UPDATE: The Ellsworth City Council has just voted to return approximately $118,000 in surplus funds from a foreclosure sale to former homeowner Kerry Karst. This decision, made during a heated council meeting on October 16, 2023, marks a significant shift following intense public criticism and lobbying efforts by Councilor Steve O’Halloran.
The unanimous 6-0 vote comes after weeks of protests, including O’Halloran’s eye-catching campaign featuring banners that read, “SHAME ON ELLSWORTH!! RETURN THE KARST FAMILY EQUITY!!” The council faced mounting pressure as accusations of “equity theft” swirled, prompting discussions on the morality and legality of withholding funds from Karst, a resident who inherited the property.
“We are committed to fairness,” O’Halloran stated emphatically. “This is not just about legality; it’s about doing what’s right.” Previously, concerns had been raised regarding potential legal liabilities for transferring public funds to a private individual. However, recent changes to municipal laws and legal advice clarified that the city could proceed with the refund.
Council Chair Patrick Lyons, a lawyer, acknowledged the complexities involved, stating, “It’s a complicated issue.” He added that the evolving legal landscape around foreclosure sales has led to new interpretations that favor returning funds to homeowners.
The backdrop to this decision includes years of turmoil surrounding the property. Karst’s family home, located on Fifth Street, fell into foreclosure after he accrued approximately $7,000 in unpaid taxes, with the city unable to reach him during the COVID-19 pandemic. The property was ultimately auctioned off in March 2023 for $148,500 to a Bar Harbor-based entity, 617 Bayside LLC.
With the U.S. Supreme Court’s recent ruling that municipalities cannot retain surplus funds from foreclosure sales, Maine lawmakers acted swiftly to amend related legislation. These changes provided a legal pathway for Ellsworth officials to offer the funds to Karst, contingent upon a settlement that would prevent further claims against the city.
City Manager Charlie Pearce expressed relief at the resolution, noting that city staff had faced undue criticism during the controversy. “The staff had nothing to do with this situation,” Pearce said, emphasizing the emotional toll the accusations took on city employees.
As this story develops, there are concerns that other former property owners may seek similar compensation. Pearce indicated that the overall liability from past foreclosures could amount to around $50,000, significantly less than the amount owed to Karst.
As the council moves forward, officials are hopeful to put this contentious issue behind them. Pearce humorously urged O’Halloran to forgo any further publicity stunts, stating, “But please, no more trailers.”
This decision not only resolves a prolonged dispute but also highlights the ongoing challenges municipalities face in managing tax-acquired properties. Residents and former homeowners alike will be watching closely as Ellsworth navigates these new legal waters in the wake of this historic vote.
