A. Drainage Liens A. Drainage Liens

A. Drainage Liens

1. Determination of Property Liability

After the construction contract has been awarded, the auditor must make a statement showing the total cost of the drainage project with the estimated cost of all items required to complete the work.⁹⁰⁹ The cost is then prorated to each tract of property affected in direct proportion to the benefits awarded.⁹¹⁰ The cost to each property, less any damages awarded to that property, is the amount of liability for that property for the drainage project.⁹¹¹ The auditor uses this information to create the tabular lien statement.⁹¹² The tabular lien statement must show the following:

1. The names of property owners, corporate entities, or political subdivisions of the county benefited or damaged by the construction of the drainage project in the viewers’ report as approved by the final order for establishment;
   
2. The description of the property in the viewers’ report, and the total number of acres in each tract according to the county tax lists;
   
3. The number of acres benefited or damaged in each tract shown in the viewers’ report;
   
4. The amount of benefits and damages to each tract of property as stated in the viewers’ report and confirmed by the final order that established the drainage project unless the order is appealed and a different amount is set; and
   
5. The amount each tract of property will be liable for and must pay to the county for the establishment and construction of the drainage project.⁹¹³
   

An example tabular lien statement is provided in Template A.

If any costs are omitted from the tabular lien statement, a supplemental drainage lien statement may be made in the same manner as the original drainage lien statement.⁹¹⁴ Drainage lien statements shall be certified by the auditor, recorded on each tract by the county recorder, and then returned to the auditor for preservation in the drainage system records.⁹¹⁵

2. Determining Property Liability for Improvement Costs

When a separable portion of a drainage system is ordered to be improved, only the properties benefited by the improvement are liable for the improvement costs.⁹¹⁶ The auditor or the watershed district secretary must maintain a separate drainage system account for construction costs associated with the improvement. Bond sale proceeds for the cost of the construction of the improvement may not be commingled with funds held for maintenance and repair of the rest of the system.

When drainage systems are repaired, original establishment benefits and improvement benefits must be considered in allocating repair costs. This is so because the improvement is part of the system repaired. In such a situation, there would be a layering of benefits where lands were assessed both for the original establishment and for the improvement. There may be a certain amount of unfairness if this occurs. The statute requires that “the cost of repairing a drainage system shall be apportioned pro rata on all property and entities that have been, assessed benefits for the drainage system.”⁹¹⁷ The recommended method for alleviating the unfairness of allocating future costs using benefits determined in two separate periods is to do a full redetermination of benefits after the improvement is complete and before any future repairs are ordered.

3. Determining Property Liability for Outlet Improvement Costs

An order for improvement of an outlet has its own benefits and damages separate from the drainage system served by the outlet improvement.⁹¹⁸ Therefore, the auditor or watershed district secretary must establish a separate drainage system account for collection of costs to improve the outlet. Yet, it is a part of the system it serves. Repairs to the system upstream will be assessed pro rata against all the lands in the system, including those assessed for the improvement of the outlet. The recommended method for alleviating the unfairness of allocating future costs using benefits determined in two separate periods is to do a full redetermination of benefits after the outlet improvement is complete and before any future repairs are ordered.

4. Effect of Filed Drainage Lien

The drainage lien is a first and paramount lien, superior over all mortgages, charges, and encumbrances, regardless of time of filing, until it is fully paid.⁹¹⁹

The auditor or watershed district secretary must keep a drainage lien record for each drainage project and system that shows the amount of the drainage lien remaining unpaid against each tract of property.⁹²⁰

5. Payment of Drainage Liens

Drainage liens against the property are payable to the treasurer of the county in 20 or less equal annual installments.⁹²¹ The first installment is due on or before November 1st after the drainage lien statement is recorded, and each subsequent installment is due on or before November 1st of each year afterward until the principal is entirely paid.⁹²²

The drainage authority may accelerate payment by ordering the drainage lien to be paid by 1/15 of the principal on or before five years from November 1 after the lien statement is recorded, and 1/15 on or before November 1 of each year afterwards until the principal is paid.⁹²³

If the principal amount of a lien is less than $500, the drainage authority may order the drainage lien to be paid in one or two installments.⁹²⁴

Interest, at the rate set by the drainage authority, is calculated on the entire unpaid principal of the drainage lien from the date the drainage lien was recorded until August 15th of the next calendar year, and after that, from year to year, ending August 15th.⁹²⁵ Interest is due and payable after November 1st of each year the drainage lien principal or interest is due and unpaid.⁹²⁶

Any installment due and interest due must be collected in the same manner as real estate taxes for that year by collecting one-half of the total of the installment and interest with and as part of real estate taxes.⁹²⁷

Drainage liens may be prepaid to avoid incurring future interest.⁹²⁸

The county board may direct the county treasurer to accept outstanding bonds issued to fund public drainage projects as payment of a public drainage lien.⁹²⁹ The value of the bond is the bond’s par value plus any accrued interest.⁹³⁰

