Tuesday, March 1, 2011

In re Foreclosures of Liens for Delinquent Land Taxes by Action in rem Collector of Revenue[1]

Opinion issued March 1, 2011
Link to Missouri Supreme Court Opinion

On appeal from a decision by the St. Louis City Circuit Court, the Supreme Court of Missouri upheld the confirmation judgment affirming a tax sale of the petitioner’s land. The court held that sending notice by mail to the address listed for the property did not violate petitioners’ due process rights even though the property was vacant and mail was not being delivered to that location. Additionally, because the petitioner failed to present any evidence that the sheriff knew or should have known that notice of tax sale was ineffective, the sheriff was not required to take any additional steps to notify the owner.

I. Facts and Holding

Petitioner, Mohammed Bhatti, neglected to pay taxes in 2005, 2006, and 2007 on a home he was renovating in the City of St. Louis.[2] In response to his failure to pay these taxes, the City of St. Louis sought foreclosure under the Municipal Land Reutilization Law (MLRL).[3] In order to foreclose on the property, the MLRL requires three steps: “(1) a judgment of foreclosure; (2) a tax sale; and (3) a judgment confirming the tax sale.”[4]

The collector filed a foreclosure action in the St. Louis Circuit Court to enforce the tax lien.[5] Petitioner defaulted, and the circuit court entered a judgment of foreclosure requiring the sale of the land to satisfy the lien.[6] Following the judgment, the St. Louis City Sheriff sent notice of the sale to the owner’s last-known address, which was the parcel being foreclosed upon.[7] Lewis Mitchell Company subsequently purchased the land at the sheriff’s tax sale for $7,600.[8]

When the petitioner failed to redeem the property prior to sale, he lost all current and future rights in the property.[9] Pursuant to the MLRL, Lewis Mitchell Company filed a motion to confirm the sale.[10] Notice of the confirmation hearing was sent to the same address as the notice of the tax sale.[11] The circuit court confirmed the sale after finding that the price paid by Lewis Mitchell Company was adequate consideration for the property.[12] Five months later, upon discovering that the land had been sold, petitioner filed a motion to set aside the tax sale and confirmation judgment.[13] The petitioner claimed his due process rights had been violated because he did not receive notice of the tax sale and confirmation hearing.[14] However, he did not object to the foreclosure suit or judgment.[15]

The circuit court held an evidentiary hearing where the petitioner testified that he did not reside or receive mail at the property but did admit that he was at the location on a frequent basis to work on renovations.[16] Petitioner further stated that he never received a tax bill for the land or notice of the sale.[17] After hearing the evidence, the circuit court refused to set aside the sale and confirmation judgment.[18] The court found that notices had been properly sent to the address provided by the petitioner.[19] Despite proof of the notice being ineffective it was still sufficient because no evidence was presented that the notice was returned to the sheriff or that the sheriff “knew or had reason to know that the notice was ineffective.”[20]

Subsequently, petitioner filed a motion for a new trial in order to introduce newly discovered evidence.[21] Petitioner provided three envelopes sent to the address, dated after the tax sale, that were returned to the senders undelivered.[22] Additionally, he presented an affidavit from a mail carrier stating that no mail had been delivered to that address because of vacancy.[23] The circuit court denied the motion because the petitioner failed to show that the evidence could not have been obtained with due diligence prior to the original trial.[24]

On appeal to the Supreme Court of Missouri, the petitioner argued that the lower court erred in denying his due process claim under the notice provisions of the MLRL.[25] The petitioner contended that the sheriff should have used alternative measures to properly provide notice of the sale.[26] The methods proposed by the petitioner were (1) using the address provided for the building permits obtained from the city, (2) driving by the property and noting it was for sale and contacting the owner through the real estate agent, or (3) physically posting notice at the property.[27]

The Supreme Court of Missouri held that the petitioner did not demonstrate that the sheriff had knowledge of petitioner’s failure to receive proper notice of the sale.[28] The court held that, unless it was shown that the sheriff was aware that the notice was insufficient, he was not required to take any additional steps.[29] On appeal, the petitioner offered a legal file that included the sheriff’s register, which showed that that the notices of the sale had been returned to sender.[30] However, the court found that, because the petitioner failed to show that the register was part of the evidence presented to the lower court, the decision could not be overturned based on evidence offered for the first time on appeal.[31] The petitioner claimed this register was part of the legal file, but the court noted that upon inspection it could not be attached to any pleading, affidavit, or judgment.[32]

The Supreme Court of Missouri held that, despite the result being less than optimal, the only one to blame was the petitioner himself.[33] The court provided a number of reasons for why the petitioner’s actions were deficient: (1) failing to pay his estate taxes for three years; (2) providing an incorrect address to receive notice of the taxes being due; and (3) failing to show that the notice sent to him by the sheriff was not reasonably calculated to apprise him of the pending sale of his property.[34]

Judge Michael A. Wolff, writing in dissent, argued that the notice in this case was not sufficient to meet United States Supreme Court precedent.[35] Without proper notice of the impending tax sale, the notice process did not meet the minimum due process standards required by the Supreme Court.[36] As evidence that the sheriff could have located the petitioner’s correct address with minimal effort, Judge Wolff pointed to the fact that the Lewis Mitchell Company was able to easily locate petitioner after the confirmation sale.[37] Further, upon a simple inspection of city records, there were numerous places where petitioner’s proper address was listed.[38]

