FIRST S. & L. ASSN. OF CENT. INDIANA v. FURNISH

CASE SUMMARY

BUCHANAN, Judge.

Plaintiff-appellant First Savings & Loan Association of Central Indiana (First Savings), as a mortgage lienholder, appeals from the granting of Summary Judgment in favor of Appellees, Alfred E. and D. Louise Furnish (Furnish) quieting title in Furnish as tax sale purchaser, claiming the judgment was contrary to the evidence and pre-sale notice by publication was in violation of the Due Process Clauses of the United States and Indiana Constitutions.1

We affirm.

FACTS

The facts and evidence most favorable to the judgment of the trial court are:

On August 12, 1968, Donmar Realty Corporation (Donmar) executed a mortgage on land it owned in Grant County, Indiana, in favor of Twin City State Bank (Twin City), which then recorded the mortgage in the Recorder's office of Grant County and subsequently assigned it to First Savings of Madison County, Indiana, on September 13, 1968. First Savings recorded the assignment in Grant County on October 2, 1968.2

Some time after the assignment, Donmar, the mortgagor, defaulted in its principal payments and also became delinquent in payment of real estate taxes. As a result the land, on August 14, 1972, was sold at a tax sale to Furnish after notice of the impending sale was sent to Donmar, the owner, by certified mail.3 Notice was also posted on the Grant County Courthouse and, pursuant to statute,4 published in a newspaper of local circulation in Grant County for three consecutive weeks.5 No notice was sent to First Savings.

The record indicates First Savings did not have actual knowledge of the real estate tax delinquency before the tax sale took place, but it is undisputed it had knowledge thereof during the period of redemption. In fact, on November 27, 1972, about three and one-half months after the sale, First Savings filed in the Grant Circuit Court an action to foreclose the mortgage naming Donmar (the original owner), Twin City (original mortgagee), and Furnish (tax sale buyer) as Defendants.

First Savings did not attempt to redeem the land pursuant to the right given lienholders by the statute then in effect,6 and title was conveyed7 to Furnish on August 16, 1974.

After the action was venued to Miami County, Indiana, on March 9, 1973, and, following the subsequent failure by First Savings to redeem, Furnish filed, on December 24, 1974, a counter-claim against First Savings to quiet title to the real estate. On October 8, 1975, First Savings filed a Consolidated Motion for Declaratory Judgment8 against the counter-claim of Furnish. Furnish responded by an oral Motion for Summary Judgment9 and the trial court granted Furnish's motion.

This appeal followed.

ISSUES

Two issues10 are presented for our disposition:

PARTIES' CONTENTIONS — First Savings argues it has standing to assert lack of due process because it has suffered harm and, further, that the landmark decision in Mullane v. Hanover Bank & Trust Co.11 requires that a mortgagee whose lien is recorded must be given actual notice prior to the sale of the mortgaged land for tax delinquency.

Furnish responds that First Savings lacks standing to raise the constitutional issue as First Savings had actual knowledge of the sale within the redemption period and therefore was not harmed. Alternatively, Furnish argues that the statute pertaining to notice12 is reasonably calculated to apprise any interested party of the pendency of the sale, thus satisfying the requirements of due process.

DECISION

ISSUE ONE

CONCLUSION — First Savings has standing to raise the constitutional question of lack of due process.

A threshold question is raised by Furnish's assertion that First Savings has no right to raise the constitutional question inasmuch as it was not harmed because the property could have been redeemed during the period of redemption.

It is true that standing to raise a constitutional question is determined by the existence of harm which occurred because of the operation of the statute or act which is asserted as unconstitutional. Board of Commissioners of Howard County v. Kokomo City Plan Commission (1975), Ind., 330 N.E.2d 92; Lamb v. State (1975), Ind., 325 N.E.2d 180; State v. Clark (1966), 247 Ind. 490, 217 N.E.2d 588; Wells v. State (1976), Ind. App., 351 N.E.2d 43.

Harm is demonstrated, says First Savings, and we agree, because by redeeming after the sale a greater sum of money would have to be paid, consisting of penalties and interest.13

That such payments of penalties and interest constitute harm is consistent with the case law on this subject. Johnson v. United States, 422 F.Supp. 958 (N.D.Ind. 1976); Cottongim v. Congleton (1964), 245 Ind. 387, 199 N.E.2d 96; Pennington v. Stewart (1937), 212 Ind. 553, 10 N.E.2d 619. And further, a determination of the constitutional question is necessary to a complete determination of the rights of the parties. Shigley v. Whitlock, supra; Garcia v. Slabaugh, supra; Saloom v. Holder, supra note 13.

ISSUE TWO

CONCLUSION — Due process does not require that a mortgagee be given actual notice of a tax sale.

The precise question is whether due process entitles a mortgagee to actual notice of a tax sale rather than constructive notice (publication).

The trial court concluded, properly, that Indiana statutes relating to the sale of tax delinquent real estate contemplate a mortgagee only receiving constructive notice (posting and publication).

