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This appeal concerns the procedure for claiming excess funds from a sale of real property to satisfy a property tax judgment. The trial court ruled that John L. Franks, a claimant who filed his motion within two years of the tax sale but who did not obtain a hearing on the motion before the two year period had elapsed, failed to establish his claim within two years of the sale and was therefore not entitled to the excess funds. Appellant Franks's four issues assail the trial court's order to disburse the excess funds to the taxing units, appellees Woodville Independent School District, Tyler County Education District, and Tyler County. (1) Our construction of the Tax Code recognizes that a claimant must file a claim within two years of the sale, but does not require the trial judge to sign an order ruling on the claim within that same period of time. Accordingly, we hold that the trial court erred in denying the claim on the sole ground that the claim was not timely established, and remand the case to the trial court for trial on the merits. Franks was served as a defendant and appeared in the tax suit. Six other persons were served and appeared in the suit pro se; another twenty-four individuals were named and served by posting. The trial court rendered its judgment in April 2000. The judgment in the tax suit recited that the defendants named in the judgment were the owners of record or were claiming some right, title, or interest in the property. Thus, the fact that the taxing units brought Franks into the suit is evidence that Franks claimed some right, title, or interest in the property, but is not a judicial admission of ownership. At the sheriff's sale, the property sold to a private entity for $47,175. After payment of the judgment and fees, the $24,222.55 excess was deposited with the district clerk in October 2000. In October 2001, Franks filed a motion to disburse the funds to him on the grounds that he and others owned the property. The motion was amended the following month. Franks did not set his motion for hearing. The motion was filed in the original suit, and states that it was served on all counsel of record but does not mention the pro se litigants. On January 3, 2003, the appellees filed a motion to distribute the excess proceeds to them on the grounds that no party had established a right to the funds before the second anniversary of the sale. Copies of the motion were mailed to Franks and the pro se defendants. Franks amended his motion to allege that the tax suit involved property owned by Franks and others, that the excess funds were "awarded to Defendant, John L. Franks and others for said property and the excess proceeds deposited in the registry of this Court. . . ." Four family members filed pro se requests for the funds, but these requests were filed more than two years after the sale. The trial court conducted two evidentiary hearings on the parties' motions. In the first hearing, the taxing entities produced a judgment and findings of fact from a 1952 lawsuit involving a dispute in the Franks' family over the ownership of three tracts of land. The parties agreed that the property involved in the tax suit was one of these tracts. (2) According to the findings of fact, the property was conveyed to Horace Franks in 1897 and was community property held with his first wife, Emma. The property passed by descent and distribution one-half to Horace's nine children and one-half to Emma's five children. Horace's second wife, Jessie, was entitled to occupy the property as a homestead. Johnnie Lee Franks and wife, Alice Franks, were, according to the findings of fact, entitled to a 1/18th interest in the property at issue in the present litigation. Contemporaneously with the resolution of the 1952 litigation, Jessie Franks executed a deed transferring her interest in the property to Johnnie Lee Franks and Alice Franks, who are the appellant's parents. Franks testified that he claimed the excess funds because the property was the property of his grandmother Jessie. However, the 1952 judgment settled that, as to Jessie, the land now at issue was the separate property of her husband in which she owned nothing more than a life estate. Franks also testified that he paid taxes on the property from 1980 to 1987. In the second hearing, several professed Franks' family members expressed an interest in the excess proceeds. The trial court ordered the excess funds to be distributed to Tyler County Appraisal District and Tyler County. The trial court made no findings on the merits of the appellant's claim, but concluded that Franks failed to secure a hearing on his claim, failed to present evidence in support of his claim, and failed to establish entitlement to the proceeds within the period provided by Subsection (a), 34.03 of the Texas Property Tax Code, and as required by Subsection (b), 34.03 of the Texas Property Tax Code, and is therefore not entitled to any of the proceeds.
The procedures for
tax sale and redemption can be found in Chapter 34 of the Tax Code.
See
Tex. Tax Code Ann. 34.01-23 (Vernon 2001 & Supp. 2004).
(3)
Proceeds of a tax
sale are applied first to costs, fees and commissions associated with the
tax suit and the tax sale, then to taxes, penalties, and interest, and
other expenses and amounts awarded under the judgment. Tex. Tax. Code Ann.
34.02 (Vernon Supp. 2004). Excess proceeds are paid to the clerk of the
court issuing the warrant or order of sale. See 34.02(d).
The clerk must keep the proceeds for two years. Tex. Tax. Code Ann.
