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

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)

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

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

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.

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