6. Enforcement of Assessments

Municipality Assessments

A municipality benefited by a public drainage system pays drainage liens and interest through the municipality’s own tax revenues.⁹³¹ If a municipality fails to pay, the county, on behalf of the drainage authority, may assess all of the various parcels of property within the municipality that are liable to its taxation.⁹³²

Roadway Assessments

When a county or state-aid road is assessed benefits, the assessment must be filed against the county and must be paid out of the county road and bridge fund.⁹³³

When a trunk highway is assessed benefits, a certified copy of the assessment against the state must be sent to the Commissioner of Transportation and the assessment must be paid from the trunk highway fund.⁹³⁴

If, after an assessment has been filed for benefits to a town road, the town road is later vacated by the town board under Minn. Stat. § 164.07, the town board may petition the drainage authority to cancel the assessment.⁹³⁵ The drainage authority has the discretion to cancel the assessment only if it finds that the town road for which benefits are assessed has been vacated.⁹³⁶

State Property Assessments

Liabilities for benefits assessed to state property, including rural credit property, must be paid by the state from funds appropriated and available for drainage assessments after the state officer with jurisdiction over the assessed property certifies the assessment to the commissioner of management and budget.⁹³⁷

Railroad and Utility Assessments

Enforcement of drainage liens against railroad and utility companies for benefits to its property can be challenging, as these entities may only own an easement rather than land in fee against which a drainage lien can be recorded.

The drainage code allows a drainage lien against a railroad or other utility corporation to be enforced as a lien against all property of the corporation within the county.⁹³⁸ The drainage authority may collect against a railroad or utility corporation through a civil enforcement action or foreclosure on the lien recorded against any of the company’s property within the county.⁹³⁹

7. Satisfaction of Liens

When a lien is satisfied early, such as when a benefited property is sold, the auditor or watershed district must issue a certificate of payment with the auditor’s seal to be recorded in the county recorder’s office as evidence that the lien has been satisfied.⁹⁴⁰ The public drainage authority allows the collection of 25 cents per description for this service; otherwise, the auditor’s fee and county recorder’s fee must be paid by the drainage system account.⁹⁴¹ All drainage liens that are not released after pre-payment are released in a blanket drainage lien release when the drainage lien schedule of payments is complete.

A sample certificate of payment is found in Template B.

A sample drainage lien release is found in Template C.

8. Apportionment of Liens

Auditors are often requested to apportion liens among parcels when a tract or tracts of land are subdivided or split. Apportioning the lien among the divided tracts is not as simple as dividing the lien evenly based on acreage. Drainage liens are recorded against an entire tract of land, but the drainage lien does not confer benefits to all acres against which it is recorded. For example, a drainage lien may be recorded against an entire 40 acre tract (e.g., the northwest quarter of the northwest quarter), but if only 10 acres were assessed benefits in the final order, only those 10 acres out of the 40 acre tract may use the drainage system as an outlet.⁹⁴² The drainage code provides a procedure which involves notice to all affected parties and that a hearing be held to determine how the lien will be apportioned.⁹⁴³

A person who has an interest in property that has a drainage lien attached may petition the drainage authority to request that the drainage lien be divided among specified portions of the tract.⁹⁴⁴ In order to initiate this process by petition, the payments of principal and interest on the property may not be in default.⁹⁴⁵

An example of a petition to apportion a drainage lien is found in Template D.

After the petition is filed, the drainage authority must adopt an order setting a time and location for a hearing on the petition.⁹⁴⁶

An example of an order setting a time and location for a hearing on the petition is found in Template E.

Notice of the hearing must be personally served⁹⁴⁷ on auditor, the occupants of the tract, and all parties having an interest in the tract as shown by the records in the county recorder’s office.⁹⁴⁸ Notice must be served at least ten days before the hearing.⁹⁴⁹ If personal service cannot be given to all interested persons, then notice may be given by publication in the newspaper.⁹⁵⁰ The costs of service or publication must be paid by the petitioner.⁹⁵¹

At the hearing, the drainage authority must hear all evidence submitted by the auditor, the occupants of the tract, and all parties having an interest that appear and provide evidence.⁹⁵² After the hearing, the drainage authority adopts an order apportioning a lien.⁹⁵³

A sample order apportioning a lien is found in Template F.

A certified copy of the order must be recorded with the county recorder against each of the properties and kept on file with the auditor.⁹⁵⁴

Note: The procedure contemplates a petitioner asking to have a lien apportioned or allocated among the respective parcels. The flaw in the statute is that no one wants to be the petitioner. This leaves the auditor in a difficult situation. Without a petition, the auditor has no authority to initiate the apportionment.

Commonly, a non-statutory procedure has come into use that is much more effective and efficient than that contemplated by statute. The auditor, observing the need to allocate a drainage lien, prepares an agreement wherein the auditor proposes an allocation among the tracts to be divided. The agreement is mailed to the owners of all parcels involved along with the auditor’s cover letter explaining the need to allocate the lien and the proposed allocation. If all parties sign the agreement, the auditor proceeds with recording the agreement at the county recorder’s office and keeping the agreement on file at the auditor’s office.

