by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

CONSTITUTIONAL LAW; DUE PROCESS; PROCEDURAL DUE PROCESS; NOTICE: Proceeding that creates a special assessment lien with priority over existing mortgage is not a proceeding to which mortgagee is entitled to constitutional notice because the imposition of the lien does not constitute an impairment of the value of the underlying real property to the detriment of a mortgagee where the property in question was benefitted by the improvements paid for by the special assessment. Zipperer v. City of Fort Myers , 41 F.3d 619 (11th Cir. 1995). Zipperer held a mortgage interest in real property on which the City of Fort Myers made certain improvements. The City levied special assessments to pay for these improvements. After the improvements were completed, the mortgagor failed to pay his pro rata assessment for the improvements, and the City filed a lien on the mortgaged property, giving no notice to Zipperer as mortgagee. Thereafter, Zipperer foreclosed on the mortgaged land and purchased it.

Zipperer filed suit to reverse the subordination of his mortgagee's interest (now a title interest) to the assessment lien, claiming that the action creating the special assessment and its associated "super priority" lien impaired the value of his property interest without any opportunity to be heard. He cited Mennonite Bd. of Missions v. Adams, 462 U. S. 791 (1983), in which the Supreme Court set forth the proposition that a mortgagee is entitled to notice reasonably calculated to apprise him or her of a pending tax sale because, under Indiana law, a mortgagee possesses a protected property interest that is adversely effected by a tax sale,. The court here distinguished Mennonite. It stated that , had there been a tax sale of the mortgaged property which nullified Zipperer's entire interest as mortgagee, it is true the Zipperer's interest would have been diminished drastically as in Mennonite. However, in this case Zipperer not only retained a significant interest in the land even after its subordination to the special assessment, but also Zipperer reaped the benefit of the improvements made by the City.

The court also stressed the fact that the mortgagor in this case had requested the assessment proceeding resulting in the liens. It stated that mortgagors or mortgagees should be able to contest an assessment proceeding only "if is so palpably punitive or arbitrary as to confer no benefit on the landowner."

The court cites FDIC v. City of New Iberia, 921 F.2d 610 (5th Cir. 1991) as a case more or less on all fours with the case at hand.

Comment: The court's result may be correct, but its focus seems askew. We are talking here about a denial of due process notice. A landowner entitled to constitutional notice should not be subject to burdens imposed on his land absent such notice. To conclude that, in retrospect, the landowner is not injured by the government action looks past the fact that the government action might not have occurred at all had the landowner had the opportunity to participate. Most special assessment proceedings involving individual allocation of burden give a right to affected homeowners to participate in the process and to receive individual notice. This probably is a right of constitutional proportion. The court's reasoning proves too much in that it suggests that no one - neither mortgagee nor mortgagor, should be entitled to notice.

To the extent that the court focusses only on the rights of the mortgagee, it perhaps is on more solid ground. It may be argued that the right to request and acquiesce in a public assessment is an emblement of ownership that is retained by the mortgagor, even if it results in a subordination of the mortgagee. After all, the mortgagee took its mortgage (one assumes) with at least constructive knowledge of the existing super priority lien possibilities, and did not limit the ability of the mortgagor to request them. In many jurisdictions, including Missouri, it would be possible for a landowner to subject the property to superpriority mechanic's liens that "prime" the first mortgage without notice being sent to the first mortgagee.

What would happen if the mortgage did provide that the mortgagee had the exclusive right to participate in assessment proceedings and the mortgagee recorded a declaration of that right? If personal notice is given at all, wouldn't the mortgagee have the right to it?

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