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

MORTGAGES; FORECLOSURE; PRIVATE FORECLOSURE; NOTICE: Under power of sale statute requiring written notice to "owners," holders of contingent remainders as unascertained bodily heirs of life tenant are entitled to notice.

Williams v. Kimes, 1997 WL 340741 (Mo. 1997).

This important decision by a state supreme court interprets a statutory provision that is quite common in private foreclosure states. Further, the language is not unlike that used in the proposed federal foreclosure statute that has been discussed in these pages in the past.

The statute provides that written notice be provided "to the person shown by the records in the office of the recorder of deeds to be the owner of the property as of forty days prior to the scheduled date of the foreclosure sale at the foreclosing mortgagee's last known address for said record owner."

The property in question had been mortgaged by the executor following the death of the prior owner. At the time, the owner's estate was in probate, with the devisee under the decedent's will designated as "Reba Wrather LaFont and her bodily heirs." The court applied established Missouri law to construe this devise to mean that the living presumptive bodily heirs of Reba Wrather LaFont had contingent remainders. Since they would not be heirs until they survived Reba Wrather LaFont, the contingency was that they survive. Of course, further heirs might be borne prior to Wrather's death as well.

The court held that the term "owner" under the statute should be "broadly defined . . . to include any person beneficially interested in property." Thus, the living presumptive heirs, since they were "owners" of contingent remainders, were "owners" of the property under the statute. The fact that another provision of the statute provides that persons with an interest in the property can request notice by filing a request in the land records was of no consequence; non-owners might take advantage of this provision, but "owners"are entitled to notice automatically.

The consequence of its ruling, the court concluded, was that the foreclosure was valid to transfer to the foreclosure purchaser the life estate of the devisee life tenant (who did get notice of the foreclosure), but not the fee title. Since that life tenant had since died, her heirs were entitled to immediate possession of the property.

Comment 1: There is much to say about this opinion. First, note that the court does not discuss the fact that the trustee's deed (presumably) included the statutory recital that the provisions of the statute had been met, which makes the title presumptively valid in the hands of a bona fide purchaser. The original deed of trust beneficiaries bought at the sale and still had the property. Presumably they would not qualify as bona fide purchasers, so there was no need to evaluate this issue. But should inadequate notice to interest holders render the title void, even in the hands of bfp's, as it would if we were dealing with Constitutional Due Process considerations?

Comment 2: Of course, ever since the notice statute was enacted about twenty years ago, conventional wisdom in Missouri has been to provide written notice to everyone known to have an interest in the property. Further, the editor has no problem with defining fee remainderpersons as "owners." But the court goes beyond this in its definition of "owners" to include holders of "any beneficial interest."

A statutory requirement of notice to all persons "having a beneficial interest in the property" at the last known address, can provide some interesting validity issues. Are easement holders covered? What about holders of rights under covenants binding the property? And, of course, what about tenants? Junior lienholders? The editor knows that the drafters of the statute viewed all of these parties as "non-owners" who were entitled to notice only if they asked for it. The court (abeit in dicta) apparently disagrees.

Note that, although the impact of the ruling would be to require notice to senior interest holders as well, the only apparent impact of non-notice is that their interest is not affected. Therefore failure to notify them will have no consequence that wouldn't occur if they were notified.

Comment 3: Usually the owner of the principle possessory interest in the property is known to the beneficiary. Often it is the party who is supposed to pay on the deed of trust note. But these other interest holders are not likely to be that easy to find. What standard applies to determine whether notice has been provided to "the last known address?" Some state courts have held that this sets the Mullane due process standard - which means you really have to look.

Comment 4: The Missouri statute permits the beneficiary to give the notice, and this happens with some regularity. But if the trustee (or the attorney for the beneficiary) gives the notice, what are the liability consequences for failure to chase down an address for these various interest holders?

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