The petitioner was entitled to notice on three separate occasions: (1) notice of the foreclosure suit, (2) notice of the foreclosure sale, and (3) notice of the confirmation hearing.[39] All three of these notices are part of petitioner’s due process rights, and Judge Wolff asserted that the notice provided in this case was wholly inadequate under relevant standards.[40] He found that it was unreasonable to assume that mail sent to a vacant housed reached the owner.[41]

Judge Wolff stated that, in order to provide constitutionally sufficient notice, the city should keep records of whether or not the mail is returned to sender.[42] If the city fails to keep such a record, it is not entitled to the presumption that notice was received by the proper party.[43] Alternatively, if a system for keeping track of returned mail is not created, the city should serve notice using a deputy in the traditional manner to properly satisfy due process standards.[44] Because Judge Wolff believed that the petitioner’s due process rights were violated, he would have remanded for further proceedings to allow petitioner to restore ownership of his property after paying his taxes and other expenses.[45]

II. Legal Background

In the landmark case of Mullane v. Central Hanover Bank & Trust, the Supreme Court outlined the requirements to meet minimal due process standards before the taking and sale of property.[46] The dispute in Mullane centered on the constitutional sufficiency of notice to beneficiaries on settlements of trust funds established under New York Law.[47] In Mullane, the Court held that notice by mail could meet the minimal standards of due process where the government was aware of the address of the person being served notice.[48] However, Mullane held that the notice in any situation, when not done in the traditional manner, should be the best practicable.[49]

Much of the legal analysis in Bhatti centered on the U.S. Supreme Court’s decision in Jones v. Flowers.[50] In Flowers, the Court held that when notice is returned unclaimed, the state must take additional steps to attempt to provide proper notice before selling a person’s property so long as it is not unduly burdensome.[51] Additionally, the Court stated that simply publishing notice in the newspaper without publication at the address was insufficient to satisfy the rights guaranteed by the Fourteenth Amendment.[52]

Flowers involved a defendant, residing in Arkansas, who failed to pay taxes on a piece of property.[53] A packet of information was sent to the address; however, the mail was returned to the sender unclaimed.[54] Because the mailing had been unsuccessful the commissioner took out an ad in the newspaper in an effort to provide notice of the sale.[55] The commissioner also sent a second letter that was also returned to the sender.[56]

The Court in Flowers stated that “when mailed notice of a tax sale is returned unclaimed, the State must take additional reasonable steps to attempt to provide notice to the property owner before selling his property, if it is practicable to do so.”[57] The Court highlighted that, while property owners should be diligent, before forcing a citizen to forfeit his property “due process requires the government to provide adequate notice of the impending taking.”[58] However, the state is under no obligation to go searching for delinquent taxpayers, especially when the taxpayer is under an obligation to keep his address updated with the tax collector.[59]

III. Comment

In this case, the Supreme Court of Missouri was clearly unsympathetic to the petitioner’s claim that he was unaware of the sale of his property until it was too late. When looking at the holding, it is important to comprehend the impact of a citizen having their property taken by the government. Undoubtedly, the petitioner made serious mistakes that led to this unfortunate series of events. However, the sheriff’s mailing of notice to the address of the foreclosed property clearly did not provide the petitioner notice that his property would be taken if he failed to act. In fact, if petitioner had properly presented evidence of the sheriff’s knowledge that the mail had been returned, this case would likely have reached a different result. This simple mistake of failing to present evidence at the evidentiary hearing led to the extremely unfortunate result of petitioner losing his property without notice.

The concept of due process established by our Constitution should require more than a returned mailing before the government exercises its power to take a citizen’s property. Certainly the petitioner shoulders some of the blame, but in this case, failing to present evidence of the returned mail in the circuit court is what caused petitioner’s claim to fail. There is justification for requiring all evidence to be produced at the original trial, but the dissent had a point in that the government should also have a duty to be forthright with the court and inform them if they were aware that their notice by mail was returned to sender.

If this decision is not read narrowly, it could lead to increased foreclosures and sales without the citizens ever receiving proper notice. Mullane and Jones require that the sheriff take additional steps if he is aware that mail is not being accepted at an address because it is returned. Had anyone posted actual notice at the property or done minimal searching for petitioner’s proper address, this taking could have been avoided.

-Lawrence Hall

[1] No. SC 90732 (Mo. March 1, 2011) (en banc), available at http://www.courts.mo.gov/file.jsp?id=44940. The West reporter citation is In re Foreclosures of Liens for Delinquent Land Taxes by Action in rem Collector of Revenue, 334 S.W.3d 444 (Mo. 2011) (en banc).
[2] Id. at *1.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id. at *2.
[19] Id.
[20] Id. (citing Jones v. Flowers, 126 S.Ct. 1708 (2006).
[21] Id.
[22] Id.
[23] Id.
[24] Id.
[25] Id. at *3.
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Id.
[31] Id. at *4.
[32] Id.
[33] Id. at *5
[34] Id.
[35] Id. at *6
[36] Id.
[37] Id. at *8.
[38] Id.
[39] Id. at *10.
[40] Id.
[41] Id.
[42] Id. at *11.
[43] Id.
[44] Id.
[45] Id. at *12.
[46] 339 U.S. 306 (1950).
[47] Id. at 307.
[48] Id. at 319.
[49] Id.
[50] 547 U.S. 220 (2006).
[51] Id. at 239.
[52] Id. at 237.
[53] Id. a 223.
[54] Id. at 239.
[55] Id. at 224.
[56] Id.
[57] Id. at 225.
[58] Id. at 234.
[59] Id. at 235-36.