Will Louisiana’s highest court finally set the record straight?: Smitko v. Gulf South Shrimp

by Chris on March 19, 2012

An interesting development has occurred in the field of tax sales and adjudicated property in Louisiana. Recently the Supreme Court has accepted supervisory writs in the Smitko case. Political subdivisions relying on collection of ad valorem taxes and anyone else in Louisiana interested in stability of land titles should be watching this case very closely.

As my previous posts have mentioned the Fourth Circuit rendered a dangerous decision in the Dane Investments case. Under the reasoning of the Fourth Circuit a final judgment is ever a final judgment if the tax sale was conducted without notice. The court reasoned that res judicata cannot be invoked against an absolutely null contract, i.e. the tax sale. Not only is this a disastrous misapplication of contracts law to tax sales (which is not a contract, does not meet any elements of contract including consent) it opens up a Pandora’s box of uncertainty regarding every property which has a tax sale in the chain of title. This decision, when applied to the logical extreme, would allow anyone at any time to challenge the seizure and sale of property for nonpayment of taxes.

Think about this scenario for just a minute. No judgment is ever a final judgment? How would anyone ever be able to sell property or write a title policy? In fact, because of this decision only one Louisiana title insurer will write policies for tax sale or adjudicated properties. Even when it does, it has a laundry list of requirements and a list of exclusions in the policy.

Although the facts are quite complex, the esteemed First Circuit rendered a well reasoned decision in the Smitko v. Gulf South  Shrimp case. In Smitko the plaintiff is a tax sale purchaser who filed a quiet title suit after expiration of the three year redemption period. The defendant filed an answer a month later, and the holder in due course of the mortgage intervened about a year later. Both the defendant and the intervenor’s answers were materially general denials but mentioned “lack of notice” incidentally. The First Circuit properly held that after six months from receiving notice the prescriptive period for filing a suit to annul is expired. This is the longstanding rule under the Louisiana Constitution, and under the former and the new law.

A tip of the hat to the First Circuit for this well reasoned decision. Regardless of who or when notice is sent, as long as the notice provides a reasonable time to come forward and assert claims in a meaningful and impartial forum, then no due process has been violated. This is common sense and a practical application of the notice requirements. The Supreme Court dropped the ball by denying writs in Dane Investment. The result was an economic cut to the jugular with title insurers fleeing from tax sales, as well as big investors pulling their money out of Louisiana. Now is the time for SCOLA to set the record straight and find that only one law may govern tax sales, which is the current and immediately effective 2009 enactment.

We’ll be sure to keep our ears to the ground listening for major developments in the Louisiana Supreme Court’s supervisory opinion. For a text of the original opinion check out our forms page or just follow this link.

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