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February 20, 2015 Practice Points

Mechanic's Lien Claimants Entitled to Due Process Notice of Tax Foreclosure Sale

The Supreme Court of Missouri upheld a trial court’s decision

by Robert M. Pitkin

The Supreme Court of Missouri has upheld a trial court’s decision that mechanic’s lien claimants are entitled to notice of a tax foreclosure sale involving property covered by their liens under the Due Process Clause of the 14th Amendment of the Constitution and accordingly upheld the setting aside of the tax foreclosure sale to Realty Acquisition, LLC, the appellant.( In the Matter of Foreclosure Liens for Delinquent Taxes by Action in Rem: Collector of Revenue, by and through the Director of Collections for Jackson County, Mo. v. Parcels of Land Encumbered with Delinquent Land Tax Liens; Realty Acquisition, LLC, --- S.W.3d --- , 2015 WL 195897 (Mo. banc Jan. 13, 2015))

Respondents Beemer Construction, Inc. and Seal-O-Matic Paving were unpaid subcontractors on a residential development owned by Sunnypointe, LLC. Both Beemer and Seal-O-Matic timely filed valid mechanic’s liens against the development in 2007: $164,879.76 by Beemer and $187,494.80 by Seal-O-Matic. A timely mechanic’s lien foreclosure action was then filed against the property. There were no unpaid taxes at the time of the mechanic’s liens or the filing of the foreclosure action.

While the mechanic’s lien case was pending, the director of collections for the county filed a separate tax foreclosure action in 2010 and a judgment of foreclosure in the tax case was entered against Sunnypointe for unpaid taxes totaling less than $500. Neither Beemer nor Seal-O-Matic was a party to the tax foreclosure case and they were not aware that it had been filed. The property was sold to Realty at the tax foreclosure sale in 2011 for $51,000. The collector notified Sunnypointe and its lender of the tax foreclosure sale before it occurred, but not Beemer or Seal-O-Matic.

Immediately after finding out about the tax sale, Beemer and Seal-O-Matic entered appearances in the tax foreclosure action to oppose confirmation of the tax sale, arguing that the failure to give them prior personal notice of the tax sale violated their due process rights because of their interest in the property represented by their respective mechanic’s liens. The trial court set aside the tax sale as null and void and Realty appealed. Following an opinion by the court of appeals affirming the trial court, the Supreme Court granted transfer.

Realty argued on appeal that the collector was only required under Mo.Rev.Stat. § 141.540 to provide prior notice of the tax sale to the owner (Sunnypointe) and that the only notice required for mechanic’s lien claimants was publication notice under Mo.Rev.Stat. § 141.540.3. Beemer and Seal-O-Matic argued that their mechanic’s liens constituted substantial property interests that entitled them to due process protection, including the giving of personal notice by mail of the tax sale.

In what appears to be a case of first impression in the United States, the court agreed with Beemer and Seal-O-Matic. Specifically, the court held that the principles underlying decisions of the U.S. Supreme Court similarly require notice of a tax sale be given by mail, rather than merely by publication, to a holder of a mechanic’s lien on land subject to the tax sale when the lien has been properly filed with the clerk as required by Missouri law and the holder’s name and address thereby are reasonably ascertainable.

As noted above, this appears to be a case of first impression in the United States. Following prior U.S. Supreme Court precedent involving owners and lenders, the case firmly establishes that mechanic’s lien claimants are similarly entitled to be notified of a tax sale so that they—like owners and lenders—can protect their interests in the property.

Robert M. Pitkin is with Horn Aylward & Bandy, LLC in  Kansas City, MO.

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