Property Owner May Dodge Tax Sale Bullet
March 19, 2012
This is my fourth post regarding Indiana tax sales, which is the method by which Indiana counties foreclose on real estate in order to collect delinquent real estate taxes. Once again, these issues are relevant to lenders because tax sales terminate mortgages. McCord Investments v. Sawmill Creek, 210 Ind. App. LEXIS 2250 (Ind. Ct. App. 2010) is another recent Indiana decision dealing with the tax sale notice requirements. (Also see my posts of November 16, 2010 [pre-sale notice] and December 30, 2011 [post-sale notice].) In McCord, the property owner received quite a break, in my opinion, but the case isn’t over. The Indiana Supreme Court has granted transfer and vacated the Court of Appeal’s decision. Once the Supreme Court issues its opinion, I’ll update this post.
Procedural history. In McCord, County appealed an order granting owner’s motion to set aside a tax deed. The opinion centered upon the adequacy of County’s attempts to provide notice of the sale. Even though the County followed Indiana’s statutory scheme at the time, the Court found the notice to be constitutionally inadequate.
Comedy of errors. The Court of Appeals recognized that:
this entire controversy could have been avoided had [the owner] shown even a modicum of responsibility himself. He could have made certain that the Lot was deeded to Sawmill Creek instead of “Saw Creek.” Had he properly ensured that his current address for the taxation of the Lot was on file with the Auditor, and if he had simply noticed that he had not been paying the taxes due on the Lot, all of the current controversy could have been avoided.
Nevertheless, the trial court and the Court of Appeals ruled in favor of the owner.
Indiana’s statutory tax sale scheme. The McCord case arose out of pre-2006 events, and Indiana’s tax sale statutes have been amended since then. The tax sale scheme in Indiana requires three notices to be sent to the property owner in connection with the sale. The first is a pre-sale notice. The second is the right of redemption notice. And the third is the notice of the petition for a tax deed. In McCord, “it appears to be undisputed that [County] complied with the applicable versions of the relevant statutes.”
Constitutional due process. Despite compliance with the statutory scheme, the Court turned to the United States Supreme Court’s opinion in Jones v. Flowers, which analyzed the notice requirements of a pending tax sale. Jones established the following notice sufficiency test: while actual notice is not required, notice must be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” In the wake of Jones, Indiana’s General Assembly amended the pre-sale notice statute to deal with notice attempts via certified mail when certified mail is not returned or signed. The new language in Ind. Code § 6-1.1-24-4 requires a duplicate notice to be sent by first class mail.
McCord, the particulars. The problem in McCord was that County was aware that the owner of the lot had not received any of the three required notices, all of which were sent via certified mail and returned as unclaimed. Again, the question was not what would have been best to ensure the owner did, in fact, receive notice. Instead, the issue was “what additional reasonable steps the County could have taken that were reasonably calculated under the circumstances to apprise interested parties of the pendency of the action after the initial attempts at notice were returned as unclaimed.” The Court concluded that the County could have resent the notice by first class mail – even though the statutes did not require it at the time. Had the County done that, it appears that the outcome of the litigation would have been different. It remains to be seen what the Indiana Supreme Court will do.
Lender claim? The question I’m left to ponder is whether a mortgagee would have standing to set aside a tax deed if there was evidence the mortgagor did not receive the appropriate notices. In other words, could a lender make an owner’s case so as to preserve title and, in turn, the mortgage lien? Lenders may not be able to avail themselves of the constitutional protections afforded to owners, which is to say that a lender may not catch the break the owner got in McCord.
NOTE: The Indiana Supreme Court has reversed the Court of Appeals. Click here for my post.