Beware the Tax Sale: Vanaman v. American Pride Properties, LLC

Want to know why insuring title based on a tax deed is an ultra-hazardous risk?  Look no further than Vanaman v. American Pride Properties, LLC, 2018 WL 6616540 (Miss. App.  2018). Here’s a summary of the case:

In 1984, a son and his mother purchased some property to operate as a gas station and grocery store (the “Property”). In 2001, the son’s mother quitclaimed her interest to her son (hereinafter, the “Owner”). The quitclaim deed from the mother incorrectly listed her son’s mailing address. Sometime later, the Owner fell behind in making his tax payments on the Property. The Property was sold three times for taxes. While the Owner redeemed the Property from the first two tax sales, he did not redeem the last tax sale and a tax sale purchaser bought the Property on August 26, 2013, when it was sold for nonpayment of taxes.

On April 8, 2015, a notice of forfeiture was mailed to the Owner at the address on the quitclaim deed. A return receipt included in the record showed the Owner’s handwritten signature, and in the space for the signatory’s address, the Owner’s correct address. A second notice of forfeiture was mailed to the Owner at the incorrect deed address on June 12, 2015, but it was returned not deliverable as addressed. The notice of sale for delinquent taxes that was published on July 10, 2015, listed the Property. It showed that the Property was owned by the Owner and listed his address as the incorrect deed address. On August 12, 2015, a deputy sheriff attempted to serve the Owner with notice of the forfeiture at the incorrect deed address but was unable to locate him at that address. The deputy sheriff posted a notice on the door at that location. On September 28, 2015, the chancery clerk executed an affidavit attesting that a diligent search and inquiry was made to ascertain the Owner’s address by use of the phone directory, internet directory, land deed records, and the county tax roll, but that the Owner’s correct address was unable to be ascertained.

In October 2015, the chancery clerk conveyed the Property to the tax sale purchaser, who subsequently conveyed title by quitclaim deed to a third-party recorded on November 30, 2015 (the “Purchaser”). The Purchaser filed a complaint to quiet and confirm tax title. The record contained a “Proof of Service – Summons” signed by a process server, warranting that the Owner was served on January 28, 2016. However, the Owner failed to answer the complaint. On April 4, 2016, the clerk made an entry of default with respect to the Purchaser’s lawsuit against the Owner. On May 16, 2016, the court entered a judgment confirming and quieting tax title in the Purchaser. The Owner then filed a motion to set aside the entry of default and entry of default judgment on November 2, 2016. The lower court denied the Owner’s motion after another hearing and the Owner appealed.

On appeal, the Mississippi Court of Appeals found no merit to Owner’s argument that he was not properly served. The court noted that the record reflected that a process server served the Owner with the summons. The return was captioned “Proof of Service-Summons” for a process server. Although the word “complaint” was not included in the body of the return and return did not state that a complaint was served along with the summons, the acknowledgment, however, did refer to both a summons and complaint. Additionally, the Owner testified at trial that he was, in fact, served with papers in January 2016. Although he testified that he was only served with “five or six” pages—which would indicate that he was not served with both the summons and complaint if true—the court did not find this testimony sufficient to find that the chancery court abused its discretion in finding that the Owner was served with the summons and complaint.

Next, the court considered whether the trial court abused its discretion in denying the Owner’s motion to set aside the default judgment. The court noted that in reviewing a motion to set aside a default judgment, the trial court is tasked with making its decision in accordance with Rules 55(c) and 60(b) of the Mississippi Rules of Civil Procedure. The court also noted that it must consider a three-prong balancing test when reviewing a trial court’s decision to grant or deny a motion to set aside a default judgment:

(1) the nature and legitimacy of the defendant’s reasons for his default, i.e., whether the defendant has good cause for default, (2) whether [the] defendant in fact has a colorable defense to the merits of the claim, and (3) the nature and extent of prejudice which may be suffered by the plaintiff if the default judgment is set aside.

Am. States Ins. Co. v. Rogillio, 10 So. 3d 463, 468 (Miss. 2009).

With respect to good cause, the court concluded that they could not say whether the chancellor abused his discretion and found in favor of the Purchaser. However, with respect to the colorable defense and prejudice prongs, the court found in favor of the Owner. The court stated that it was clear from the record that the Owner had a colorable defense with respect to whether service was properly effectuated regarding the notice of forfeiture, since several documents were filed with the chancery clerk’s office listing the owner’s correct address after the quitclaim deed within the incorrect address was filed, including a certificate of redemption and a release from delinquent tax sale from the two earlier tax sales. The court recognized that the Purchaser had expended considerable time and effort in the case but noted that prejudice must be something more than the routine cost of litigation.

Ultimately, the court concluded that the lower court abused his discretion in not setting aside the default judgment because the Owner had a colorable defense to the Purchaser’s action to quiet title and confirm title to the Property. Specifically, the statutory notice scheme, required by Miss. Code Ann. 27-43-1, was not followed and the Owner was not personally served. The court set aside the default judgment and remanded the case to the chancery court.

For more details, read the Vanaman v. American Pride Properties, LLC, 2018 WL 6616540 (Miss. App.  2018)!