Daily Development for
Friday, November 21, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; FORECLOSURES; JUDICIAL FORECLOSURE; NOTICE: Mortgagee's failure to comply with statutory notice provisions in a foreclosure proceeding will not preclude relief absent a specific offering of proof that the mortgagor lacked actual notice of the action.

First Bank v. Neset, 559 N.W.2d 211 (N.D. 1997).

Mortgagor executed a note and mortgage which fell into default several times. When resolution was lacking after the last default, mortgagee filed to foreclose. It took a default foreclosure judgment and foreclosed. Mortgagor in this action was attempting to set aside the foreclosure. Mortgagor argued that mortgagee failed to comply with the applicable publication notice statute and that mortgagor had not received personal notice of the foreclosure proceeding.

The mortagee, claimed to have complied in full with a different notice statute. One statute (the one used by mortgagee) was the general in rem notice provision, requiring publication notice and mailing to the residence. The second statute, for special statutory actions, had similar provisions that were harder in some ways and softer in others. The court held that the statutes were not in conflict, but actually supplemental to each other. Either was sufficient.

The mortgagor then invoked a North Dakota statute permitting a party to set aside a default judgment if the party had a colorable defense and lacked actual notice. The court ruled that mortgagor's vague assertions regarding failure of notice were insufficient to show that actual notice was lacking. It noted that the mortgagor had received notice in connection with prior defaults, that a number of notices in connection with this proceeding had been mailed to mortgagor's residence, and that mortgagor was a licensed practicing attorney who therefore had special knowledge of the applicable rules. Thus, carefully worded denials of certain notice, without denials of certain notice, as opposed to all notice, indicated to the court that there most likely was, in fact, actual notice sufficient to avoid application of the statute. Certainly the mortgagor had not carried the burden of showing otherwise.

Comment 1: When the editor first read this case, he was puzzled that a court would permit a judicial foreclosure to occur on a state resident without service of process. Isn't there a Constitutional problem here? David Achtenberg, jurisdiction and pleading professor at UMKC Law School, set the editor straight.

A foreclosure is an in rem proceeding. Jurisdiction over the action is established simply by publication. There is no reason to have service of process. That little feature, as a Constitutional matter, is required only to demonstrate jurisdiction over a transient person - to demonstrate that the state could in fact arrest that person if required, since it could "reach out and touch" him. As a matter of federal Due Process, service of process is not required for a variety of actions, including in rem matters.

Comment 2: On the other hand, fair notice of a proceeding affecting one's property is required under Mullane v. Central Hanover Bank & Trust, the classic due process notice case. But this kind of notice does not require service of process. The Supreme Court has held that, at least in limited circumstances, registered mail is constitutionally adequate, even in cases involving in personam jurisdiction.. Hess v. Pawloski, 274 U.S. 352 (1927) Mailed notice is sufficient, for instance, for condemnation proceedings. power (personal jurisdiction) is the presence of the property within the forum. While the constitutional adequate notice requirement does apply in in rem proceedings as well, the Court has held that mailed notice is adequate, at least in condemnation proceedings. Walker v. City of Hutchinson, 352 U.S. 112 (1956). Compare: Greene v. Lindsey, 456 U.S. 444 (1982) (holding that posted notice of eviction from public housing is not adequate where there was evidence that such notices were often torn off doors).

Comment 3: State courts may require more formal actual notice, even in in rem proceedings. They also may provide that failure to provide such notice is jurisdictional, and that actual notice is not a substitute. See, e.g. Chaplin v. Superior Court, 81 Cal. App. 367 (1927). But North Dakota apparently doesn't see things that way. So long as the mortgagor did not establish lack of actual notice, failure to provide formal notice, even if that existed in this case, would be insufficient to set aside the foreclosure.

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