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: real estate
Missouri Western District Court of Appeals just affirmed a trial court’s judgment in a way that will resound with homeowners’ association (HOA) boards across the state, many of which are struggling to raise sufficient revenues to take care of streets and amenities, even though many of the developer-owned lands that benefit from the streets are apparently exempt from assessments.
Lenders that have foreclosed on developers may find that this opinion undermines the lenders’ ability to claim to enjoy the developer’s exemption from assessments on lender-owned land. Parties purchasing land from lenders, hoping to have the status of the former developer, may find themselves heavily in debt to the HOA, perhaps blaming the lenders who sold them the land.
In Woodglen Estates Association v. Dulaney, Dulaney obtained 17 parcels of land from the FDIC. This land had once been owned the original developer Braeman, then passed through the hands of a few different parties, before ending up with the FDIC, which had taken the parcels of land from a failed bank.
The Woodglen Estates Association hired an auditor to review its finances. The auditor discovered that land owned by Dulaney had not been assessed for several years. The association then sued Dulaney, and Dulaney asserted two defenses:
- As successor to the original developer, Dulaney should be exempt from assessments on land it owned.
- Much of the land that Dulaney owned in Woodglen was in “parcels,” not having been subdivided into “units,” so that it should not be assessed.
The appellate court looked at the line of Missouri case law that holds that the special rights and privileges of a developer, typically reserved in the declaration of covenants for the subdivision, do not automatically pass with ownership of the developer’s real estate. These rights, called “developer rights,” “declarant rights” or “development rights,” may be assigned, but a party claiming to hold these rights has to be able to prove to have acquired them by assignment. Dulaney had no proof of assignment of declarant rights.
To make matters worse for Dulaney, the Woodglen declaration did not contain an exemption for the developer’s real estate–which is a common feature of declarations–and the appellate court noted that developers do not receive an automatic exemption. Under current Missouri law, other than in condominiums, a developer may lawfully reserve an exemption from assessment for its own real estate. The original developer simply failed to create the exemption when filing the declaration and made the mistake of including land in the declaration that was not ready to be developed.
Dulaney argued that its “parcels” were not subject to assessment, since only “units” and “unit owners’ could be assessed. The appellate court noted that some of the declaration’s provisions were ambiguous when addressing the respective rights of owners of units and parcels, but the assessment provisions were clear: “each owner shall be obligated to pay to the Board such sum as shall have been established….,” without distinguishing between owners of units and parcels. The legal description attached to the declaration had included Dulaney’s parcel, placing this land under the provision of the declaration.
For lenders, the lesson is that any loan documents for a development loan should include a security interest in the declarant rights, and any documents showing the recovery of the developer’s real estate should include a specific assignment of the declarant rights. When the lender sells the former developer’s property, the conveyances to the purchaser should include the assignment of declarant rights. These issues are covered in more detail in this essay.
By Missouri statute, the recording a document relating to real estate in the office of the county recorder of deeds gives notice to all of the contents of the recorded document (called an “instrument”):
Every such instrument in writing, certified and recorded in the manner herein prescribed, shall, from time of filing the same with the recorder for record, impart notice to all persons of the contents thereof and all subsequent purchasers and mortgagees shall be deemed, in law and equity, to purchase with notice.
Is lack of recording notice that something did not occur, even though it should have been recorded?
According to the Missouri Court of Appeals, in the case Warren County Concrete v. Peoples Bank & Trust and Warren County Title Company, purchaser of real estate had no duty to check to see whether a release of a deed of trust had been recorded, even though the purchaser had provided the money to pay off the deed of trust to a title company that closed the transaction.
The purchaser claimed to have no idea that the bank had not released the deed of trust until four years later, when the purchaser received a notice that the bank was foreclosing on the property. A year later — more than five years after the purchaser closed its purchase of the property — the purchaser filed a lawsuit against the bank and the title company, alleging that they were obligated to record the release.
The bank and title company claimed that the five-year statute of limitations period had run for negligence and breach of contract, and the purchaser was out of luck. The trial court agreed.
The purchaser appealed, claiming that the statute of limitations only began to run when the purchaser became aware that he had been wronged, which would have been the date the notice of foreclosure was delivered to the purchaser.
In the appeal, the bank and the title company argued that the purchaser should have checked the recorder’s office after the closing to make sure that the release had been recorded. The appeals court reversed the trial court’s judgment, stating that the burden of searching the public records after the closing was “a duty we are unwilling to place on the purchaser.”
