M & P Enterprises, Inc. v. Transamerica Financial Services

• Court: Missouri Supreme Court
• Writing for the Court: HOLSTEIN; BENTON, PRICE, LIMBAUGH, ROBERTSON and COVINGTON, JJ., and LAURA DENVIR STITH; WHITE
• Citation: M & P Enterprises, Inc. v. Transamerica Financial Services, 944 S.W.2d 154 (Mo. 1997)
• Decision Date: 29 April 1997
• Docket Number: No. 79108,79108
• Parties: M & P ENTERPRISES, INC., Appellant, v. TRANSAMERICA FINANCIAL SERVICES, et al., Respondents.

Page 154

944 S.W.2d 154

M & P ENTERPRISES, INC., Appellant, v. TRANSAMERICA FINANCIAL SERVICES, et al., Respondents.

No. 79108.

Supreme Court of Missouri En Banc.

April 29, 1997.

As Modified on Denial of Rehearing

May 27, 1997.

Phillip K. Gebhardt, Maryland Heights, for Appellant.

Andrew R. Kasnetz, Dale Barken Glazer, St. Louis, for Respondents.

HOLSTEIN, Chief Justice.

The purchaser of real property at a delinquent sale appeals entry of a partial summary judgment in favor of respondents on three counts of the purchaser's petition and the dismissal of two remaining counts. The principal question presented is whether a recorded deed of trust is extinguished by a third tax sale where the lien holder had no written notice before the sale, but was given post-sale notice of a purported right to redeem the property. This Court has jurisdiction because the constitutionality of chapter 140, RSMo, ¹ which governs tax sales, is at issue. Mo. Const. art. V, § 3. Because chapter 140 does not allow lien holders to redeem property after a third tax sale, such sale cannot, consistent with due process, extinguish the lien of the holder of a recorded deed of trust unless the lien holder is given notice by mail or personal service before the sale. The judgment of the trial court is affirmed.

I.

On January 17, 1986, Larry and Valerie Stranz borrowed $21,378 from Transamerica Financial Services, Inc. (the lender) secured by a residence located at 128 Becker Drive in St. Louis County. The Stranzes executed a promissory note in favor of the lender to repay the original principal with interest at an annual percentage rate of 19.44%. As security for payment of the loan, the Stranzes executed a deed of trust granting a security interest in the property to Leslie A. Davis (the trustee), as trustee for the lender. Though the deed of trust is silent as to which party is responsible for the payment of the property tax, the Stranzes agreed to pay all taxes accruing against the property under the terms of the promissory note referenced in the deed of trust. The deed of trust was recorded in the records of St. Louis County on January 24, 1986.

When the 1986 loan was made, the property was subject to a recorded deed of trust dated November 5, 1968, which secured a loan held by Gershman Investment Corporation. On January 24, 1986, the date the lender's deed of trust was recorded, the lender paid off in full the 1968 deed of trust from the proceeds of its loan. A full deed of release of the 1968 deed of trust dated May 5, 1986, was recorded in the records of St Louis County. At the time of the recording of the full deed of release, the promissory note secured by the 1968 deed of trust was produced and canceled.

The Stranzes failed to pay real estate taxes due on the property for the years 1988 through 1992. After publishing notice in a local newspaper of general circulation, the collector of revenue first offered the property for sale at a delinquent tax sale on August 26, 1991. No one purchased the property at the first offering. Following publication of notice, the property was offered for sale a second time on August 24, 1992. Again the property was not sold.

On August 23, 1993, following publication of notice, the collector of revenue sold the property to M & P Enterprises (the purchaser) at a third offering for $3,703. Prior to the 1993 delinquent tax sale, the collector of revenue mailed notice of the sale and taxes due to the Stranzes. The lender did not receive prior written notice of the third tax sale either by mail or by personal service. The collector of revenue issued a collector's deed for taxes to the purchaser dated August 23, 1993, which was subsequently recorded in the records of St. Louis County. The collector of revenue also issued a receipt to the purchaser for the purchase price of the property. The receipt contains the following disclaimer:

The Supreme Court of Missouri has determined that deeds of trust, mortgages and other security interests may not be extinguished by tax sales pursuant to Chapter 140, R.S. Mo., 1978, but instead may remain in full force and effect. The St. Louis County Collector of Revenue shall, upon this sale, transfer only such interests as he, the Collector, possesses, and the Collector makes no warranties, guaranties, or other affirmations as to the title to be transferred by this sale.

This same disclaimer was also published in the newspaper along with the listing of properties to be sold at the 1993 tax sale.

