Today's Trends in Credit Regulation

State Notice Requirements and Constitutional Due Process
By Latif Zaman

Foreclosure of any kind can be a convoluted process involving idiosyncratic state laws. The variety of applicable notice requirements for foreclosure sales across the states greatly complicates credit servicing, distressed investing, and the provision of legal services. An additional factor to consider in foreclosure proceedings is whether state notice requirements satisfy constitutional due process rights. A recent case decided before the Missouri Supreme Court discussed that particular issue in the context of a tax foreclosure. In Foreclosure Lien for Delinquent Taxes v. Parcels of Land, the court considered whether notice by publication, as required by Missouri state law, satisfied the constitutional due process rights of a mechanic's lien holder. Here is what happened.

Sunnypointe, LLC owned a parcel of real property in Missouri. Sunnypointe hired Beemer Construction Company and Seal-O-Matic Paving Company to install sanitary sewers and asphalt paving, respectively. Sunnypointe failed to pay the contractors, and the contractors filed mechanic's liens against the property. Sunnypointe also failed to pay taxes on the property, and eventually the Director of Collections for Jackson County sued for foreclosure. The court allowed a tax foreclosure action. Jackson County published a notice, and sent a personal notice to Sunnypointe, but did not send notice to the contractors who had filed the mechanic's liens. Neither contractor was aware of the publication notice prior to the occurrence of the tax sale. Realty Acquisition, LLC purchased the property at the tax foreclosure sale.

After learning about the sale, the contractors 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 as holders of mechanic's liens on the property. The trial court set aside the tax sale as null and void. The purchaser, Realty Acquisition, LLC, appealed. An appellate court and then the Supreme Court of Missouri affirmed the trial court's ruling.

The Missouri Land Tax Collection Law, in section 141.540, sets out the statutory requirements for notice of tax sales. Section 141.540.5 states that the county collector must provide notice by certified, registered, or restricted mail of the tax sale to:

[T]he persons named in the petition as being the last known persons in whose names tax bills affecting the respective parcels of real estate described in said petition were last billed or charged on the books of the collector, or the last known owner of record, if different, and to the addresses of said persons upon said records of the collector.

Section 141.540.6 states that the county collector "may, at his or her option" provide certified, registered, or restricted mail notice to a mortgagee or security holder. Missouri statutes do not require notice by mail to any other persons, instead requiring only generalized publication notice by posting the tax sale notice in the county courthouse and on the property, and by publishing notice in certain newspapers. See Mo. Rev. Stat. §§ 141.540.1, 141.540.3, 141.540.4.

However, the Missouri Supreme Court noted that the "fact that Missouri statutes do not specifically require mail notice of a tax sale to holders of mechanic's liens is not dispositive of whether the publication notice given here was adequate." The court explained that notice provisions prescribed in state statutes may not be constitutionally sufficient for due process purposes.

It then discussed whether due process requires personalized notice to those holding mechanic's liens. In its consideration of this issue the Missouri Supreme Court looked to two cases decided by the United States Supreme Court. The first, Mullane v. Central Hanover Bank & Trust, 339 U.S. 306, 70 S. Ct. 652, 94 L. Ed. 865 (1950), stated that an "elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all of the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." In Mullane, the United States Supreme Court concluded that beneficiaries to a trust had a substantial interest in the trust's judicial settlement and thus publication notice was inadequate to satisfy due process as to beneficiaries for whom the trustee had easy access to names and addresses.

The Missouri Supreme Court also looked to Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 103 S. Ct. 2706, 77 L. Ed. 2d 180 (1983), where the United States Supreme Court determined that mortgagees involved in a tax sale had a substantial interest in the proceedings and were therefore extended the same due process protections established in Mullane. The reasoning of the U.S. Supreme Court in Mennonite was in part based on the fact that the lien benefitting a mortgagee (1) is given priority over most other subsequent security interests, and a purchase money security interest is given priority even over prior security interests; and (2) a tax sale diminishes or nullifies the mortgagee's lien interest. Mennonite, 462 U.S. at 798.

The Missouri Supreme Court noted that the Missouri legislature has similarly provided that the holder of a mechanic's lien has a lien on the structure or real property subject to the mechanic's lien and it has given the mechanic's lienholder priority over almost every other type of lien. See Foreclosure Lien for Delinquent Taxes v. Parcels of Land citing Mo. Rev. Stat. §§ 429.010; 429.060. As such, the court determined that a mechanic's lien creates a substantial property interest which is significantly affected by a tax sale and is subject to due process protection. Under constitutional due process, notice must be reasonably calculated to reach a party whose name and address is reasonably ascertainable. It was uncontested that the names and addresses of the contractors were in the records of mechanic's liens maintained by the clerk of Jackson County. As a result, the Missouri Supreme Court determined that the contractors were entitled to personal notice. Because the contractors did not receive notice, the court determined that the trial court properly set aside the tax sale in question.

While the Missouri case concerns a mechanic's lien and a tax sale specifically, the analysis could potentially impact other types of foreclosures and elucidates how complicated the process can be. The case demonstrates that following the letter of statutory law does not guarantee that a sale will not be unraveled if a constitutional protection is not met. Creditors, servicers, and real estate investors would be well-served to look at the foreclosure process holistically, with an eye towards issues such as due process rights being satisfied.

Foreclosure Lien for Delinquent Taxes v. Parcels of Land, 2015 Mo. LEXIS 6 (Mo. January 13, 2015).

Latif Zaman is an associate in the Maryland office of Hudson Cook, LLP. Latif can be reached at 410-782-2346 or by email at

Article Archive

2024   2023   2022   2021   2020   2019   2018   2017   2016   2015   2014   2013   2012   2011   2010   2009  

Copyright © 2024, LLC. All rights reserved.