On July 3, 2012, the Missouri Supreme Court released two opinions that clarify the procedure by which purchasers of tax certificates at the annual August sales may obtain deeds to the tax-delinquent property. Both cases illuminate section 140.405 of the Revised Statutes of Missouri with respect to the content and timing of notices (“redemption notices”) required to be sent to the delinquent taxpayer (and others, such as lienholders) so that the tax sale purchaser can obtain a deed to the property for which the purchaser has paid the delinquent taxes and received a “certificate of purchase” which I refer to here as a tax certificate. These new decisions apply to first-year sales and second-year sales, not third-year sales, which have different redemption rules.
Tag Archives: Missouri Supreme Court
After a real estate foreclosure in Missouri, lenders often sue the borrower and any guarantors, seeking a “deficiency judgment,” which is the difference between the price paid at the foreclosure sale and the amount owed, which includes the costs of the foreclosure sale. Often there is no bidder at the buyer at the foreclosure sale, so whatever amount the lender bids is accepted without challenge.
Next, the lender sues the borrower (and any guarantors) for the difference between the lender’s bid and the amount owed. The borrower always wishes that the lender’s bid had been high enough to equal the amount owed, so that the amount of the deficiency would be eliminated. But the lender has no incentive to bid higher than the minimum amount needed to recover the property. A Missouri court, under existing judicial decisions, cannot use its equitable power to adjust the amount of the deficiency unless the borrower proves the existence of fraud, unfair dealing or mistake in the conduct of foreclosure sale. There is no clear standard for determining the existence of “unfair dealing”; sales have been upheld when as little as 10% of fair market value has been offered.
In a recent case from the Eastern District of the Missouri Court of Appeals, First Bank v Fischer & Frichtel, Inc., the borrower acknowledged that the court had no power to adjust the amount of the deficiency, but asked the Court of Appeals to transfer this case to the Missouri Supreme Court, for consideration of adopting a different rule of law, such as the rule that allows court would be able to determine the foreclosed property’s fair market value, without the necessity of proof of fraud, unfair dealing or mistake in the sale proceedings. This alternate rule is applied in several other states.
Following Missouri Supreme Court Rule 83.02, the Court of Appeals ordered that this case be transferred to the Missouri Supreme Court “because of the general interest or importance of a question involved in the case or for the purposes of reexamining existing law.”
This question is important for several reasons, in my opinion:
- There is no clear guidance in the law to assist foreclosing lenders in setting the amount that they will bid; this situation is an invitation for bids to be low, unless there are other bidders.
- Because of the unprecedented number of properties being foreclosed, and the inability to quickly resell foreclosed property, there are relatively few bidders, whose bids would ordinarily establish the fair market value.
- Lenders, facing the prospect of incurring expenses indefinitely for holding the foreclosed property (taxes, mowing, security, insurance, prevention of freezing pipes, etc.), bid low, and hope to collect on a deficiency judgment, maybe not now but at some future time when the borrower recovers financially. If courts have no power to determine whether a bid (from a lender or a third party) is in some sense fair, lenders have a clear incentive to bid less than the property is worth.
But does the absence of bidders mean that many foreclosed properties have no value? Perhaps not individually, but marginally. Most investors have all the property they need; nobody needs another vacant rent house or strip center. Investors and other potential buyers are content to let the foreclosing lenders hold the foreclosed properties until the market is ready to absorb them.
Why should the Missouri Supreme Court, rather than the legislature, address this issue? Rules of law in a representative democracy should be made by those elected to be lawmakers. The Missouri General Assembly has not addressed this issue, though the inequities of the present foreclosure statutes have been long apparent. Perhaps the General Assembly will take a look at a solution. The court or the legislature needs to hear from representatives of lenders, appraisers, consumer advocates, title insurers, and lawyers to create procedures that provide more fairness.
If a homeowner association doesn’t have the power to impose liens to collect delinquent assessments for common expenses, the HOA is unable to perform its responsibilities. Often, no other entity has the legal authority to fill the gap in insuring, maintaining, repairing and replacing common properties such as streets, water and sewer facilities, clubhouses and pools, etc., which were the responsibility of the original HOA.
Many Missouri HOAs are dissolved by operation of law, having failed to file annual reports with the Missouri Secretary of State. Often a new HOA is formed, but a series of Missouri court decisions have made clear that the new HOAs lack any authority to perform the functions of the old HOA, unless there is an assignment of the old HOA’s powers to the new entity. I’ve summarized those court opinions here, including an update on Debaliviere Place Association v. Steven Veal, in which the Missouri Supreme Court reviewed a lower appellate court decision on April 12, 2011, changing the result and remanding the case for a new trial.
The Missouri Supreme Court’s opinion, written by Judge Michael A. Wolff, clarifies that a defunct HOA, even though it has been dissolved for more than 10 years, still has the power to assign its rights to collect assessments, impose liens and enforce covenants. This new opinion overruled a court of appeals opinion that had indicated that a defunct corporate HOA was a non-entity after it had been dissolved for 10 years, lacking the power to do anything. This new opinion is based on Missouri’s statute 355.691, which allows a dissolved non-profit corporation to “wind up and liquidate its affairs,” transferring its assets and liabilities.
