Tax Exempt Organization? Watch Out for Adverse Possession

Adverse possession is often cited as a very narrow remedy in California due to the challenges in showing payment of property taxes. While California has a very short five year time period to acquire property by adverse possession, it famously requires that the party seeking this remedy pay all property taxes levied against the property. This is often a difficult or near impossible task because the true owner will often pay property taxes, preventing adverse possession, even if the possessor also pays the taxes.

Hagman v. Meher Mount Corporation

However, what about nonprofit tax exempt organizations, like religious entities, that do not pay property tax? Can they defend against adverse possession, even though they are not subject to property taxes? The recent case of Hagman v. Meher Mount Corporation (California Court of Appeal, Second District, Case No. B239014, April 3, 2013) answers this question by seeming to expand the possibility of adverse possession against these organizations.

In Hagman, actor Larry Hagman brought an action for quiet title to a portion of land that was inadvertently enclosed by a fence and subsequently improved. The portion of land enclosed was owned by a religious organization, exempt from property tax in the state of California. The trial court granted summary judgment in favor of Mr. Hagman.

On Appeal

On appeal, the religious organization argued that it was immune from adverse possession as a “public entity” under Cal. Civil Code section 1007 because it was a “public benefit corporation.” The Court soundly rejected this argument, concluding that a public benefit corporation is not a “public entity” and is not subject to such immunity.

The unusual twist to the case came next when the Court seemingly expanded adverse possession. The Court concluded that since religious organizations were exempt from property tax, the adverse possessor (here, Mr. Hagman) was excused from California’s requirement to pay taxes on the property acquired. Therefore, Mr. Hagman could acquire the property by satisfying the other elements of adverse possession, without paying any taxes.

Conclusion

While this case could be cited a “one-off” due to the celebrity of Mr. Hagman, it certainly creates a dangerous precedent for tax exempt religious organizations that could now be increasingly exposed to similar claims from neighboring landowners. In light of this ruling, religious or other tax exempt organizations should be extra vigilant in protecting their land.

For questions relating to this article or for assistance with easement and boundary litigation, please contact the real estate attorneys at White and Bright.