Opinion handed down January 13, 2015
Beemer Construction (“Beemer”) and Seal-O-Matic Paving Company (“Seal-O-Matic”) both made improvements to property formerly owned by Sunnypointe, LLC (“Sunnypoint”). Sunnypointe failed to pay Beemer and Seal-O-Matic for their services, and Beemer and Seal-O-Matic subsequently filed mechanic's liens against the property in 2007.[1] That same year, Sunnypointe failed to pay its property taxes, and because of this, in 2010 the property was foreclosed on by the Jackson County Director of Collections.[2] Notice of the tax sale was given by publication and by certified mail to Sunnypointe, but no personal notice was provided to Beemer or Seal-O-Matic.[3] Realty Acquisition, LLC (“Realty”) bought the property formerly owned by Sunnypointe LLC at the tax sale.[4] Upon entry of appearance by Beemer and Seal-O-Matic in the tax foreclosure action, the trial court nullified the tax sale.[5] Realty ultimately appealed to the Supreme Court of Missouri.[6] The Supreme Court of Missouri affirmed the trial court's nullification of the tax sale.[7] The court held that when a lien has been properly filed as Missouri law requires, the lien-holder's name and address are reasonably ascertainable and therefore personal notice, rather than notice by publication, is required to satisfy due process.[8]
I. Facts and Holding
Sunnypointe owned land (“the property”) in Blue Springs, Missouri, and had improvements made to that land in August 2006 and January 2007 by Beemer and Seal-O-Matic, respectively.[9] Because Sunnypointe did not pay them, in April 2007 and December 2007, Beemer and Seal-O-Matic filed mechanic's liens against the property; the amounts of each lien ranged from approximately $160,000 to $190,000.[10] Both Beemer and Seal-O-Matic cooperated with Missouri's statutory filing requirements,[11] which include filing a description of the property and the owner name and/or contractor name with the circuit court of that county. [12] After failing to pay 2007 taxes on the property, the Jackson County Director of Collections requested that the property be foreclosed, and in 2010, a judgment was entered permitting a tax sale of the property.[13] A tax sale was scheduled for August 2011; personal notice of the tax sale was given by certified mail to Sunnypointe in June 2011, and publication notice of the tax sale was provided.[14] No personal notice was given to Beemer or Seal-O-Matic, who were not made aware of the tax sale by the publication notice.[15] Realty purchased the property at a price of $51,000 at the tax sale.[16] After entry of appearance by Beemer and Seal-O-Matic in the tax foreclosure action, the trial court nullified the tax sale, which Realty has ultimately appealed to the Supreme Court of Missouri.[17] The Supreme Court of Missouri affirmed the trial court's nullification of the tax sale.[18]
II. Legal Background
At the heart of the majority's reasoning was Mullane v. Central Hanover Bank & Trust,[19] which required, as due process, “notice reasonably calculated, under all of the circumstances, to apprise interested parties of the pendency of the [government] action” and stated that publication notice alone is not constitutionally sufficient notice under the due process clause where the name and address of the interested party is easily accessible.[20] The Supreme Court of Missouri also heavily usedMennonite Bd. of Missions v. Adams,[21] which extended the reasoning of Mullane to mortgagees and not merely trustees.[22] Mennonite found that a mortgagee's security interest was substantial enough to require due process notice, and that tax sales, which “immediately and drastically diminish the value of the security interest,” has a substantial enough effect on the mortgagee's interest to warrant due process notice.[23] Mennonite also held that constructive notice, notice by publication, was insufficient under the holding of Mullane where the mortgagee “is identified in a mortgage that is publicly recorded,” further stating that “[n]otice by mail or other means as certain to ensure actual notice is a minimum constitutional precondition to a proceeding which will adversely affect [a party's] liberty or property interests.”[24]
Missouri courts have followed the same vein as Mullane and Mennonite in understanding due process notice requirements. The Supreme Court of Missouri has interpreted the Due Process Clause's notice requirement to mandate personal notice, and not just publication notice, for deed of trust beneficiaries where the beneficiary's identity is reasonably ascertainable;[25] the idea that due process notice is required for mortgagees has also been reiterated in a Missouri appellate case.[26] In Anheuser Busch Employees Credit Union v. Davis, the Supreme Court of Missouri explained that failure to provide notice, by mail or personal service, to a credit union that had loaned a property owner money violated due process; it is significant that the credit union publicly recorded its interest.[27] In one New Jersey court, a judgment lien was found to constitute a substantial property interest.[28] The Supreme Court of Missouri has held that “[a] buyer at a statutory sale takes subject to the interests of those who were entitled to notice and did not receive it,” and has found, under a Missouri statute rather than the Due Process Clause, that a recorded contingent remainder-man are entitled to personal notice.[29] It should be noted, however, that the kind of notice that the Supreme Court of Missouri has, in one case, understood due process to require, need not involve an explanation of options or procedures to take to remedy the impending loss of a property interest.[30]
