Bulletin: LA2010003

Dear Associates:

Under the law in effect prior to January 1, 2009, tax sales conveyed title to property assessed from the delinquent tax payer to a purchaser, and in default of a successful bidder, to the taxing authority itself. These latter are often called "adjudicated properties." This divestiture for failure to pay ad valorem tax has been most narrowly construed by the Louisiana judiciary and in several cases the judiciary has declared such divestitures void ab initio when statutory formalities and notice had not been met. See Sutter v. Dane Investments, Inc. , 985 So. 2d 1263 (4th Circuit, 2008), writ denied, 996 So2d 1091 (La.); Nicholas v. Richardson, 573 So2d 1317 (3rd Cir. 1991) C & C Energy, L.L.C. vs. Cody Inv., L.L.C., 21 So 3d 417 (2d Circuit. 2009); and Tietjen v. Shreveport, 2010 WL 1581 (La. May 11, 2010). It appears that the Louisiana judiciary is much more protective of tax debtors than their federal brethren have been in Mennonite Board of Missions, v. Adams, 462 U.S. 791 (1983) and its progeny. We will address tax sales under the new law in effect for 2009 in a future Bulletin.

Act 2008, No. 819 repealed prior law, and set forth a new category of "tax sale title." Now R.S. 47:2286(B) provides that "No tax sale shall transfer or terminate the property interest of any person in tax sale property or adjudicated property until that person has been duly notified..." and applicable redemptive periods have passed. Under R. S. 47:2121 (B) the tax debtor's property interest does not terminate until both notification and expiration of the redemption period. Basically, the new statute puts the burden on the tax purchaser to notify the tax debtor. The theory of the new law is that a "due process" issue will not arise at the moment of a "tax sale title," and the too-often failure to notify by the taxing authority. Therefore failure of the taxing authority to properly notify an owner will not trigger a Mennonite right. Act 819 is a good attempt by the redactors to get around the judiciary by moving notice requirements to the purchasers. We do not know how the judiciary will react at this time. At the moment we must assume that lack of proper notice is always fatal.

We feel that the new law does not "fix" any issues or allow for the reduction of rights which may have arisen under tax sales conducted pursuant to the old law and therefore tax sales that were conducted under the old law must be governed by the strict compliance rules of the judiciary.

Clearing title to tax sale properties and adjudicated properties is often more complex than typical titles, and most agents do not practice in this area. Agents should read 19.00.6 of Virtual Underwriter's Manual for general comments and requirements to insure a tax title. Often, the title itself is bad at the moment of tax sale, with unopened successions and multiple liens and judgments, meaning the chances of proper notice by the taxing authority is small. Since "adjudicated" property is really property which had failed to sell at auction to any bidder, the "bottom feeders" have likely assessed the title issues on these adjudicated properties and have decided not to risk even a few hundred dollars.

When selling adjudicated property, after the expiration of the redemptive period, the taxing authority will normally have done no curative work, and often will be very defensive about the notices actually sent out, insisting everything was done properly, and that the records are just "misplaced." The title will remain unmerchantable, and probably the only hope is to get quit claims from those who have an outstanding interest. The Dane case, cited above, indicates that the traditional remedies of a "suit to quite title" or a "monition suit" will not be recognized by the courts as fixing the title where actual notice to an owner was not effected at the original tax sale. A property owner's right of redemption is a constitutional right not subject to divesture by the legislature. LA Const. Art. VII §25 (13). So are the requirements of "due process" notice. LA Const. Art. I & 2.

All this discussion points to approval of tax titles only on a case-by-case basis, one piece at a time. Any global answer which reverses the existing decisions and makes tax titles more palatable, must be framed in litigation which a title insurer won't participate in voluntarily. Answers will come when a real dispute arises on a real title insured by a real policy. This is not likely to be soon.

Therefore, we will not insure any tax title, based upon non-payment of taxes for the years 2008 and prior, unless (1) documented proof exists in the sheriff's records that all owners with a constitutionally protected interest in the property had been actually notified by certified mail, prior to the tax sale; (2) the tax sale was advertised properly; (3) the descriptions in the tax bill , the advertisement, and the tax sale are adequate; (4) all applicable redemptive periods have run; (5) a final non-appealable judgment confirming the sale has been obtained, after personal service on all defendants; (6) all former owners have physically abandoned the property; and (7) all prior liens or encumbrances have been cancelled in the mortgage records or excepted to in the policy. Copies of proof of notice by the sheriff must be attached to a conveyance in order to get these notices into the real estate records. An affidavit by a government official that the records have been lost and that the procedure was nontheless followed will not be sufficient. We do not believe that Louisiana judges will approve any "liberative" prescriptive period where a constitutional right is violated. In other words, no amount of time will render a totally void sale enforceable.

Nevertheless, title based upon 30-years' actual possession, confirmed by judgment, when the physical possession was initiated after a tax sale, may be insured. A title based upon a final judgment confirming on ten-year possession with a good-faith belief that a tax sale was valid may be insured only with state underwriter approval. Sales of property owned by the State of Louisiana pursuant to a tax sale over thirty years ago may be insured only with State underwriter approval.

If you have questions relating to this or other bulletins, please contact your local underwriting personnel or Stewart Legal Services.

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