34.03(a)(2) (Vernon 2001). A person, including a taxing unit, may file a
petition setting forth a claim to the excess proceeds. Tex. Tax. Code Ann.
34.04(a) (Vernon Supp. 2004). The petition must be filed before the
second anniversary of the date of the sale of the property. Id. If no claimant
establishes entitlement to the proceeds within the period provided by
Section 34.03(a), that is, two years from the date of the sale, the clerk
shall distribute the excess proceeds to the taxing units that participated
in the sale. Tex. Tax. Code Ann. 34.03(b) (Vernon 2001). Franks argues
that in his case Section 34.04 of the Texas Property Tax Code applies to
the exclusion of Section 34.03, so that his claim to the excess proceeds
is not barred by his failure to establish his claim in a court proceeding
within two years of the sale date. The taxing units argue that
Franks's failure to secure a ruling on his claim within two years of the
sale triggered the operation of Section 34.03(b). The trial court agreed
with the taxing units and ordered the funds to be distributed to the
taxing units solely for this reason. The taxing units
ask the Court to consider the statutes' legislative history. The predecessor to Sections
34.02 through 34.04 of the Property Tax Code appeared in Section 8 of
Article 7345b, Texas Revised Civil Statutes. See Act of May 23,
1977, 65th Leg., R.S., ch. 481, 1, 1977 Tex. Gen. Laws 1244, 1244-45,
repealed
by Act of May 24, 1979, 66th Leg., R.S., ch. 841, 6, 1979 Tex. Gen.
Laws 2217, 2329. Under Article 7345b, the court clerk held the funds for a
three-year period, then forwarded the funds to the State Treasurer, who
held the funds in trust for another four years. After the expiration of
four years from the Treasurer's receipt of the funds, the Treasurer
transferred the funds from the trust account to the general revenue unless
there was then pending and not acted upon a petition by a claimant for
excess funds. If the claimant did not file a petition within the four-year
period, the claim was barred. With the initial codification of Sections
34.03 and 34.04 in 1979, the clerk kept the excess proceeds for seven
years before turning the funds over to the State Treasurer; if no claimant
established entitlement to the proceeds within seven years, the clerk
transmitted the proceeds to the State Treasurer for deposit in the general
revenue fund. Act of May 24, 1979, 66th Leg., R.S., ch. 841, 1, 1979
Tex. Gen. Laws 2217, 2298. A claimant could file a petition within seven
years from the date of the sale of the property, and no claim could be
filed after the expiration of seven years from the date the property is
sold; if the trial court found an entitlement at the hearing, it ordered
the proceeds to be paid to the claimant. Id. As part of a
larger property tax reform measure, in 1981 the Legislature amended
Section 34.03 to cause the clerk to distribute the excess to the taxing
units rather than to the Treasurer. Act of August 10, 1981, 67th Leg., 1st
C.S., ch. 13 132, 1981 Tex. Gen. Laws 117, 169. In 1999, Sections 34.03
and 34.04 were amended to alter the applicable period from seven to two
years. Act of May 26, 1999, 76th Leg., R.S., ch. 1185, 1-2, 1999 Tex.
Gen. Laws 4109. The taxing
entities draw two major distinctions between old procedure and new. First,
they note that Article 7345b stated that the trial court would set the
claim for a hearing, but the Property Tax Code deleted any affirmative
action on the part of the trial court. Second, they note that the
Property Tax Code deleted the exception to the escheat rule for pending
claims. The
lack of comparable procedures in the current law, the appellees argue,
prevents tolling of the escheat of the excess funds. In reading the statutes,
however, we find that the significant distinction between the 1977 statute
and the current statute is the role of the administrative body receiving
the funds. Article 7345b's language "unless there is then pending a
petition by a claimant of such excess funds not acted upon" was necessary
because at that point in the process the governmental entity transferring
the funds - the State Treasurer - was not the same entity - the district
court - that could award the excess proceeds to a claimant. With the 1979
amendments to the statute, officers of the same governmental entity - the
district court - performed both the ministerial function of distributing
the excess funds and the judicial function of awarding them. In the
procedure established in the Tax Code, no exception is required in order
to maintain judicial power over the funds because the funds remain in the
registry of the court. The taxing units
also fail to consider that the distribution of funds by the clerk under
Section 34.03(b) is ministerial but is not automatic and self-executing.
