Lesson. A chagrined tax sale purchaser, whose tax deed is set aside for notice-related deficiencies, cannot sue the county’s sale contractor for alleged lost profits.
Legal issues. Whether a tax sale purchaser can sue the county’s sale agent for breach of a contract that the agent had with the county; whether the tax sale purchaser was fully compensated for its alleged losses.
Vital facts. Plaintiff tax sale purchaser (Purchaser) bought a property at a county real estate tax sale, which was later overturned by the court based upon notice-related failures in the sale process. Purchaser received a statutory refund of the amount it paid for the property plus some interest and other items totaling about $7,000.
Defendant SRI is a company that contracted with the county to perform certain services related to tax sales. Those services included preparing and mailing notices to owners with delinquent real estate taxes. One of the reasons this particular sale was overturned was that “the [county] auditor and SRI failed to perform the additional research” necessary to substantially comply with the statutory notice requirements under Indiana’s tax sale laws. Purchaser sued SRI claiming that it suffered nearly $800,000 in damages for lost profits from the failed sale.
Procedural history. The trial court granted summary judgment for SRI. Purchaser appealed.
Key rules. Generally, only parties to a contract have rights under the contract. The Jewell opinion outlines many of Indiana’s rules that govern when so-called “third-party beneficiaries” can sue under a contract. Purchaser claimed it was a third-party beneficiary under the SRI/county contract.
Tax sale purchasers in Indiana buy at their own risk. “There is no warranty in tax sales.”
“The remedy for purchasers at invalid tax sales or holders of invalid tax deeds is wholly statutory.” Ind. Code 6-1.1-25-10 and 11 detail the refund procedure.
Holding. The Indiana Court of Appeals affirmed the trial court and held that (a) Purchaser was not a third-party beneficiary of the SRI/county agreement and thus had no standing to sue SRI for breach of contract and (b) regardless, Purchaser had been fully compensated for its losses under the applicable statute.
Policy/rationale. Regarding the third-party beneficiary issue, the Court reasoned that the county and SRI did not intend to protect tax sale purchasers under their agreement. “It is not enough that the performance of the contract would be of an incidental benefit to [Purchaser].” Regardless, Purchaser’s remedy was statutory, and the Court concluded that Purchaser had been made whole. Purchaser identified “no statutory or common law authority that it [was] entitled to lost profits rather than the statutory refund amount.”
I am sometimes engaged to represent parties in connection with contested tax sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at email@example.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.