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  • InsideTrack
  • November 11, 2015

    Bank Owner of Subdivision Lots Must Pay Special Assessments for Roads

    Joe Forward

    Nov. 11, 2015 – A municipality had the power to finish roads and levy special assessments against those benefitting after a subdivision developer defaulted on its obligation to build the roads, a state appeals court has ruled, handing a win to the Town of Omro.

    In 2004, the town contracted with Barony LLC to construct, complete, and finance all roads within a 74-lot subdivision. Five years later, only nine lots were sold, and First State Bank acquired the remaining 65 lots through foreclosure. In addition, none of the subdivision roads were paved, which was the obligation of the defaulted developer.

    The town authorized completion of the roads and specially assessed the subdivision lots to pay for it, meaning the tax bill of about $220,000 went to First State Bank. The bank challenged the town’s authority to levy the special assessments. The circuit court upheld the special assessments, granting summary judgment to the town.

    In First State Bank v. Town of Omro, 2015AP403 (Nov. 11, 2015) [recommended for publication], a three-judge panel for the District II Court of Appeals affirmed the special assessments, but reversed with regard to parcels not abutting the improved roads.

    The panel noted that towns may levy special assessments to pay for public improvements that confer special benefits on residents in specific localities. It rejected the bank’s argument that a development agreement prohibited the special tax.

    The development agreement required the developer to finance the road work. In addition, a town ordinance said the “development agreement will dictate the method of payment for the paving.” The ordinance also determined that roads within new developments should be paved after 70 to 80 percent of the lots were developed.

    Less than 70 percent of the lots were developed, but the town was getting complaints from postal and busing services about the road conditions. The panel ruled that the development agreement and the ordinance did not tie the town’s hands on roads.

    “Neither the Ordinance nor the development agreement constrain the Town from exercising its power to levy special assessments to pay for public improvements – in this case, paved roads – benefitting property owners,” wrote Judge Paul Reilly.

    “The fact that the Town originally arranged for an alternative way to pay for the public improvements does not mean that it was limited to that alternative when the developer defaulted on its promise and the subdivision’s roads remained unfinished. …”

    The panel also noted that the 70-percent rule in the ordinance did not prohibit special assessments to pay for final paving, noting that the 70-percent rule only applied unless the Town Engineer recommended otherwise, and the Town Engineer did so.

    “The Town board concurred with this recommendation when it passed a resolution adopting that report and providing for the work to be carried out irrespective of the development of lots in the Barony subdivision,” Judge Reilly wrote.

    The special assessments, the panel also noted, were proper so long as the town complied with Wis. Stat. section 66.0703, the statute that determines the situations in which municipalities may levy special assessments and governs procedures.

    The bank argued that the special assessments did not comply with the statute because the road work was not a “public improvement.”

    “The Bank’s argument fails as the roads within the subdivision were not private property,” Judge Reilly wrote. “Wisconsin law provides that all roads or streets shown on a final subdivision plat are dedicated to the public unless clearly marked as private.”

    Finally, the panel rejected the Bank’s claim that the Town of Omro, in passing resolutions concerning road paving and special assessments, did not comply with specific procedures in the special assessments statute. The resolutions “generally” described the “contemplated purpose” of the special assessment, the panel noted.

    Despite ruling in the town’s favor on most lots, the panel reversed with regard to special assessments on three specific lots that did not abut improved roads, noting genuine issues of material fact on whether those lots received a special benefit.

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