The Ellsworth City Council changed its position Monday night and decided to give surplus funds from a 2023 foreclosure sale of a home to its previous owner.
The 6-0 vote comes after weeks of contentious lobbying by Councilor Steve O’Halloran to give surplus funds, estimated to be around $118,000, to Kerry Karst, a Brewer resident who had inherited the Fifth Street property from his parents.
As part of his campaign O’Halloran this month displayed first a large banner on a shipping container and then a semi-trailer downtown with messages that said, “SHAME ON ELLSWORTH!! RETURN THE KARST FAMILY EQUITY!!”
Other councilors had expressed concern about whether the city might face legal liability for giving the proceeds from the auction of the home, which are considered public funds, to a private party, which in this case is Karst.
“There wasn’t a legal avenue for returning the funds,” Councilor Jon Stein said.
“This is about fairness to me,” O’Halloran said. “It is not about legality.”
Changes in the past two years to laws that govern how municipalities can handle sale proceeds of tax-acquired properties, and a proposal to offer the funds to Karst as part of a legal settlement, convinced the council’s holdouts that the transaction would be legally sound.
“It’s a complicated issue,” Patrick Lyons, the council chair and a lawyer by trade, said Monday of how legal arguments and rulings on the issue have evolved in recent years. “There’s a matter of wanting to [give Karst the money], and then a matter of can we do it.”
There also is the matter of how O’Halloran’s blunt and prominent message put city employees in the crosshairs of critics who accused Ellsworth of equity theft. Charlie Pearce, Ellsworth’s city manager, said he and other city staff have felt besieged by unfair accusations in recent weeks and that “the staff had nothing to do with” the council’s decisions.
Sue McLean, Ellsworth’s city clerk and tax collector, said she has been too busy fending off angry tirades to sort through records on how much money the city spent in dealing with the tax-delinquent property.
“This has not been fun,” McLean told the council. “The worst of it has been the last few weeks. I don’t think the taxpayers should have to pay all those fees.”
While O’Halloran and his supporters argued that the matter was straightforward, the years-long process by which the city acquired the property and then eventually sold it to a new owner was anything but.
The city first placed liens on the two-bedroom house in 2019 after Karst had stopped paying property taxes on it.
The following year, the city tried to contact Karst, but the COVID-19 pandemic disrupted mail delivery. Notices the city tried to send Karst via the U.S. Postal Service were returned to City Hall unopened. The city then foreclosed on the property in December 2020, by which time Karst had racked up $7,000 worth of unpaid property taxes
The city’s ordinances require that any real estate it sells must be put out to bid, and in December 2022, it received 11 sealed bids for the property. But in January 2023, the council rejected them all after O’Halloran andmother councilors — some of whom no longer serve on the panel — said they wanted the home returned to the Karst family.
The next month, the council voted 6-1, with O’Halloran opposed, to auction off the property instead. Weeks after that, in March 2023, the city sold the property at auction for $148,500 to a Bar Harbor-based entity called 617 Bayside LLC, according to the city’s assessing records. That entity still owns the property.
But the matter was not settled. In May 2023, two months after the city auctioned off the former Karst house, the U.S. Supreme Court ruled on a similar case out of Minnesota and determined that municipalities could not keep surplus funds from foreclosure sales on tax-acquired properties. Maine lawmakers quickly followed suit by adopting changes that help to soften the foreclosure process on homeowners.
Still, because the laws were changed after the city auctioned off the former Karst property, city officials were not sure they could retroactively give Karst some of the sale proceeds, but Lyons said the city recently got legal advice that it could.
If the funds are offered to Karst as part of a settlement agreement that prevents him from filing legal claims against the city or the new owner of his parents’ old house, the city would have a solid defense against accusations of misusing public funds, he said.
“My opinion is the city should pursue that,” Lyons said.
Pearce said that there is a chance other people who previously lost their properties to foreclosure could seek similar retroactive compensation from the city. The cumulative liability for all properties acquired and then re-sold by Ellsworth over the past 10 years is only around $50,000 — less than half of what Karst will receive, he said.
“I am glad the Supreme Court court got it right,” Pearce said, adding that he is looking forward to moving past the long debate and on to other pressing matters.
“But please,” he added to O’Halloran, “no more trailers.”