The distribution described in Section 34.03(b) does not involve a judicial
determination. The timely filing of a petition under Section 34.04,
however, invokes the trial court's power to determine the parties' rights
to the funds on deposit in the registry of the court. Only the judge, not
the clerk, may determine the claimant's entitlement. Until the trial court
determines the controversy placed at issue by a timely and properly filed
petition under Section 34.04, the ministerial process of distributing the
excess funds cannot occur. Section 34.03(b)
does not contain a tolling provision, but neither is it a limitations
provision. The sole limitations provision is found in Section 34.04(a).
Had no claim been pending on the second anniversary of the tax sale, the
clerk would be authorized under Section 34.03(b) to distribute the funds
to the taxing units. Such a distribution did not occur because the trial
court had a pending claim to the funds on its docket. Because Franks
satisfied the limitations requirement of Section 34.04(a), he is entitled
to present his claim to the trial court for a ruling, and nothing within
Section 34.03(b) prohibits the trial court from considering his petition.
Issues one and two are sustained. In his third
issue, Franks argues that the taxing units cannot participate as claimants
under Section 34.04 unless the unit is owed for taxes, penalties, and
interest owing from the judgment thereafter accruing. We need not resolve
this issue because the taxing units concede that they have not filed
claims pursuant to Section 34.04. See Tex. Tax Code
Ann. 34.04(a) (Vernon Supp. 2004)("A person, including a taxing unit,
may file a petition . . . setting forth a claim to the excess proceeds.").
In his final
issue, the appellant argues that the trial court erred in failing to award
to him the excess proceeds, and asks this Court to render judgment.
The appellees
argue, and we agree, that Franks failed to conclusively establish his
entitlement to the excess funds as a matter of law. The Tax Code provides for
priority payment of claims, ending with "each former owner of the
property, as the interest of each may appear." See Tex. Tax
Code Ann. 34.04(c)(5) (Vernon Supp. 2004).
(4) As the claimant, Franks bore the burden of proof to
establish that he is a former owner of the property. Although Franks
traced an ownership interest in the subject property to a tenancy in
common held by Franks's parents, Johnnie Lee Franks and Alice Franks, and
other Franks' family members, Franks failed to trace that interest from
his parents to him. There is no evidence in the record of how Johnnie Lee
Franks's estate passed upon his death, and no evidence that Alice
Franks is deceased. Thus, Franks failed to establish his status as a
former owner of the property. The taxing units argue that this failure is
grounds for affirming the judgment. We note, however, that the trial court
made findings of fact in this case. See Tex. R. Civ.
P. 296. There is no finding of fact regarding former ownership of or title
to the property. The judgment may not be
supported on appeal by a presumed finding upon any ground of recovery or
defense, no element of which has been included in the findings of fact.
Tex. R. Civ. P. 299. Although the trial court made a conclusion of law
regarding Franks's failure to present evidence in support of his claim,
that conclusion is expressly limited to "within the period provided by
Subsection (a), 34.03 of the Texas Property Tax Code." We resolved that issue in
this appeal when we held that Section 34.03 does not preclude a judicial
determination of ownership more than two years after the tax sale. That
being the only basis for the taxing units' recovery to have been found by
the trial court, and that basis having been held to be erroneous, we must
reverse the judgment and remand the case to the trial court for a hearing
on John L. Franks's claim to the excess proceeds.
(5) REVERSED AND
REMANDED. PER
CURIAM Submitted on
February 5, 2004 Opinion Delivered
April 1, 2004 Before McKeithen,
C.J., Burgess and Gaultney, JJ.
1. Franks frames his issues as follows: (1) "Whether
Texas Property [Tax] Code [Section] 34.03 or 34.04 applied to the hearing
on disposition of excess proceeds;" (2) "Whether Tex. Property [Tax] Code
[Section] 34.04 requires a claimant to "establish" or file a claim to
proceeds within a two-year period;" (3) Whether a taxing authority is
allowed to participate as a "claimant" in a 34.04 proceeding for
disbursement of excess proceeds - when it is owed nothing additional; and
(4) Whether the Court abused its discretion in denying Appellant's Motion
for Disbursement of Excess proceeds and granting Appellees Motion for
Disbursement of Excess Proceeds.
2. The property description for the land in question
does not close. When compared to the property description in a deed
admitted into evidence by Franks, it appears that the exhibit may not
depict the entire judgment in the 1952 litigation. 3. The parties agree that the Code Construction Act
guides our analysis. 4. In 2003, the Legislature retroactively amended
Section 34.04(c)(5), which previously read "to each owner of the
property," to apply to all cases pending on the effective date of the act.
5. At trial, Franks's counsel suggested that Franks
was entitled to all of the excess proceeds because he was the only one to
file a request for the proceeds. |