However, not all alleged interests are entitled to due process protection by personal notice, as is implied by Mullane's holding that constructive notice by publication was sufficient for a certain class of people interested in the trust at issue in that case.[31] In Home Bldg. Corp. v. Ventura Corp., the court found that the owner of a property was not deprived of a significant property interest when a mechanic's lien was established against that property because the owner was not divested “of possession, use or enjoyment of [the owner's] property;” therefore, the alleged property interest of the owner was not entitled to procedural due process protection.[32] Ventura Corp. is also worthy of attention because it explained that under Missouri's “first spade rule,” a lien dates “from the visible commencement of work,” and that the filing of a lien does not create a new lien, but merely records “the account for which the lien . . . is claimed.”[33]
Mennonite specified that the interested persons who were entitled to personal notice must be reasonably ascertainable, and that mortgagees whose identities are not in the public record are not entitled to exact extraordinary efforts from the state in giving them notice.[34] Someone's identity is reasonably ascertainable when they can be identified through “reasonably diligent efforts.”[35] InSchroeder v. City of New York, the Supreme Court of the United States noted that both deed records and tax rolls made an un-notified party 'readily ascertainable' for purposes of a constitutional obligation to notify; while this may support the proposition that searches of more than two public record sources may be required to satisfy due process, it is unclear from the text of that case whether the relevant name and addresses were both on the deed records or tax rolls, or on the contrary whether both the deed records and the tax rolls were necessary to ascertain the relevant name and addresses.[36] Due process notice may also be required to be sent more than once, if the government knows that certified mail went unclaimed.[37] Actual knowledge of the identity of a creditor, distinct from mere reasonable ascertainability, appears to also trigger a requirement of personal notice.[38]
III. Instant Decision
The court held that when a lien has been properly filed as Missouri law requires, the lien-holder's name and address are reasonably ascertainable and therefore personal notice, rather than notice by publication, is required to satisfy due process.[39] The court reasoned first that, following the constitutional due process notice requirements outlined in Mullane v. Central Hanover Bank & Trust,[40] parties with a substantial interest in a particular action are entitled to “notice reasonably calculated, under all of the circumstances, to apprise” them of the matter.[41] For parties whose names and addresses were easily accessible, publication notice was not found to meet the due process standard.[42] The court evaluated similar precedent regarding the due process notice requirement.[43] Next, the court found that Beemer and Seal-O-Matic's mechanic's liens constituted a substantial property interest sufficient to entitle them to personal notice.[44] The court then decided that the names and addresses of Beemer and Seal-O-Matic were reasonably ascertainable, because they complied with a Missouri statute on mechanic's lien filings that resulted in the names and addresses being on public record, and the mere search of two different public record sources was not an unreasonable burden to put on the Director of Collections.[45] Because a mechanic's lien is a substantial property interest protected by the notice requirements of Fourtheenth Amendment due process, and Beemer and Seal-O-Matic's names and addresses were reasonably ascertainable through a public record search, personal notice was required to be given to Beemer and Seal-O-Matic.[46] Because that notice was not provided, the trial court's decision to set aside the tax sale to Realty was affirmed.[47]
A concurring opinion was given by Judge Paul C. Wilson.[48] He agreed with much of the majority opinion, but disagreed as to when a mechanic's lien actually becomes a legally protected property interest.[49] While the majority did not think that a judgment on a filed mechanic's lien was required for a substantial property interest to exist,[50] the concurrence, after looking to state statute[51] and precedent,[52] considered only a mechanic's lien judgment to create a “legally protected property interest on which due process protections depend.”[53] However, because Beemer and Seal-O-Matic's mechanic's lien judgments, rather than their mechanic's lien filings or claims, occurred before notice of the tax sale was given, the concurrence agreed in the conclusion that Beemer and Seal-O-Matic had a property interest that entitled them to personal notice, and thus the trial court's decision should be affirmed.[54]
IV. Comment
It should be emphasized that the court's holding in In re Foreclosure Liens was limited to an evaluation of mechanic's liens.[55] The requirement of personal notice under the due process clause of the Fourteenth Amendment here is a logical and natural extension of precedent from the Supreme Courts of the United States and Missouri. The majority's reference to the priority of mechanic's liens over most other liens seems to suggest that, in future cases, a security interest's priority as compared with other claims might affect a Missouri court's determination of whether that interest is substantial enough to merit personal notice under the Due Process Clause when that security interest is threatened by government action. The majority seems to have adequately countered the concurrence's position that a mechanic's lien claim does not receive due process protection until it has been judged on; while both majority and concurrence cite Ventura Corp., the language from that case supports the idea that the lien arises when work is commenced on the property, not when the lien is filed.
