In our last posting, we discussed the process of tax foreclosure as it relates to Michigan land. At the close of that article, I began to touch on the aspect of due process. Due process, or the lack thereof, will determine the quality of title actually purchased at the tax sale auction.

Wikipedia defines due process as: “the legal requirement that the state must respect all legal rights that are owed to a person.” In the context of tax foreclosure, due process is a constitutional guarantee that one will not lose their property without notice and an opportunity to be heard.

Notice and an opportunity to be heard is a commonsensical standard. An owner must first be notified of a court proceeding, followed by an opportunity to present his/her side. Due process can be considered a balance between government power and individual rights.

Due process and tax foreclosure

Before an actual tax foreclosure occurs, every person or entity with a legal right in the property must be notified of the proceedings. The legal rights are largely determined through a search of the public records. Notifications are sent to the respective parties at some point after tax forfeiture. Remember, the tax forfeiture is sort of like a batter in the on-deck circle. When this batter steps to the plate, foreclosure is up.

Now, by way of example

A pre-foreclosure search determines that Mr. A, Mr. B, Mr. C, and Mr. D have legal rights in blackacre.

Mr. A, Mr. B, and Mr. D are given proper notification of the proceedings; Mr. C is not notified.

A judgment of foreclosure is rendered and the property is sold at tax auction to Mrs. E.

Mrs. E then attempts to sell to Mrs. F.

Mrs. E approaches a title company in hopes of purchasing the Owner’s Policy for Mrs. F.

The title company is likely to deny coverage, at least up-front, on the basis of due process. The title company can not be certain that all necessary parties were given proper notification of the foreclosure proceedings. And, as our example shows, Mr. C was not afforded due process. As a result, Mr. C could wreak havoc on the newly acquired interest of Mrs. F. The interest of Mr. C has not been terminated. If the title company insures Mrs. F in fee simple, her policy is likely to be attacked.

Summary

The previous article discussed the process of tax foreclosure. This article discussed due process as it relates to tax foreclosure. The quality of title, following tax auction, is suspect. A title insurer will typically require a “quiet title” judgment in favor of the tax purchaser before it will agree to insure a sale out. Short of a quiet title judgment, the insurer must be made comfortable that all necessary parties were given proper notice of the foreclosure proceedings.

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