The Texas Supreme Court handed down its opinion in Mitchell v. MAP Resources, Inc., setting aside a default judgment in a tax foreclosure suit granted more than 16 years ago, on the ground that the defendant’s due process rights were violated when she was served by posting notice on the courthouse door.
Mitchell is the result of one of many tax foreclosure cases brought by taxing districts to collect delinquent taxes on royalty interests. In the late 1990s an attorney and two mineral buyers got together and proposed to taxing districts that they would handle tax foreclosure suits for delinquent taxes on royalty interests for them. The tax foreclosure suits named hundreds of defendants in a single suit, who were all served by posting notice of the suit at the courthouse. Texas law allows notice of suit by posting or publication where the plaintiff has tried diligently to locate the defendant and has been unable to do so. The two mineral buyers, Joe Hughes and Duke Edwards, searched the tax records for owners with delinquent taxes, and the lawyer proposed to represent the taxing districts in foreclosing the tax liens on those owners’ interests. The lawyer’s fee was paid out of the proceeds from the sheriff sale of the royalty interests foreclosed on. Hughes and Edwards were hired to try to locate the delinquent royalty owners so they could be served with the tax suit. For those they could not locate, they provided testimony in the foreclosure suit that they diligently looked for the missing owners and were unable to find them, so the court could authorize service by posting. Hughes and Edwards received an “abstractor’s fee” for each “unlocateable” owner for whom they searched, also paid out the proceeds of the sheriff sale. At the sheriff sale, Duke and Edwards bid on and purchased some of the royalty interests sold.
In Mitchell, the lawyer, representing the Pecos-Barstow-Toyah Independent School District, Reeves County Hospital District, and Reeves County, sued some 500 owners of more than 1600 mineral interests totaling tens of thousands of acres in Pecos County, in a single suit to collect delinquent property taxes on those mineral interests. The lawyer later filed an affidavit seeking court permission to serve the defendants by posting on the courthouse door. He swore that the names or residences of the listed defendants were unknown and could not be ascertained after diligent inquiry. For those defendants who had an address listed with the appraisal district, he swore that citation was issued to those defendants at those addresses. The court authorized notice by posting; the notice required the named defendants to answer within 42 days. The court appointed an attorney ad litem to represent the interests of the defendants who were served by posting.
Trial on the foreclosure suit took place on February 19, 1999. It was one of seven foreclosure suits set for the same day. Trial of the case took less than five minutes. No record was taken of the testimony, but after the trial the court signed a “statement of evidence” saying the taxing authorities’ witness testified that he had searched the public records for the defendants and where an address was found citation was issued for personal service but was returned unserved. The court found that diligent inquiry had been made and signed a default judgment foreclosing on the listed properties — including properties then owned by Elizabeth Mitchell.
In 2015, Elizabeth’s heirs sued to set aside the default judgment against her and recover her mineral interests. They showed that eight warranty deeds were on file in the public records at the time of the foreclosure, signed by Elizabeth and listing her address. They alleged that the attorney for the taxing authorities gave a false affidavit to the contrary. They sued MAP Resources, Pecos Bend Royalties, PBR Properties Joint Ventures, and Tommy Vascocu, who had acquired Elizabeth’s mineral interests sold at the sheriff sale.
The trial court entered judgment for the defendants, refusing to set aside the sheriff sale. The El Paso Court of Appeals affirmed, but the three justices wrote three separate opinions. One justice dissented.
The Mitchells’ problem was that their suit was filed sixteen years after the tax judgment was entered. Their suit to set aside that judgment was a “collateral” attack on the judgment, and under Texas law a judgment cannot be collaterally attacked by “extrinsic” evidence; the court can look only at the record in the original case to determine whether the judgment should be set aside. The court of appeals held that it could not consider the Mitchells’ new evidence, relying on Texas Supreme Court precedent, York V. State, 373 S.W.3d 32 (Tex. 2012) that in a suit by a person whose property has been seized and sold after notice by publication, the person will not be “allowed to show by evidence dehors the record [in the original case] that the judgment was rendered without any service whatever upon him.” The rule, though harsh, is based on the public policy protecting the finality of judgments. In the tax foreclosure suit, the court’s statement of evidence found that the taxing authorities had made a search of public records and issued personal service on those defendants at any address that could be found. Because of the extrinsic evidence rule, the Mitchell’s evidence to the contrary could not be considered.
The Supreme Court held:
When public property or tax records include contact information for a defendant that was served by publication, we hold that a court hearing a collateral attack on a judgment on due process grounds may consider those records. And because the deed records here featured Elizabeth’s mailing address, we hold that serving her by posting did not comply with procedural due process.
The Court held that “the Constitution requires a diligent inquiry into a defendant’s whereabouts, including a search of public deed and tax records for the defendant’s address.” “Because the Constitution and Rule 117a require a plaintiff to consult public deed and tax records as part of its diligent inquiry when a defendant’s name or residence is unknown, the contents of those records should be regarded as part of the record of the suit rather than as extrinsic evidence.”
The Court also commented on the sparse record of the original trial:
But the assertion [of the taxing authorities’ lawyer] that not one of the approximately 500 defendants had an identifiable address strains credulity. And the recorded warranty deeds bearing Elizabeth’s post office box address reveal that, as to her, the Taxing Authorities either did not complete the diligent records search they claimed or did not act on its results. Thus, the recitation in the judgment that the Taxing Authorities exercised diligence “rings hollow,” as Chief Justice Alley observed.
The same lawyer who handled this sale, and the “abstractors” Duke and Edwards, performed many mass foreclosure suits during this time period, and Duke and Edwards acquired many interests in these foreclosure sales. So we are likely to see other cases challenging these tax foreclosures.