The general notice statute provides that notice be given by publication and posting without reference to whom it shall apply:

But significantly the very next section specifically requires actual notice be given by certified mail to the "owner or owners." No reference is made to any other interested person:

And then the statutory scheme of sale and redemption of tax delinquent real estate allows a lienholder, among other persons having an interest in real estate, the right to redeem:

Giving the words of these three statutes their "plain or ordinary and usual sense" as we are required to do, the plain implication is that only an owner of real estate is entitled to the actual notice of the special notice statute. IC 1-1-4-1; State ex rel. Bynum v. LaPorte Superior Court No. One (1973), 259 Ind. 647, 291 N.E.2d 355; Sutto v. Board of Medical Registration & Examination (1962), 242 Ind. 556, 180 N.E.2d 533; State v. Bress (1976), Ind. App., 349 N.E.2d 229; Jenkins v. Stotts (1976), Ind. App., 348 N.E.2d 57; Sekerez v. Youngstown Sheet & Tube Co. (1975), Ind. App., 337 N.E.2d 521.

The mortgagee is not forgotten; he is given the right of redemption, indicating the legislature considered the mortgagee's interest sufficient to be entitled only to redemption rights.

Considering the general notice section and the special notice section in pari materia so as to give effect to each, New York Central R. Co. v. Public Service Comm. of Indiana (1957), 237 Ind. 544, 147 N.E.2d 547; Porter Memorial Hospital v. Harvey (1972), 151 Ind.App. 299, 279 N.E.2d 583, the obvious intent of the legislature is that only "owners" are entitled to actual notice. That a mortgagee is not an owner is well established by Indiana law.14

And so First Savings is confronted with a series of statutes which only provide for actual notice to "owners" and constructive notice to all others. But, says First Savings, failure to provide actual notice to a mortgagee of a tax sale is a deprivation of property without due process.

Thus, having successfully leaped the hurdle of standing, the next hurdle, demonstration of lack of due process, remains in the constitutional obstacle course.

Every statute enacted by the Legislature of this state is clothed with the presumption of constitutionality. This presumption continues until the contrary is clearly shown. Sidle v. Majors (1976), Ind., 341 N.E.2d 763. To overcome this presumption the party attacking the statute must make the constitutional defects readily apparent. Hanley v. State (1955), 234 Ind. 326, 126 N.E.2d 879. In Indiana, the standard of persuasion applied is "beyond a reasonable doubt." Clark, supra; Vale v. Gary National Bank, 406 F.2d 39 (7th Cir.1969).

First Savings leans hard on the landmark case of Mullane v. Hanover Bank & Trust Co.,15 and particularly this language:

First Savings argues that "interested parties" does not distinguish between owners and non-owners in determining the type of notice given, i.e. "interested parties."

However, Mullane concerned itself with notice to owners and beneficiaries of the trust whose names and addresses were known.

Subsequent cases decided by the United States Supreme Court and various State Courts considering the adequacy of notice by publication in various types of situations have been restricted to owners of the affected property. See Schroeder v. City of New York (1962), 371 U.S. 208, 83 S.Ct. 279, 9 L.Ed.2d 255; Walker v. City of Hutchinson (1956), 352 U.S. 112, 77 S.Ct. 200, 1 L.Ed.2d 178; Wisconsin Electric Power Co. v. City of Milwaukee (1956), 352 U.S. 948, 77 S.Ct. 324, 1 L.Ed.2d 241; Ridenhour v. County of Bay (1962), 366 Mich. 225, 114 N.W.2d 172; Meadowbrook Manor, Inc. v. City of St. Louis Park (1960), 258 Minn. 266, 104 N.W.2d 540.

After Mullane, Indiana, like other states, amended existing statutes to conform to this basic due process requirement. But the principle of actual notice has never been extended to any class other than "owners" in Indiana.

Fritz v. Board of Trustees of Town of Clermont (1969), 253 Ind. 202, 252 N.E.2d 567, is in keeping with this limitation. It held that property owners were entitled to actual notice before special assessments could be effective. Admittedly, the court stated:

That Fritz should not be interpreted so broadly as to include lienholders in addition to owners is this wording:

Reading the opinion as a whole we can discover no intent to include all interested persons within the actual notice requirement.

Our research discloses only one case extending Mullane to mortgagees. Laz v. Southwestern Land Co. (1964), 97 Ariz. 69, 397 P.2d 52. It is not persuasive, being founded largely on vague and general statements of public policy.

It is understandable why actual notice has not been extended to mortgagees. Most mortgagees are in the business of lending money, and as professional money lenders prudence requires them to be aware of conditions involving their collateral. Normally they can be expected to protect their interest by keeping records of the mortgagor's discharge of his obligations, such as payment of taxes, insurance, principal and interest installments.

Also, we are aware that there is a vintage Indiana case, Baldwin v. Moroney (1910), 173 Ind. 574, 91 N.E. 3, which specifically categorizes a mortgagee as a "non-owner" unless he is in possession of the real estate.

In sum, First Savings presents no applicable authority overcoming the presumption of constitutionality of the statutes in question, and thereby founders in the constitutional obstacle course.

Judgment affirmed.

WHITE and LYBROOK, JJ., concur.