REAL ESTATE SALES TAX ‑- SALES AT EXECUTION, TAXABILITY MORTGAGE FORECLOSURES, TAXABILITY

REAL ESTATE SALES TAX ‑- SALES AT EXECUTION, TAXABILITY MORTGAGE FORECLOSURES, TAXABILITY.

The real estate sales tax on an execution sale pursuant to a mortgage foreclosure is due when the redemption period expires and the sheriff's deed issues.

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                                                                  March 10, 1952

Honorable Tom A. Durham
Prosecuting Attorney
Whatcom County
Court House, 311 Grant Avenue
Bellingham, Washington                                                                                             Cite as:  AGO 51-53 No. 256

Attention:  Jack Rowles, Deputy

Dear Sir:

            You request our opinion on whether:

            the real estate sales tax on an execution sale pursuant to a mortgage foreclosure is due then, or when the purchaser receives the sheriff's deed upon the expiration of the year redemption period.

            We conclude:

            that the sale is executory until the expiration of the redemption period and thus the tax should be collected then.

                                                                     ANALYSIS

            RCW 28.45.010 and the Uniform County Ordinance enacted thereunder provide:

             [[Orig. Op. Page 2]]

            "the term 'sale' shall have its ordinary meaning and shall include any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property * * * or any estate or interest therein for a valuable consideration."

            The above section also applies the tax to:

            "any contract for such conveyance, grant, assignment, quitclaim, or transfer, and any lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to the purchaser, or any other person by his direction, which title is retained by the vendor as security for the payment of the purchase price."

            A taxable "sale" does not include:

            "a mortgage or other transfer merely to secure a debt, or the assignment thereof"

            Thus a mortgage, a form of contract, is specifically exempted; and the "contract" provision above quoted is not applicable.

            The question therefore involves the nature of an execution "sale," which is subject to redemption rights.  Since the contract for sale (executory sale) provision above does not apply, the transaction is taxable when it becomes a substantially executed or completed sale.  In other words, is the execution sale a sale on condition subsequent, or is it but one of the steps looking toward a completed or executed sale?  To determine this, we must examine the relative rights involved.

            We first note that our statutes relating to foreclosure and sale at execution, RCW 6.24.040 to 6.24.090 (RRS § 585-590); Rem. Rev. Stat. § 1118 (P. Supp.) and RCW 6.24.140-6.24.150 (RRS §§ 595, 596), all refer to a "sale" occurring when the property is seized and sold pursuant to court order in foreclosure.  This bears weight when determining the "ordinary meaning" of the term.  Our early Washington cases considered the transaction a completed sale.  The purchaser received title, right to possession and among other rights, that of receiving the  [[Orig. Op. Page 3]] rents and profits prior to redemption.  Knipe v. Austin, 13 Wash. 189, 43 Pac. 25, 44 Pac. 531 (1895) and Hardy v. Herriott, 11 Wash. 460, at page 462, 39 Pac. 958 (1895).

            The sum of the rights transferred indicates that then the sale at execution was a completed sale subject to condition subsequent.

            However, this is no longer true.  The contemporary purchaser receives but few rights and those are contingent.  For example:

            1. The purchaser is entitled to immediate possession subject to the rights of existing lessees, until redemption takes place, unless

            (a) the mortgage contract provides otherwise (RCW 6.24.210, RRS § 602); or

            (b) the land mortgaged is farm land, RCW 6.24.210 (RRS § 602, P. Supp.);State ex rel. Federal Land Bank v. Supr. Ct., 169 Wash. 286, 289, 13 P. (2d) 890 (1932); or

            (c) the mortgagor properly files a homestead. State ex rel. O'Brien v. Superior Court, 173 Wash. 679, 682-683, 24 P. (2d) 117 (1933), affirmed en banc, 176 Wash. 704, 29 P. (2d) 1119 (1934).

            The purchaser's possessory rights during the redemption period are very limited however.

            2. He receives no title.  Gray v. Harris & Son, 200 Wash. 181, 186, 93 P. (2d) 385 (1939):

            "We are of the opinion that the legal title to real estate does not pass to one purchasing at an execution sale until the period of redemption has expired and the sheriff's deed issued.  Cogswell v. Brown, 102 Wash. 625, 173 Pac. 623."

            3. During this period he may only use the rents and profits to care for, insure, in a proper case, and operate the property.  He is accountable for the balance to a proper redemptioner.  RCW 6.24.190 (RRS § 600);Gray v. Harris & Son, supra, 200 Wash. 186-187; and

            [[Orig. Op. Page 4]]

            4. If the purchaser expends money on the property, over and above rents and profits, he does so at his peril.  State ex rel. Bryant v. Starwich, 131 Wash. 101, 106-109, 229 Pac. 12 (1924) even though the expenses are for

            "operating, caring for, protecting, and insuring the property" RCW 6.24.190, supra.

            We therefore conclude that for the purposes of the real estate sales tax, the sale on execution grants the purchaser merely a qualified and limited possessory right.  Gray v. Harris & Son, supra, 200 Wash. 186.

            "We are also of the opinion that the only rights given by the statute to such a purchaser are to protect, care for, and, in a proper case, operate the property, during the period of redemption."  (Emphasis supplied)

            Therefore the sale at execution is but a step in an executory transaction which is not completed until the expiration of the redemption period and execution of the sheriff's deed.  The tax therefor is not due until that time.

Very truly yours,

SMITH TROY
Attorney General

JENNINGS P. FELIX
Assistant Attorney General