Judge Wolff’s analysis limited the effect of a now repealed Missouri statute (section 355.507), which prohibited any non-profit corporation from coming back to life after it had been dissolved for at least 10 years, at which time its corporate charter is permanently forfeited. Even though the 10-year limit has been repealed, it still applies to many HOAs that had been dissolved before its repeal.
For new HOAs which need to establish their authority, the recording in the county land records of an assignment from the old HOA to the new HOA of the old HOAs powers will be effective, unless the objecting owner can prove that the assignment is made without authority, an a contention that Veal did not assert against Debaliviere.
Four justices of the Missouri Supreme Court wouldn’t help Bhatti recover his property, which had been sold by the City of St. Louis in an effort to collect Bhatti’s delinquent property taxes. These justices reckoned that Bhatti was obligated to know whether letters that he never received were reasonably calculated to reach him and inform him that he was losing his property.
The court’s majority opinion pointed out crucial facts that kept the court from applying the due process rules which were set out by the United States Supreme Court in a series of decisions, most recently in Jones v. Flowers, a 2006 decision.
At trial, Bhatti failed to provide evidence to indicate that the sheriff had reason to know that the mailed notices were not reaching Bhatti.
In a motion for a new trial based on newly discovered evidence, Bhatti provided the envelopes marked “return to sender” which the sheriff’s office had received. Bhatti’s motion for a new trial was rejected, because Bhatti did not show the court that the returned envelopes were not available at the time of the first trial.
Bhatti also argued that the evidence of the returned notices to him were a part of the fat file that was included in the trial exhibits. The Missouri Supreme Court stated that the trial court was under no obligation to sort through a fat file to find documents that would help Bhatti — it was up to Bhatti (or his attorney) to call the trial judge’s attention to specific documents that would support Bhatti’s case.
In its conclusion, the Missouri Supreme Court lectured Bhatti on three points, only one of which is based on law (which I have put into separate paragraphs):
The Court regrets the result in this case. But Owner’s loss of his real estate is the result of his multiple acts of negligence.
- First, he was negligent in failing to pay his real estate taxes for three years…
- Second, Owner provided an incorrect address for the purpose of notification of real estate taxes due, and he never updated his address….
- Third, when pursuing his constitutional rights in our court system, he failed to follow United Supreme Court authority that requires him to show that the notice sent to him was not reasonably calculated to apprise him of the pendency of the action against him.
The lessons from this lecture are clear:
- If you own property and are not receiving a tax bill for it, you need to contact the tax collector.
- The Missouri Supreme Court expects a person to know whether or not a notice not received is “reasonably calculated to apprise him of the pendency of the action.”
Negligence of the property owner is not a part of the constitutional law in due process cases. The court’s remarks about Bhatti’s negligence are gratuitous, but perhap provide a moral underpinning to the dissent’s position that focused on the City’s lack of effort in getting notices to Bhatti.
Justice Wolff’s dissent, supported by justices Stith and Teitelman, notes that the government spent a total of $1.28 in postage to send notices to Bhatti, even though the government is obligated to send notices that are “reasonably calculated to apprise him of the judgment of foreclosure, the forclosure sale and the confirmation hearing.” The government knew that Bhatti didn’t receive the notices, but still sold Bhatti’s property to collect $7,600 in taxes.
The City of St. Louis had another address for Bhatti, which Bhatti used on his building permit applications. Wolff indicated that the City should have also sent a notice to this alternate address, rather than only to the vacant building which Bhatti was fixing up.
Wolff also argues that the City’s tax lien foreclosure ordinances, as implemented, do not provide due process.The City, having the returned mail sent to Bhatti, should not benefit from the presumption that mail has been received.
Earlier this year, I wrote that the Eastern District of the Missouri Court of Appeals, in City of Sullivan v. Sites, had struck down an ordinance of the City of Sullivan that established a higher tap fee for connecting to the city’s sewer main in a particular part of town. The voters of the City of Sullivan had approved a $3.3 million bond issue to extend sewers to a part of the city without sewer service. The city’s board of aldermen adopted an ordinance imposing a connection fee in the newly-served area that was higher than the connection fee charged in the remainder of the city.
The Sites trust challenged the constitutionality of the ordinance establishing the higher connection fee, claiming that the ordinance violated Article III, section 40(30), which prohibited the passage of local or special laws where a general law would suffice. A general law relates to persons or things as a class, while a special or local law relates to particular persons or places.
However, Missouri Supreme Court’s opinion in City of Sullivan v. Sites, reversed the Court of Appeals decision and affirmed the trial court’s decision upholding the ordinance. The Supreme Court reviewed court decisions that recognize that prohibitions against special or local laws “should not prevent necessary geographic classifications premised on legitimate distinguish characteristics.” The Supreme Court determined that the Site trust’s property was not singled out, but was a part of a geographic area n area that was defined as a class.
The Supreme Court held that “the city was justified in creating the class of new sewer connections charged higher connection fees,” having demonstrated good financial and practical reasons for requiring property in the newly-served area, noting that the imposition of higher fees in the new area “contributed to the City’s ability to fund the sewer project as a whole.”
The Missouri Supreme Court today ordered the release of Dwight Laughlin, who was convicted in 1993 of burglary and property damage crimes at the post office in Neosho, Missouri in State ex rel Laughlin v. Bowersox. You can read the briefs here.
At Laughlin’s trial in 1993, his attorney failed to Read the rest of this entry