The purchaser interpreted § 140.250 and § 140.405 as providing a ninety-day right of redemption to lien holders after the third tax sale. Accordingly, by letter dated September 13, 1993, the purchaser notified the lender that it had a right to redeem its lien on the property by December 13, 1993. By letter dated December 8, 1993, the lender tendered to the collector of revenue the sum of $3,869 for redemption of its lien on the property. The collector of revenue refused the lender's tender of payment, apparently interpreting chapter 140 as not allowing redemption by lien holders after a third tax sale.

On August 15, 1994, the purchaser filed a five-count petition to obtain court confirmation of its tax deed, to quiet title, and for other relief, which is the subject of this appeal. The trial court concluded that the deed of trust was not extinguished by the third tax sale and decreed it to be in full force and effect. Accordingly, the trial court entered a partial summary judgment in favor of the lender and trustee on Counts I, II and III and dismissed Counts IV and V as to those defendants.

II.

The Jones-Munger Act (chapter 140, RSMo) provides for the annual sale of real property on which payments of property taxes have been delinquent. § 140.150.1. Prior to the sale, the county collector must publish notice once each week for three consecutive weeks. § 140.170.1. In August of each year, the county collector conducts a delinquent tax sale. § 140.150.1. If, at the first offering, no one bids a sum equal to the delinquent taxes thereon with interest, penalty and costs, a second offering is made the following August. § 140.240.1. If no one submits an adequate bid at the second offering, a third offering is made the following August, and the property is sold to the highest bidder. § 140.250.1. Counties are authorized to bid at third offering delinquent tax sales to prevent loss to the taxing authority from inadequate bids. § 140.260.1.

A first or second tax sale is followed by a two-year redemption period during which the "owner or occupant of any land or lot sold for taxes, or any other person having an interest therein, may redeem the same" by paying the county collector the purchase price plus cost of the sale and interest. § 140.340.1. The county in turn remits the payment to the purchaser of the property at the tax sale. Id.

The purchaser at a first or second offering acquires a certificate of purchase. § 140.290.1. The "holder of a certificate of purchase, throughout the two years immediately succeeding the tax sale, is vested with an inchoate or inceptive interest in the land subject to the absolute right of redemption in the record owner in whom the title remains vested." State ex rel. Baumann v. Marburger, 353 Mo. 187, 182 S.W.2d 163, 165 (1944). Legal title does not vest in the purchaser until the period of redemption has lapsed and the sale is consummated by the purchaser exercising the right to have legal title transferred. Id. 182 S.W.2d at 165-66. If no one redeems the property during the statutory redemption period, the county collector executes to the purchaser a deed to the property, which vests in the grantee an absolute estate in fee simple. § 140.420.1.

As the Jones-Munger Act was originally enacted in 1933, the owner or occupant of any property sold for taxes--whether at a first, second or third offering--had a two-year right to redeem their interest in the property. 1933 Mo. Laws 432-33. However, in 1939 the statute was amended to eliminate the two-year redemption period for property sold at a third offering tax sale. 1939 Mo. Laws 851-52.

Under the Jones-Munger Act, prior notice of the sale of property for delinquent taxes is solely by publication. The statute does not require that prior mailed notice be sent to lien holders of record. See §§ 140.030, 140.150, and 140.170. Prior to the decision of the United States Supreme Court in Mennonite Board of Missions v. Adams, 462 U.S. 791, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983), constructive notice by publication alone was held to comport with the requirements of due process under the theory "that those with an interest in property were under an obligation to act reasonably in keeping themselves informed of proceedings that affected that property." Id. at 804, 103 S.Ct. at 2714 (O'Connor, J., dissenting).

Mennonite Board of Missions brought about a significant change in the notice procedures required to enforce the state tax lien. "When the mortgagee is identified in a mortgage that is publicly recorded, constructive notice by publication must be supplemented by notice mailed to the mortgagee's last known available address, or by personal service." Id. at 798, 103 S.Ct. at 2711. Accordingly, this Court, citing Mennonite Board of Missions, held that the notice-by-publication procedure of the Jones-Munger Act was insufficient to satisfy the due process rights of a publicly recorded deed of trust holder: "We conclude that where a deed of trust naming the deed of trust beneficiary is publicly recorded, notice by publication alone is insufficient and must be supplemented by notice mailed to the beneficiary's last known available address or by personal service." Lohr v. Cobur Corp., 654 S.W.2d 883, 886 (Mo. banc 1983).

In an apparent response to the Mennonite Board of Missions and Lohr decisions, the General Assembly of Missouri attempted to cure the constitutional defect in the Jones-Munger Act by...