The Court of Appeals was probably influenced by the injustice that would result when a purchaser hires a title company to close a transaction and provides money to pay off an existing loan, but the title company fails to follow up to make sure that the lender receives the payoff and records a proper release.
The Court of Appeals’ opinion isn’t specific about the reason for the mix-up, but it looks like the bank recorded a release after receiving the payoff, but that the release described a different piece of real estate than the piece that purchaser bought.
If you want to stop a homeowners association from collecting assessments or enforcing restrictions, often the best tactic is to smear the HOA.
Here’s how the smear works. Read the rest of this entry
Capital Bank asked the Taney County Sheriff to sell Rocky’s, a popular Italian restaurant in Branson, to satisfy a judgment awarded by an Arkansas court against the owner of the restaurant. Judge Orr stopped the sheriff’s sale, because the restaurant land and building were owned by Mr. and Mrs. Charles Barnes, while the Arkansas court’s judgment was against only Mr. Barnes. The Missouri Court of Appeals affirmed Judge Orr’s ruling in an opinion dated February 2, 2009.
I had a great lunch at Rocky’s on February 3, so I’m glad that a bank didn’t take over the restaurant.
In Missouri and several other states, a married couple can own property as though they were one person, in a form of ownership called “tenancy by the entirety.” In Missouri, a tenancy by the entirety is presumed to have been created when a deed to a married couple uses the words “husband and wife” after their names, if they are in fact married. A deed is a written document, signed by the grantor(s), which is evidence of the intent of the grantor to convey property to the grantee(s).
The holding of the Barnes case does not break new ground, but it explains why careful lenders usually insist that a personal guaranty and deed of trust (mortgage) be signed by each spouse, otherwise the collateral may not be reachable. Generally, the tenancy by the entirety form of ownership will stop even the IRS from seizing the property of a married couple for taxes owed only by one spouse.
From the borrower’s point of view, holding real estate as tenants by the entirety can be a good idea. A limited liability company (LLC) or corporation is created as an operating entity for a small business,which leases real estate from the husband and wife. The husband and wife are protected from personal liability for business debts that they have not personally guaranteed. The lease income is not subject to self-employment tax.
An additional question is whether the LLC membership interests or corporate shares should be held by both husband and wife, as tenants by the entireties or whether each should own half or whether some other form of ownership is desirable. Answering this question requires careful analysis by a lawyer, estate planner and tax advisor working together.
At least once a month, I get a call–usually a referral from a title company–about a problem caused by a contract for deed transaction. I wince, because the people who sell or buy under contracts for deed usually are people who don’t like working with lawyers, which makes my job harder. The people needing help for a problem that is difficult to assess and to fix often want to know exactly how much it will cost and how long it will take to fix. I could have prevented the problem in a couple of hours for $500 or less by configuring the transaction with a note and deed of trust or a lease with purchase option.
Now, fixing the problem it will require a lawsuit that could drag on for a couple of years or even longer. Legal fees and costs will be at least $2,000, but more likely $5,000 to $10,000.
If the property has been paid for under the contract for deed, but the seller has meanwhile died or become incapacitated due to Alzheimer’s or a stroke, solving the problem may require a probate or guardianship proceeding which may involve a nasty fight among the seller’s heirs.
If the buyer has defaulted, but won’t relinquish possession or has recorded some kind of claim in the county land records, a judicial foreclosure or quiet title suit and an unlawful detainer suit may be required. Sometimes the buyer, who has recorded the claim, is hard to find, and the best that we can do is get a default judgment based on service by publication, so the title is still uninsurable for years after the legal procedure to fix it.
I’ve added an article here to explain some of the problems I have encountered with contracts for deed.
Over the next several months, many investors and lenders will be looking at busted projects and trying to make the best of them. I’ve added a Law Article to this site, which I’ll keep updating as I learn new strategies, called “Working with troubled real estate developments.”
As with all my other writings, this article is primarily based on my experiences in Missouri, though some of this one comes from my time spent in the 1980s, working with troubled real estate in Oklahoma, after the successive crashes of the oil and gas, banking and real estate sectors.
I’d appreciate your comments.
My law firm clients are asking me what I expect. They know that I represent a variety of real estate developers active in the area around Branson and Table Rock Lake, where the pace of sales of single-family homes and condo units seemed to slow in early 2008 then nearly stop altogther by mid-2008. My name has shown up in newspapers and public records in relation to my representation of creditors of several large, distressed projects.
When my clients ask me about the future, my first reactions are how would I know and am I really being asked if my other clients are hurting, too? Many of them are hurting, badly.
Here are my ideas about the prospects for 2009: Read the rest of this entry