Daily Development for Wednesday, January 12

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

FORECLOSURE; VALIDITY; NOTICE DEFECTS: As contingent remaindermen are "owners" entitled to notice pursuant to state's foreclosure statutes, foreclosure sale without such notice is void, and foreclosure sale purchasers are entitled to a refund of the purchase price for the property in order to return the purchasers to their "ex ante" position prior to the sale.

Williams v. Kimes, 996 S.W.2d 43 (Mo. 1999).

A Missouri property was devised to the testator's daughter "and her bodily heirs, in fee simple". Upon the testator's death, his estate granted a deed of trust secured by the property to a bank in order to pay estate taxes. The loan then went into default, then into a foreclosure in which the bank gave notice only to the estate and to the devisee. Fatally, no notice was given to the devisee's bodily heirs, the contingent remaindermen.

Restating a previous opinion in this case, (949 S.W.2d 899 (Mo. 1997)) the court found that the contingent remaindermen were statutory "owners" entitled to actual notice of the pending foreclosure sale, thereby rendering the sale substantially defective and void without proper notice. The foreclosure purchasers again sought the refund of their purchase price on second remand, which had been again denied by the lower court.

The lower court reasoning, apparently, was that the failure to notify the remainderpersons was a risk assumed by the foreclosure purchaser. In an earlier decision, the bank advertised sale of a fee simple interest, but held only a life estate. The foreclosure purchaser was held to have taken the risk that the bank's interest was not a fee. Caveat emptor.

But the Missouri Supreme Court reasoned that, unlike the precedent case, here the foreclosure process was completely void. The lack of notice to an "owner" rendered the entire sale, even that of the life tenant's interest, a nullity. The foreclosure purchasers were without fault in the foreclosure trustee's failure to give notice. Unlike the prior case, they did not strike a "bargain" to take whatever the lender could give them. They rightfully expected a legal foreclosure. Therefore, the court concluded, the purchasers are to be returned to their "ex ante" position prior to the foreclosure sale by receiving a refund of the property's purchase price.

Comment 1: The editor concurs that the living presumptive heirs of the a named party ought to be treated as "owners," the same as contingent remainderpersons. But the editor mght quarrel with the notion that these persons are indeed the holders of a contingent remainder. Speaking off the cuff, without his copy of Simes handy, the editor suspects that a remainder to "the heirs of A" is contingent remainder held by "unascertained persons," and that the "presumptive heirs" are not yet the identified parties. Consequently, technically their interest would not to be deemed a property interest per se.

The reason that the interest was a contingent remainder in this case apparently stems from the fact that the grant was "to A for life, remainder to the heirs of her body." In order to reduce the long term title impacts of fee tails, the Missouri courts have converted the fee tail into a life estate followed by a contingent remainder in surviving heirs. Mattingly v. Washburn, 196 S.W. 2d 624 (Mo. 1946). Consequently, modern definitional approaches have created a contingent remainder in this particular case.

Comment 2: Note the holding that, although notice was given to the life tenant, the sale of the life tenant's interest also was avoided. If the editor reads the court's reasoning correctly, the result would be different if the notice defect affected an interest other than an "ownership" interest. If, for instance, the notice defect had been a failure to notify a holder of an ancillary interest, such as a lessee, presumably the court would have followed precedent and the purchasers would have been stuck, even though they were equally innocent of the problem, and even though the lease substantially reduced the value of the property foreclosed.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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