it has met its burden of showing irreparable injury and inadequacy of legal damages. See Dixon v. Thatcher, 103 Nev. 414, 415, 742 P.2d 1029, 1029-30 (1987). However, since Thirteen South cannot show a reasonable likelihood of success on the merits of its underlying claim, its motion for preliminary injunction must fail. Id.

When a property owner fails to redeem property within the statutory period through the payment of delinquent taxes, the county treasurer is authorized to sell the property, stripped of nearly all encumbrances, in a tax sale. NRS 361.595(1); 361.590(5) (the deed that the treasurer holds is free of all encumbrances, except public utility easements, district liens, and penalties and interest). Upon a tax sale, the treasurer conveys to a purchaser an "absolute deed, discharged of any trust." NRS 361.595(4). Thirteen South argues that under these provisions the county treasurer received a deed free of the CC & Rs and conveyed an absolute deed to the purchaser, with the CC & Rs extinguished. ¹ The Association claims that the covenants are separate property interests, and were not part of the lot sold in the tax sale.

A sovereign may only convey in a tax sale an estate subject to delinquent taxes. See Tax Lien Co. v. Schultze, 213 N.Y. 9, 106 N.E. 751, 752 (1914) (if non-assessed property right is sold in tax sale, government has taken property without due process of law); Hayes v. Gibbs, 110 Utah 54, 169 P.2d 781, 786 (1946) (assessment is the basis of tax title; assessed interest only may be sold, or tax sale is a taking without due process). A separately valued and taxed interest may not be extinguished by a tax sale, so long as the taxes assessed to that interest are not delinquent. Id. Generally, an easement or covenant is an interest in land separate from and "carved out" of a servient estate; in the majority of jurisdictions it survives a tax sale, provided that the servient and dominant tenements' assessed values reflect the value of the covenant or easement. See, e.g., Budnick v. Indiana National Bank, 165 Ind.App. 457, 333 N.E.2d 131, 134 (1975) (easement); Schlafly v. Baumann, 341 Mo. 755, 108 S.W.2d 363, 368 (1937) (covenant); Northwestern Improvement Co. v. Lowry, 104 Mont. 289, 66 P.2d 792, 795-96 (1937) (covenant); Alamogordo Improvement Co. v. Prendergast, 43 N.M. 245, 248-49, 91 P.2d 428, 431-32 (1939) (covenant); See also Holly P. Rockwell, Annotation, Easement, Servitude, or Covenant as Affected by Sale for Taxes, 7 A.L.R. 5th 187 (1992) (collecting cases). This is true even in jurisdictions, with statutes similar to Nevada's, that provide for conveyance of a "new and paramount" title "free of all encumbrances." See Budnick, 333 N.E.2d at 132 (easement survived although tax deed passed "an estate in fee simple absolute, free and clear of all liens and encumbrances"); Schlafly, 108 S.W.2d at 368 (covenant survived after tax sale granted "absolute estate in fee simple"); Northwestern, 66 P.2d at 794 (covenant survived tax sale although tax deed "extinguish[ed] all former titles and liens not expressly exempted ..."); Alamogordo, 43 N.M. at 246, 91 P.2d at 429 (covenant survived tax sale although deed conveyed "new and paramount title in fee simple absolute ... striking down all previous titles and interest in the property"). In addition, nearly three dozen courts have held that only title to previously assessed property may pass at a tax sale. See Rockwell, 7 A.L.R. 5th at 213-30.

We find the above authority and reasoning persuasive and look to Nevada's valuation statute to determine the title conveyed. Nevada's valuation statute provides that the taxable value of vacant land is "[t]he full cash value ... considering the uses to which [the land] may lawfully be put, any legal or physical restrictions upon those uses, ... and the uses of other land in the vicinity." NRS 361.227(1)(a)(1) (emphasis added). "Full cash value" is "the most probable price which property would bring in a competitive and open market...." NRS 361.025. Thirteen South has conceded that the fair market value of its lot is "$28,000 to $32,000, assuming said lot to be [subject to the CC & Rs]," but that absent private and public restrictions the fair market value would be $70,000. Thirteen South thus concedes that the property's "full cash value," and therefore its tax assessment, decreases when the CC & Rs are considered. We assume that the assessor valued the property in accordance with Nevada law. Accordingly, the lower assessed value of Thirteen South's lot reflects the burden of the covenants, the benefit of which was a separate property interest enjoyed by the neighboring property owners. We also presume that neighboring lots were taxed at the full cash value of their land, "consisten[t] with the use to which the [land was] being put." NRS 361.227(1)(a)(2) (valuation statute for occupied land). Thus, the value of the covenants was assessed to the dominant tenements, and the CC & Rs were not destroyed by the sale to Thirteen South's predecessor-in-interest. In line with the above authority and reasoning, we hold that real covenants survive a sale of property for delinquent taxes. ²

Thirteen South argues that this...