Stonington weighing options after record number of foreclosures including two islands

Posted Dec. 11, 2011, at 9:34 p.m.

STONINGTON, Maine — Stonington officials are facing a financial dilemma. And chances are they’re not alone as the sagging economy continues to take a toll on both taxpayers and municipal tax coffers.

In years past, officials in this scenic island community typically dealt with at most a handful of instances annually when the town took possession of homes or land after the owners fell several years behind on their municipal taxes.

But with the amount of unpaid taxes climbing into the tens of thousands of dollars this year, Stonington recently foreclosed on a record number of properties, including two islands and an undeveloped subdivision.

Now, local officials as well as town residents are debating what to do next. Options include auctioning the properties to buyers who will pay their taxes, holding onto the land or continuing to work with property owners, some already many years behind on their taxes.

“We can’t ignore it, or we would not being doing our jobs as elected officials,” said Evelyn Duncan, a member of Stonington’s Board of Selectmen. “It is a big problem and we are trying not to make any mistakes and to [treat] everybody fair.”

Bank foreclosures have received the lion’s share of attention in recent years, and with good reason given the scope of the mortgage crisis and its impact on the national economy.

Municipal foreclosures are discussed less often, but the number of properties in Maine at risk of forfeiture due to unpaid taxes appears to be rising.

The Maine Municipal Association does not keep track of the number of properties facing foreclosure due to unpaid taxes. But association officials said they are hearing more concerns about unpaid taxes.

“We have heard anecdotally that tax liens against property owners, at least in some areas, are up and that may be reflective of the economy,” said Eric Conrad, spokesman for Maine Municipal Association. “As a general rule, most municipalities do everything they can to avoid foreclosing on properties.”

But Conrad added: “If towns and cities don’t do something to get these taxes back, that arguably is not fair to those property owners who are paying their taxes.”

The ripple effects of unpaid taxes are also being felt in some school systems.

Bruce Mailloux, superintendent of RSU 20 in midcoast Maine, said school systems often expect some towns may be late paying their assessments later in the fiscal year. But Mailloux is noticing shortages earlier and earlier in the year. In fact, four towns in his district were late paying their assessments as early as last spring.

“When you start seeing cash flow shortages back in May you know they are struggling with collecting taxes,” Mailloux said.

Under state law, municipalities have 8-12 months to file a lien on property due to unpaid taxes. The property automatically goes into foreclosure if the lien is not settled within 18 months unless one of two things happens: the town’s elected body votes to waive foreclosure or the final notice is never sent to the property owner notifying them of the imminent foreclosure, a kind of administrative loophole that gives property owners more time.

Many towns choose to work with the property owner to either avoid foreclosure or to sell the property back to the owner after the debts have been settled.

In Stonington, however, the debate appears to be how long should the town continue to work with property owners who are continually delinquent. And tensions have escalated among some in town.

One property owner, William Ralston, is accusing the town of refusing to take payments on two houses in foreclosure because he believes the town wants to sell his properties, located on the downtown waterfront. Town officials have accused Ralston of becoming aggressive with staff. Ralston said he is now barred from the town office.

Town manager Kathleen Billings-Pezaris said this year’s foreclosures include one subdivision with seven or eight lots, two islands (one with a seasonal house), two houses and several other parcels.

“When you see so many, it affects your cash flow adversely,” Billings-Pezaris said. As a result, the town may have to resort earlier in the year to obtaining a tax anticipation note that will bridge the gap, which could lead to higher interest payments.

An attorney is now reviewing the cases to ensure the town followed the proper procedure up to this point. The attorney also advised the selectmen to develop a tax-acquired property policy to guide the town.

Selectman Richard Larrabee Sr. said this is the most foreclosures he has seen in his 20-plus years on the board. Larrabee said he is undecided about how the town should proceed with the flood of foreclosures.

“You have to look back at the records and see how long this has been going on,” he said. In some cases, the town has been carrying the weight of certain property owners “year after year after year, and the taxpayers have been lugging them along.”

Duncan said she and other members of the Board of Selectmen are willing to work with those who are falling behind on their taxes due to legitimate reasons. But said noted that they have plenty of chances to discuss the issue with the board before foreclosure happens two to three years after the taxes are due.

“You don’t want to hurt anybody,” Duncan said. “On the other side of the coin, you have to say here are all of these people who have paid their taxes when they were due and have been responsible citizens. Should they be hurt?”

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