Federal Deposit Ins. Corp. v. Morrison

• Decision Date: 27 November 1984
• Docket Number: No. 83-7561,83-7561
• Citation: 747 F.2d 610
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff-Appellant, v. Grady P. MORRISON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 610

747 F.2d 610

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate

capacity, Plaintiff-Appellant, v. Grady P. MORRISON, Defendant-Appellee.

No. 83-7561.

United States Court of Appeals, Eleventh Circuit.

Nov. 27, 1984.

William D. Hudson, Howard B. Warren, Gadsden, Ala., Thomas S. Richey, Atlanta, Ga., for plaintiff-appellant.

Romaine S. Scott, III, Inge, Twitty, Duffy & Prince, Mobile, Ala., amicus curiae, for Alliance Mortgage Co.

James S. Hubbard, Anniston, Ala., for Morrison.

Appeal from the United States District Court for the Northern District of Alabama.

Before HILL and HENDERSON, Circuit Judges, and WISDOM ^*, Senior Circuit Judge.

ALBERT J. HENDERSON, Circuit Judge:

The Federal Deposit Insurance Corporation (FDIC) appeals from dismissal by the United States District Court for the Northern District of Alabama, 568 F.Supp. 1240, of its suit for a deficiency judgment. We reverse and remand.

On August 4, 1979, the appellee, Grady P. Morrison, and his employee, Dorothy Ray, jointly owned real estate in Ohatchee, Calhoun County, Alabama. On that date they executed an assignable Note and Security Agreement, mortgaging their property to the East Gadsden Bank in Etowah County, Alabama. Although Ray already had moved onto the property, she gave the bank her outdated Etowah County address and phone number. Morrison supplied neither a number nor an address, even though for twenty-eight years he had received his mail at a post office box in Bynum, Calhoun County, Alabama. The contract specified that if the note should become delinquent, the mortgagee could foreclose on the property after giving notice of the time, place and terms of sale once a week for three successive weeks in a Calhoun County newspaper. Upon execution of the agreement, Morrison deeded his ownership interest to Ray, who purchased it with her proceeds from the note. The district court found that Morrison, in selling his interest to Ray, intended to convey it subject to the mortgage, thereby retaining his rights and obligations as a mortgagor. ¹

Sometime around August of 1980, Ray married, quit her employment with Morrison and moved to Florida, leaving the bank no forwarding address. ² By December 31, 1980, the note was in arrears. On that date the Superintendent of Banks for the State of Alabama closed East Gadsden Bank. The FDIC became receiver and purchased certain bank assets, including the delinquent note. Attempting to contact the mortgagors with respect to their default, the FDIC wrote to the outdated Etowah County address. The postal service returned these letters stamped "Authorized time for forwarding expired." In reply to a further request for the new address, the postmaster reported "No address." Morrison did not receive actual notice of default or of the FDIC's plan to foreclose. The district court found that a simple inquiry in the area of Ohatchee would have revealed the whereabouts of Morrison.

After publishing the notices required by the Note and Security Agreement, the FDIC held a foreclosure sale on April 2, 1982. The agency's lone bid of $15,640.00 prevailed, and Morrison's debt was reduced by this amount. In June, 1982, Morrison's attorney contacted the FDIC to inquire about the loan. The FDIC replied that it had foreclosed and leased the property to tenants who held a purchase option exercisable one year after the foreclosure date. The attorney reported these facts to Morrison. On August 20, 1982, the FDIC filed a complaint for the balance of the debt. Morrison did not offer to pay the debt and redeem the property until August 1983, over sixteen months after the foreclosure. The tenants had exercised their option. On August 17, 1983, the date of trial, Morrison's total deficiency was $6,461.67. ³

In defense of this suit for his current liability on the note, Morrison does not dispute the amount. He does not claim that the FDIC breached the contract or violated Alabama law. Rather, he argues that by foreclosing without affording him a hearing the agency has violated the Due Process Clause of the fifth amendment to the Constitution. ⁴ Morrison suggests that suspension of his responsibility for the debt would cure this violation. The district court agreed, citing Mennonite Board of Missions v. Adams, 462 U.S. 791, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983) as authority therefor.

In response to Morrison's defense, the FDIC pointedly declines to urge that in this case it has performed only a proprietary function not subject to due process requirements. ⁵ Indeed, the agency admits that in liquidating this asset of a failed bank it has performed a governmental function. ⁶ Instead the appellant first notes that under Alabama law Morrison's right to redeem the property after foreclosure was, though somewhat more limited, quite similar to his right before foreclosure. From this premise the FDIC reasons that foreclosure did not deprive him of any property. Alternatively, the agency asserts that the Due Process Clause does not apply because the agency has refrained from exercising governmental powers against Morrison. Finally, the FDIC claims that due process required no more than was provided here. We need not reach these questions.