Considering the outcome, this decision prevented Realty from obtaining a “windfall” from the tax sale; the aggregate amounts of the mechanic's liens held by Beemer and Seal-O-Matic far exceeded the price for which Realty purchased the property. Thus, this case represents a neat coincidence in which the result dictated by precedent was also the result that treated the parties equitably.
- Rich Byrd
[1] In re Foreclosure Liens v. Realty Acquisition, LLC, 453 S.W.3d 746,748 (Mo. 2015) (en banc). The full case name is: In the Matter of Foreclosure Liens for Delinquent Taxes by Action in Rem: Collector of Revenue, by and through the Director of Collections for Jackson County, Missouri, Respondents, v. Parcels of Land Encumbered with Delinquent Land Tax Liens; Realty Acquisition, LLC.
[2] Id.
[3] Id. at 749.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id. at 756.
[9] Id. at 748.
[10] Id. at 748-749.
[11] Mo. Rev. Stat. § 429.080.
[12] Id. at 749.
[13] Id. at 749.
[14] Id. at 749.
[15] Id. at 749.
[16] Id. at 749.
[17] Id. at 749.
[18] Id. at 749.
[19] 339 U.S. 306 (1950).
[20] Id. at 314, 318; see In re Foreclosure Liens, 453 S.W.3d at 751.
[21] 462 U.S. 791 (1983).
[22] In re Foreclosure Liens, 453 S.W.3d at 752.
[23] Id. at 752 (quoting Mennonite Bd. of Missions, 462 U.S. at 798).
[24] Id. (quoting Mennonite Bd. of Missions, 462 U.S. at 798, 800).
[25] Lohr v. Cobur Corp., 654 S.W.2d 883, 887 (Mo. 1983) (en banc).
[26] In re Foreclosure Liens for Delinquent Land Taxes by Action in Rem, Maximilian Invs., 190 S.W.3d 416, 420 (Mo. App. 2006).
[27] 899 S.W.2d 868, 869 (Mo. 1995) (en banc).
[28] New Brunswick Sav. Bank v. Markouski, 587 A.2d 1265, 1275 (N.J. 1991).
[29] Williams v. Kimes, 949 S.W.2d 899, 899, 901 (Mo. 1997) (en banc).
[30] Sneil, LLC v. Tybe Learning Ctr., Inc., 370 S.W.3d 562, 572 (Mo. 2012) (en banc).
[31] See Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950) (“Nor do we consider it unreasonable for the State to dispense with more certain notice to those beneficiaries whose interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to knowledge of the common trustee.”).
[32] Home Bldg. Corp. v. Ventura Corp., 568 S.W.2d 769, 773 (Mo. 1978) (en banc).
[33] Id.
[34] Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 800, n.4 (1983).
[35] Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995).
[36] Schroeder v. City of New York, 371 U.S. 208, 210 (1962).
[37] Jones v. Flowers, 547 U.S. 220, 230 (2006).
[38] Chemetron Corp., 72 F.3d at 346.
[39] In re Foreclosure Liens v. Realty Acquisition, LLC, 453 S.W.3d 746, 751 (Mo. 2015) (en banc)
[40] 339 U.S. 306 (1950).
[41] In re Foreclosure Liens, 453 S.W.3d at 751 (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)).
[42] Id. at 752 (citing Mullane, 339 U.S. at 318).
[43] Id. at 752-753.
[44] Id. at 753-754.
[45] Id. at 757-758.
[46] Id.
[47] Id. at 759 (Wilson, J., concurring).
[48] Id. (Wilson, J., concurring).
[49] Id. (Wilson, J., concurring).
[50] Id. at 754.
[51] Id. at 759 (Wilson, J., concurring).
[52] Id. at 760 (Wilson, J., concurring); see Rosenzweig v. Ferguson, 158 S.W.2d 124, 128 (Mo. 1941).
[53] Id. (Wilson, J., concurring).
[54] Id. (Wilson, J., concurring).
[55] In re Foreclosure Liens v. Realty Acquisition, LLC, 453 S.W.3d 746, 751, n.8 (Mo. 2015) (en banc) (“this Court does not address, which, if any, other types of liens or interests in property similarly are entitled to personal notice under due process principles.”).
