Tax Sale Set Aside: Inadequate Notices To Property Owner

The Indiana Court of Appeals opinion in City of Elkhart v. SFS, LLC, 968 N.E.2d 812 (Ind. Ct. App. 2012) is a nice contrast to the Sawmill Creek case discussed in my prior post Tax Sale Bullet Strikes Property Owner.  In Sawmill Creek, the Indiana Supreme Court denied a property owner’s motion to set aside a tax sale.  In SFS, the Court of Appeals reached the opposite conclusion.  At issue is the nature and extent of the notice that must be given to a property owner before the owner loses title.  (For rules on notices to mortgagees, please click here for my prior post on that subject.)

Background.  SFS involved two tax sales regarding the same property.  The dispute was between the first tax sale purchaser and the second tax sale purchaser.  The first purchaser alleged that it did not receive notice of the second tax sale, which occurred before the first purchaser recorded its tax deed.  For the facts and circumstances surrounding the nature of the notice and its alleged deficiencies, please read the opinion. 

Fundamentals.  Importantly, Indiana law provides that title conveyed by a tax deed may be defeated if the three required notices were not issued in “substantial compliance” with the statutes.  One element that the Court really sliced and diced related to Ind. Code § 6-1.1-25-4.5 and the “ordinary means” requirement for notice.  SFS discussed the application of the notice requirements when there are alleged defects in the means used to provide notice. 

3 notices.  The SFS opinion succinctly outlined the three notices that must be given to property owners in connection with an Indiana tax sale:

1. First, the county auditor must provide notice of the tax sale per I.C. § 6-1.1-24-4.

2. Second, the party that purchases the property at the tax sale must send the notice of the right of redemption pursuant to I.C. § 6-1.1-25-4.5.

3. Third, the party that purchases the property at the tax sale must send the notice of filing of a petition for tax deed per I.C. § 6-1.1-25-4.6(a).

The first tax sale purchaser in SFS did not receive notice #2 from the second purchaser even though the first purchaser had recorded its tax deed from the first sale before the redemption period expired. 

Defective notice.  In SFS, an employee of the second tax sale purchaser had actual knowledge of the recorded tax deed for the first sale.  Accordingly, the second purchaser was on “inquiry notice” of the first purchaser’s correct address more than two months before the redemption period had expired and well before the issuance of the third notice.  The second purchaser disregarded such information and resorted to alternative measures to satisfy the statutory notice, which measures were deemed by the Court to be improper and ultimately unconstitutional:

It would not be ordinary but, rather, extraordinary to permit the [second purchaser] to obtain a tax deed after it had failed to send notice to the [first purchaser’s/the owner’s] address as it appears on the public records when it had the means of knowledge at hand two months before the redemption had expired.

As mentioned here before, I periodically write about tax sales for the simple reason that such sales terminate any mortgage liens on the property.  Best practices for secured lenders are to monitor tax payments and ensure tax sales do not occur without your knowledge.