This follows-up my 6/10/14 post, IBJ.com: Hawthorns Golf & Country Club Bankruptcy/Foreclosure. The IBJ, specifically the North of 96th blog by Andrea Davis, has updated the situation, which continues to trend toward the loan-to-own scenario about which I discussed in June: Hawthorns golf club headed to auction; lender seeks control.
Sometimes assignees of promissory notes, or foreclosure counsel asked to enforce assigned notes, will see within the chain of title to the note an allonge (or assignment) that is signed by the assignor but that fails to identify the name of an assignee. This is referred to as an endorsement “in blank.” Can the note still be enforced? You bet.
Note holder. A promissory note is a negotiable instrument governed by Article 3 of the Uniform Commercial Code. Indiana Code § 26-1-3.1-301 provides that a negotiable instrument may be enforced by “the holder of the instrument.” The “holder” of the instrument is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person if the identified person is in possession of the instrument.” I.C. § 26-1-1-201(20)(A). Under Indiana law, to demonstrate that it is entitled to enforce a note, an assignee need only establish (1) possession of the note and (2) that the note is payable to the assignee.
Possession. But how can a note be payable to the assignee if the assignee is not identified? By operation of law. I.C. § 26-1-3.1-205(b) is the provision in the UCC that permits blank endorsements: “when endorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone….” If a note is endorsed in blank, the note is payable to the bearer. I.C. § 26-1-1-201(5)(B) defines a “bearer” as one in possession of the note endorsed in blank. In short, possession of the promissory note is the key here.
Like a check. If an assignee has possession of a note, and even if the note is not specifically endorsed to the assignee, the assignee meets the requirements to be the “holder” of and “person entitled to enforce” the note under Indiana law. See also, Egbert v. Egbert, 80 N.E.2d 104 (Ind. 1948) Contrary to borrowers’ arguments – really, misunderstanding of the law - nothing more is needed to establish standing to enforce an assigned note. Think of it this way - a promissory note and a check are basically the same. Most of your parents probably taught you at some point that, once you endorse a check, anyone can cash it.
This is my third post dealing with an owner’s effort to set aside a tax sale. My 08/31/13 post involved a case where the owner won. My 12/14/12 post addressed a case where the owner lost. Prince v. Marion Co. Auditor, 992 N.E.2d 214 (Ind. Ct. App. 2013) is another case where the owner lost. The issue in all these cases surrounds notice.
Notice particulars. Cases attacking the validity of a tax sale necessarily are fact sensitive as they relate to whether, or to what extent, the owner (or the mortgagee) received adequate notice of the tax sale proceedings. Prince is no different. The owner in Prince held title to an Indiana apartment building. He moved to California and provided the county auditor with a post office box address for receipt of correspondence. The first of the three statutorily-required notices to the owner went to the California post office box by both first class and certified mail. The owner received a copy of the notice sent to the post office box by certified mail and signed for the package. (He claimed this notice was stolen out of his car before he opened it.) The notice sent by first class mail was not returned to the auditor. The auditor also sent notice to the common address for the apartment building, which notice came back to the auditor “return to sender, vacant, unable to forward.”
Notice rules. The owner alleged that the county failed to provide him with adequate notice so as to deprive him of constitutional due process, which I discussed in my 12/14/12 post about the Indiana Supreme Court’s decision in Sawmill. Importantly, due process does not require actual notice, but rather notice “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.” Further, Indiana law merely provides that notices must be in “substantial compliance” with statutory requirements - not perfect compliance.
Notice acceptable. In Prince, the Indiana Court of Appeals examined the county’s notices, which the county sent three different ways: (1) to the apartment building, (2) to the owner’s California post office box via certified mail and (3) to the owner’s California post office box via first class mail. Moreover, following the tax sale, but before the issuance of a tax deed, the county obtained a title search on the owner’s Indiana parcels and was unable to locate any additional addresses for him – meaning the county found nowhere else to mail the notices. The Court affirmed the trial court’s denial of the owner’s motion to set aside the tax deed:
In the current case, none of the notices that the Auditor sent to [the owner’s] post office box via first class mail were returned. Furthermore, [the owner] had signed the certified mail receipt for the notice of tax sale, which was also sent to the post office box. Thus, the Auditor knew that service had been accomplished. Furthermore, after the tax sale the Auditor obtained a title search to locate other addresses for [the owner].
The Court reasoned that the county acted “with far more diligence” than in other cases where sales were set aside.
Notice posting? One of the owner’s arguments was that the county should have posted notice at the apartment building, where the owner’s on-site property manager would have seen it. The manager occupied an office in a unit within the apartment building, but the county did not have a specific address or unit number for such office. In rejecting the owner’s position, the Court found that, since all of the notices the auditor had sent to the building had come back indicating that the property was vacant, “it would not be reasonable to require the Auditor to post notice at what was, to the best of the Auditor’s knowledge, vacant property.”
As suggested in my other posts about tax sales, owners need to pay real estate taxes, or face losing title. Owners should ensure that the county has a valid address for tax bills and tax sale notices. Similarly, lenders would be wise to monitor the status of their borrowers' real estate taxes, or face losing their mortgages. Ideally, lenders/mortgagees should ensure that the county has on record the name and address of the mortgage lien holder. See my 12/30/11 post for more on this issue.