Daily Development for Wednesday, June 11,
2003 by: Patrick A. Randolph,
Jr. Elmer F. Pierson Professor of
Law UMKC School of Law
Of Counsel: Blackwell Sanders Peper
Martin Kansas City, Missouri
dirt@umkc.edu
CONSTITUTIONAL LAW; DUE PROCESS; STATE
ACTION: Party acquiring property at tax
foreclosure sale is not instrumentality of the state and owes no due process obligation to the owner of the
property or persons in occupancy of the
property.
Winstock v. Van Stile, No. 01-2482 (6th Cir.
5/08/03) http://www.michbar.org/opinions/home.html?/opinions/us_appeals/20
03/060603/19232.html
Plaintiff resided with his father his father's real
estate. Taxes were not paid, and
the real estate was sold at a tax foreclosure sale. No
argument was raised in this case
concerning the validity of the sale itself. Defendant was the successful bidder at the sale, and, a little over
a year after the sale, obtained a final
tax deed. The following year, plaintiff initiated a quiet title action and obtained a default
judgment.
Thereafter, plaintiff established himself as
co-conservator of his father and sought
unsuccessfully to have the quiet title judgment set aside or
amended.
Having failed to remedy the situation in state court,
plaintiff filed an action in federal
court predicated upon a claim of denial of federal
constitutional rights in that defendant did not
provide proper notice to plaintiff, who
had a possessory interest in the property, as required by
Michigan law.
Michigan statutes require that the party prevailing at
a tax sale must provide notice to the
record owner and to parties in possession of the property
that a tax sale has been held and, unless they object
within six months, a final deed will be
issued to the tax sale purchaser.
Plaintiff alleged that defendant did not provide such
notice to him, and that he was a "party
in possession" within the meaning of the statute.
Presumably plaintiff did not succeed in making this
argument in state court, perhaps because
he was barred by the default judgment. In any
event, he here argued that the failure to provide
such notice constituted a breach of his
federal constitutional right to due process, protected under
U.S. C. Sec. 1983, and that defendant either was a
governmental instrumentality or acted
"under color of law" within the meaning of Section 1983.
The Sixth Circuit here held that the defendant was a
private party and did not owe an
obligation to provide due process to the plaintiff. It
further concluded that the state court,
in issuing the quiet title order, was simply confirming the private property rights of the defendant, and was
not facilitating the denial of due
process rights. It acknowledged, of course,
that the tax foreclosure process was an exercise of
governmental power, but concluded that
such process was completed upon the issuance of the
tax deed, and that thereafter the rights being
asserted were private in character.
Of course, this left open the question of the validity
of the tax foreclosure process. The
court tells us very little about this. The editor's best
reading of the opinion, which he found
confusing in this particular, was that the court concluded that defendant was not required to provide the
statutory notice to plaintiff because
plaintiff was not an occupant of the property, although plaintiff lived there. The true "occupant" of
the property was the plaintiff's father,
who also lived there, and presumably defendant had
taken steps to notify the father. There had
been arguments in the trial court as to
whether plaintiff, who alleged he did maintenance work in
exchange for the right to reside there, was a "tenant
at will" with a property interest or a
"gratuitous licensee." The appeals court concluded
that the characterization was irrelevant, because in
either event plaintiff held entirely
through his father.
The court went on to say that the use of state
officials to assist defendant in securing
his property rights did not convert essentially a private
process into "governmental action." This would
certainly be true of the quiet title
action, as stated above, and this may be all the court is
saying. It may, be however, the court is
also saying that the issuance of the tax deed was not a governmental action. The court relied upon its
opinion in Northrip v. FNMA, 527 F. 2d
23, 6th Cir. 1975), where it held that when the sheriff conducts a foreclosure sale under a private power of
sale, there is no "government action"
triggering due process rights.
The court held that plaintiff's right of possession,
in any event, did not rise to the level
of a property interest because plaintiffs status derived
solely from his parents and their right to possess
the property.
Comment 1: The court gets off to a strong start when
it concludes that the quiet title action
simply was confirming private property rights, and did
not implicate any governmental action in terminating
any property interest of plaintiff.
It was correct in concluding that plaintiff's real
complaint, if any, was with the foreclosure sale
process.
After that, however, the opinion appears to lose
direction. Had it concluded simply
that plaintiff had no independent property interest
because he was not a tenant, but a licensee, it would
have been home free. This may have
been the direction taken by the court below. Instead, the court seemed to conclude that plaintiff had no
property interest even if he was a tenant
simply because his rights derived from his parents. This strikes the editor as incorrect. A
tenant does have a property interest and
a constitutional right to protection of that interest.
What if, for instance, plaintiff had held a 99 year
ground lease and had built a shopping
center on the property? Would we conclude that the
property could be terminated without notice or
hearing by a governmental process such as
a tax foreclosure? If the landlord also maintained an office on the property, would we conclude that the
tenant was not in possession? It
seems to the editor that characterization of the plaintiff's interest is critical.
Of course, in this case, it should be noted that even
if the plaintiff was a tenant at will,
that interest was terminable either when the landlord
transferred his interest or when the transferee
elected to terminate the interest.