The fifth amendment guarantees due process only to those deprived of life, liberty or property. E.g., American Druggists Insurance Company v. Bogart, 707 F.2d 1229 (11th Cir.1983); Wells Fargo Armored Service v. Georgia Public Service Comm'n., 547 F.2d 938, 941 (5th Cir.1977). Precise definition of any property at stake is crucial to determining whether the government has deprived the owner. Property rights " 'are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law--rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.' " Parratt v. Taylor, 451 U.S. 527, 529 n. 1, 101 S.Ct. 1908, 1910 n. 1, 68 L.Ed.2d 420, 425 n. 1 (1981) (quoting Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548, 561 (1972)).

Morrison, having sold his rights under the deed, and conceding he has received his every entitlement arising directly from the Note and Security Agreement, turns to Alabama law as the source of his property rights. Under Alabama common law, execution of a mortgage passes legal title to the mortgagee, leaving the mortgagor only his equity of redemption. Payment of the debt revests title in the holder of the equity of redemption, which Alabama treats as a property interest transferable by deed. Foreclosure marks the end of this property right. Foster v. Hudson, 437 So.2d 528 (Ala.1983); Trauner v. Lowrey, 369 So.2d 531, 534 (Ala.1979); Mallory v. Agee, 226 Ala. 596, 147 So. 881 (1932). Upon foreclosure, Morrison gained a statutory right of redemption under Ala.Code Sec. 6-5-230 (1975). This statutory right, though similar to the equity of redemption, is generally less valuable. Section 6-5-231 establishes a system of notice and priorities among the persons eligible to exercise that right. Even if the mortgagor himself is the first to attempt redemption, he must not only satisfy the requirements of the mortgage but also those of Sec. 6-5-235, which mandates additional payments for permanent improvements, taxes and liens on the property. The statutory right of redemption "is a personal privilege, not a [transferable] property right," which lasts only for one year beginning on the date of foreclosure. Foster, 437 So.2d at 529; Brown v. Bateh, 362 So.2d 841 (Ala.1978).

We agree with Morrison's assertion, undisputed by the FDIC, ⁷ that Alabama's equity of redemption and statutory right to redeem constitute property protected by the fifth amendment. The Due Process Clause "has been read broadly to extend protection to 'any significant property interest.' " Fuentes v. Shevin, 407 U.S. 67, 86, 92 S.Ct. 1983, 1997, 32 L.Ed.2d 556, 573 (1972) (quoting Boddie v. Connecticut, 401 U.S. 371, 379, 91 S.Ct. 780, 786, 28 L.Ed.2d 113, 119 (1971)). Thus, the guarantee extends to property rights less substantial than full legal title, whether they come from a private contract, Fuentes, 407 U.S. at 86-87, 92 S.Ct. at 1997, 32 L.Ed.2d at 573, or state law. 407 U.S. at 86, n. 16, 92 S.Ct. at 1997, n. 16, 32 L.Ed.2d at 573, n. 16. Even a merely arguable right of possession constitutes property. Id. A "person's interest in a benefit is a 'property' interest for due process purposes if there are ... rules ... that support his claim of entitlement to the benefit and that he may invoke at a hearing." Perry v. Sindermann, 408 U.S. 593, 601, 92 S.Ct. 2694, 2699, 33 L.Ed.2d 570, 580 (1972). These redemption powers, the FDIC acknowledges, entitled Morrison to the benefit of regaining full legal title immediately upon compliance with the specified financial requirements.

Bolstering our conclusion that these rights are significant rights is Justice Brandeis' longstanding and oft-cited ⁸ opinion for a unanimous Court in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). There the Court struck down Congress' attempt under the Frazier-Lemke Act to bestow on farmers rights which frustrated their mortgagees' exercise of preexisting foreclosure powers. Justice Brandeis found that the Act as applied resulted in a taking of property.

[The Act's] avowed object is to take from the mortgagee rights in the specific property held as security; and to that end "to scale down the indebtedness" to the present value of the property. As here applied it has taken from the Bank the following property rights recognized by the law of Kentucky:

1. The right to retain the lien until the indebtedness thereby secured is paid.

2. The right to realize upon the security by a judicial public sale.

3. The right to determine when such sale shall be held, subject only to the discretion of the court...