FOOTNOTES

⁹⁰⁹ Minn. Stat. § 103E.601, subd. 1 (2015).
⁹¹⁰ Minn. Stat. § 103E.601, subd. 1 (2015).
⁹¹¹ Minn. Stat. § 103E.601, subd. 1 (2015).
⁹¹² See Minn. Stat. § 103E.601, subd. 2 (2015) (listing the required information to be shown in the auditor’s tabular lien statement).
⁹¹³ Minn. Stat. § 103E.601, subd. 2 (2015).
⁹¹⁴ Minn. Stat. § 103E.601, subd. 3 (2015).
⁹¹⁵ Minn. Stat. § 103E.601, subd. 4 (2015).
⁹¹⁶ Minn. Stat. § 103E.215, subd. 6(b)(2) (2015).
⁹¹⁷ Minn. Stat. § 103E.728, subd. 1 (2015).
⁹¹⁸ Minn. Stat. § 103E.221, subd. 6 (2015).
⁹¹⁹ Minn. Stat. § 103E.605 (2015).
⁹²⁰ Minn. Stat. § 103E.611, subd. 6 (2015).
⁹²¹ Minn. Stat. § 103E.611, subd. 1(a) (2015).
⁹²² Minn. Stat. § 103E.611, subd. 1(a) (2015).
⁹²³ Minn. Stat. § 103E.611, subd. 1(b) (2015).
⁹²⁴ Minn. Stat. § 103E.611, subd. 1(c) (2015).
⁹²⁵ Minn. Stat. § 103E.611, subd. 2(a) & (b) (2015).
⁹²⁶ Minn. Stat. § 103E.611, subd. 2(c) (2015).
⁹²⁷ Minn. Stat. § 103E.611, subd. 3 (2015).
⁹²⁸ See Minn. Stat. § 103E.611, subd. 4 (2015) (“Interest may be paid at any time . . . .”). After interest is entered on the tax list for the year, it is due as entered and there is no reduction for prepayment. See Minn. Stat. § 103E.611, subd. 3 (2015).
⁹²⁹ Minn. Stat. § 103E.611, subd. 5 (2015).
⁹³⁰ Minn. Stat. § 103E.611, subd. 5 (2015).
⁹³¹ See Minn. Stat. § 103E.615, subd. 1 (2015) (“Assessments filed for benefits to a municipality are a liability of the municipality and are due and payable with interest in installments on November 1 of each year as provided in section 103E.611.”).
⁹³² Minn. Stat. § 103E.615, subd. 1 (2015).
⁹³³ Minn. Stat. § 103E.615, subd. 2 (2015).
⁹³⁴ Minn. Stat. § 103E.615, subd. 3 (2015).
⁹³⁵ Minn. Stat. § 103E.615, subd. 4 (2015).
⁹³⁶ Minn. Stat. § 103E.615, subd. 4 (2015).
⁹³⁷ Minn. Stat. § 103E.615, subd. 5 (2015).
⁹³⁸ Minn. Stat. § 103E.615, subd. 7 (2015).
⁹³⁹ Minn. Stat. § 103E.615, subd. 7 (2015).
⁹⁴⁰ See Minn. Stat. § 103E.621 (2015).
⁹⁴¹ Minn. Stat. § 103E.621 (2015).
⁹⁴² See Westphal v. Schmalz, 169 N.W.2d 401 (Minn. 1969) (holding that drainage liens are imposed against entire tracts as a practical method of efficiently administering the statutory assessment scheme, but that only those acres assessed benefits may use the public drainage system as an outlet for drainage).
⁹⁴³ Minn. Stat. § 103E.631 (2015).
⁹⁴⁴ Minn. Stat. § 103E.631, subd. 1 (2015).
⁹⁴⁵ Minn. Stat. § 103E.631, subd. 1 (2015).
⁹⁴⁶ Minn. Stat. § 103E.631, subd. 2 (2015).
⁹⁴⁷ The methods of providing personal service are discussed in the Minnesota Rules of Civil Procedure, Rule 4.03.
⁹⁴⁸ Minn. Stat. § 103E.631, subd. 2 (2015).
⁹⁴⁹ Minn. Stat. § 103E.631, subd. 2 (2015).
⁹⁵⁰ Minn. Stat. § 103E.631, subd. 2 (2015). Notice by publication means that notice is published at least once a week for three successive weeks in a legal newspaper in general circulation in each county affected by the notice. Minn. Stat. § 103E.005, subd. 24 (2015).
⁹⁵¹ Minn. Stat. § 103E.631, subd. 2 (2015).
⁹⁵² Minn. Stat. § 103E.631, subd. 3 (2015).
⁹⁵³ Minn. Stat. § 103E.631, subd. 3 (2015).
⁹⁵⁴ Minn. Stat. § 103E.631, subd. 3 (2015).