Louisiana Supreme Court to real estate closing and title industry: Drop dead.

by Chris on July 10, 2012

The La Supreme Court invalidated thousands of real estate titles in the State of Louisiana in its recently decided Smitko decision.  Although the issue before the court was a rather narrow procedural question, it used a sweeping concept of “absolute nullity” to base its opinion.  Essentially, the Court held that without prior notice of a tax sale, no subsequent procedure can validate a tax sale conducted before January 1, 2009. In fact, the Court endorsed the idea that if a tax sale was held without prior notice, even a subsequent lawsuit where the defendant-tax debtor is personally served cannot satisfy Constitutional requirements.  In contrast, the United States Supreme Court has always held that the Constitutional notice requirement is satisfied where a person is notified and provided with an opportunity to present objections – like in a tax sale confirmation proceeding.  On the other hand, the Louisiana Supreme Court holds that such an opportunity is constitutionally insufficient.  Who knew that service of a lawsuit does not provide adequate notice of a claim! (We must need better law schools.)

So, even if a tax buyer gets a court judgment recognizing his tax deed as valid, this means nothing since the tax debtor can come back  – at any time – even twenty years later and challenge the tax sale.  Even though the Louisiana Constitution says that the tax debtor has only a six month time period to challenge the tax sale, the Supreme Court held there was no time limit for challenging a tax sale where the question of prior notice is asserted.

Many tax sale properties involve abandoned property where owners are difficult for a tax collector to locate.  Without notice, even these unwanted properties will not get title insurance or mortgage loans because of the risk of possible unlimited future challenge. Thousands of property titles are now called into question by reason of this unlimited potential challenge to the original tax deed.  Stay tuned since the tax buyers obvious next move is against the Sheriffs who conduct these tax sales.


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