Consequently, we would get to the same place in either event,
but the question is one of notice and opportunity to
be heard during the process, not of final
outcome.
Comment 2: The court's resuscitation of its Northrip
holding also is a bit problematic.
Many scholars would not agree with the conclusion that the
action of a public official in carrying out a
foreclosure sale is not government
action. See Turner v. Blackburn, 389 F.S. 1250 (1975).
The question is whether the function of
the public official is purely "ministerial" or vital to the process. Perhaps it could be
said that the mere receipt of bids at an
auction is a ministerial act, but in fact conducting an auction often involved a great deal of discretion on
issues of postponement, acceptability of
bids, etc. Further, if notice is also part of the auctioneer's job, we have an extended involvement of
government officials in the deprivation
of title.
In the instant case, the public official's job is to
issue the tax deed upon receipt of an
affidavit of compliance with the notice requirements.
Does the official have discretion to
refuse issuance of the deed if the official concludes that the affidavit is false and that notice requirements
have not been met? If so, then the
editor would argue that we have a "state action" deprivation of title, and due process rights are
involved.
Comment 3: The most important case on the question of
whether governmental involvement in
confirming termination of property interests creates federal constitutional rights is the U.S. Supreme
Court decision in Flagg Brothers v.
Brooks, 98 S. Ct. 1729 (1978), which shot down most of the then current theories supporting the claim
that governmental assistance in
confirming private contract rights in "self help" foreclosure established "governmental action." The case
involved warehousemen's liens, and not a
private power of sale foreclosure or a tax deed confirmation, but it usually is cited, as it was in the
instant case, to establish that a high
threshold is required to establish government action. In fact, in a recent Hawaii challenge to the power of
sale process based upon "pervasive
government regulation" of the home lending industry, the Ninth Circuit, no less, concluded that Flagg Brothers
is still good law and precludes any
arguments relating to governmental involvement in power of sale foreclosures generally. Apao v.
Bank of New York, No 01-16565 (9th Cir.
4/4/03) Neither case, however, entirely forecloses the notion that where a government created
procedure involves public official at
critical junctures, there cannot be state action.
Further, neither case would appear to have much to
do, really, with a process that, from the
outset, involves the collection of state tax revenues
through the creation and enforcement of a right to
establish and foreclose upon a statutory
property tax lien.
Consequently, in this case, if indeed the state courts
were to conclude the MIchigan tax
foreclosure proceedings involved no notice to parties with
leasehold interests, we'd likely have a
Constitutional issue. But here all that is happening is the confirmation of post sale rights. In
many jurisdictions, the tax deed is
issued right at the sale. Here, the further
requirement that there be some notice of a "last
chance" right to appear and object to the
issuance of the tax deed may not involve fundamental
constitutional interests. If the state courts
decide that the language of the statute
has been complied with, then one would assume that there is no
federal Constitutional issue. So the case
appears to be correctly decided, but the
editor, obviously, continues to ruminate about implications.
Readers are encouraged to respond to or criticize this
posting.
Items reported on DIRT and in the ABA publications
related to it are for general information purposes only and should
not be relied upon in the course of representation or in the forming of
decisions in legal matters. The same is true of all commentary
provided by contributors to the DIRT list. Accuracy of data provided
and opinions expressed by the DIRT editor the sole responsibility of
the DIRT editor and are in no sense the publication of the
ABA.
Parties posting messages to DIRT are posting to
a source that is readily accessible by
members of the general public, and should
take that fact into account in evaluating
confidentiality issues.
ABOUT DIRT:
DIRT is an internet discussion group for
serious real estate professionals.
Message volume varies, but commonly runs
5 - 15 messages per work day.
Daily Developments are posted every work day.
To subscribe, send the
message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the
message signoff DIRT to the
address:
listserv@listserv.umkc.edu
for information on other commands, send the
message Help to the listserv
address.
DIRT has an alternate, more extensive coverage that
includes not only commercial and general
real estate matters but also focuses upon residential real estate
matters. Because real estate brokers generally find this service
more valuable, it is named "BrokerDIRT." But residential specialist
attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list.
If you subscribe to BrokerDIRT, it is not necessary also to subscribe to
DIRT, as BrokerDIRT carries all DIRT traffic in addition to the
residential discussions.
To subscribe to BrokerDIRT, send the
message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the
message signoff BrokerDIRT to the
address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar
Association Section on Real Property,
Probate & Trust Law and the
University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law,
UMKC School of Law, but Professor
Randolph grants permission for copying or
distribution of Daily Developments for
educational purposes, including professional continuing education, provided that
no charge is imposed for such distribution
and that appropriate credit is given to
Professor Randolph, DIRT, and its
sponsors.
DIRT has a WebPage at: http://www.umkc.edu/dirt/
Members of the ABA Section on Real Property,
Probate and Trust Law or of the National
Association of Realtors can subscribe to a quarterly hardcopy report that
includes all DIRT Daily Developments, many other cases, and periodic
reviews of real estate oriented literature and state legislation by
contacting Antonette Smith at (312) 988 5260 or
asmith4@staff.abanet.org |