Mortgage Holder Beware: Notice of Indiana Tax Sales

By April N. Pinder, Esq.

In a much anticipated ruling, the Indiana Supreme Court once again upheld the constitutionality of Indiana’s pre-tax sale notice statutory procedures in M&M Investment Group, LLC v. Ahlemeyer Farms, Inc. and Monroe Bank (Ind. 2013). 

In Indiana, real estate may be sold for failure to pay real property taxes. Such a sale can and will remove a valid mortgage lien from the real estate unless the real estate is redeemed.  There are three notices required under Indiana’s statutory tax sale scheme: (1) pre-sale notice of the tax sale, I.C. § 6-1.1-24-4; (2) post-sale notice of the right to redemption after the tax sale, I.C. § 6-1.1-25-4.5; and (3) if real estate was not timely redeemed, notice of filing of a petition for tax deed I.C. § 6-1.1-25-4.6(a).  If these notices are not issued in “substantial compliance” with the requirements of the applicable statutes, the issuance of the tax sale deed – and the consequent removal of the mortgage lien from the real estate – may be defeated.

The M&M case focused on the constitutionality of pre-tax sale notice to mortgagees.  Under Indiana’s current statutory scheme, mortgagees are entitled to pre-tax sale notice only where the mortgagee has first affirmatively requested such notice from the county. The county is not required to provide pre-tax sale notice to mortgagees – even if a mortgagee has a properly recorded mortgage of record – unless and until a mortgagee specifically, annually, requests such notice from the county.

In M&M, Monroe Bank challenged this pre-tax sale notice requirement as unconstitutional under the Fourteenth Amendment to the United States Constitution, given the “substantial property interest” held by a mortgagee.  Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983). Reaffirming its prior holdings on the issue, the Indiana Supreme Court found this statutory scheme to be constitutional.

In balancing the interests of the State and the interests of the pertinent class, and in light of the particular circumstances and conditions relevant to the class and its property interest, the statutory requirement that a mortgagee complete a form aimed at guaranteeing notice before a property is put up for a tax sale is…not offensive to the U.S. Constitution. Mullane v.Cent. Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950), emphasis added.

This case is a lesson to all mortgagees: be aware of the tax status of your loans.  The Indiana Supreme Court has once again affirmed the responsibility of a mortgagee to regulate the tax status of their loans, burdensome though it may be on the mortgagee.  As a best practice recommendation, mortgagees should ensure they have proper procedures in place to audit their loans for payment of taxes and ensure timely pre-tax sale notice from the county. Mortgagees should not rely on homeowners or the county to provide notice of delinquent taxes.

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