REL: 09/26/2014
Notice: This opinion is subject to formal revision before publication in the advance
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SUPREME COURT OF ALABAMA
SPECIAL TERM, 2014
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1120302
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Ex parte First United Security Bank and Paty Holdings, LLC
PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF CIVIL APPEALS
(In re: First United Security Bank and Paty Holdings, LLC
v.
W. Hardy McCollum, Judge of Probate of Tuscaloosa County, et
al.)
(Tuscaloosa Circuit Court, CV-10-901031;
Court of Civil Appeals, 2110828)
1120302
MURDOCK, Justice.
This Court granted certiorari review to clarify our
decision in First Union National Bank of Florida v. Lee County
Commission, 75 So. 3d 105 (Ala. 2011), and to further address
who is the "owner" entitled to recover excess funds received
from the tax sale of real estate. We reverse and remand.
I. Facts and Procedural History
First United Security Bank ("First United") and its
wholly owned subsidiary, Paty Holdings, LLC (sometimes
hereinafter referred to collectively as "the bank"), brought
suit to recover excess funds received by Tuscaloosa County
from the tax sale of real estate owned by Wayne Allen Russell,
Jr., and on which First United had a mortgage. The bank
foreclosed on its mortgage after the tax sale but before the
demand for excess proceeds was made.
In their decision below, the Court of Civil Appeals
stated the facts and the substance of the trial court's
judgment as follows:
"On December 30, 2010, First United Security
Bank filed a verified complaint against W. Hardy
McCollum, in his capacity as Tuscaloosa County Judge
of Probate, and Peyton Cochrane, in his capacity as
Tuscaloosa County Tax Collector, seeking, among
other things, a judgment declaring that it was
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entitled to the excess funds Tuscaloosa County
received at the sale of the property for unpaid
taxes. The complaint was later amended to add
Russell as a defendant and Paty Holdings, LLC, as a
plaintiff.
"The case was submitted to the trial court for
a decision upon the parties' briefs and the
following joint stipulation of facts:
"'....
"'4. On or about February 15, 2002,
Wayne Allen Russell, Jr. ... executed a
note and mortgage in favor of First United
Security Bank .... Said mortgage was
recorded in the Probate Records of
Tuscaloosa County ....
"'5. On May 25, 2010, ... certain
[parcels of land] subject to the bank's
mortgage ... were sold at a tax sale due to
unpaid 2009 property taxes.
"'6 & 7 [The two parcels at issue were
sold for a combined amount of $42,000, of
which $32,305.12 represents excess
proceeds.]
"'8. ... First United Security Bank
assigned its foreclosure bid rights to ...
Paty Holdings, LLC. ... Paty Holdings,
LLC was the highest bidder at [a]
foreclosure sale [on July 8, 2010,] with a
bid in the amount of $2,381,790.00 and
recorded a foreclosure deed .... The bid
amount equaled the amount of [Russell's]
indebtedness to the bank.
"'....
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"'10. ... W. Hardy McCollum as
Tuscaloosa County Judge of Probate and
Peyton Cochrane as Tuscaloosa County Tax
Collector informed [First United Security
Bank and Paty Holdings, LLC,] that [they]
must pay the excess bids in order to redeem
the property taxes but that [they] would
not be entitled to a refund of the excess
bids. Instead, [McCollum and Cochrane]
asserted that the excess bids to be paid by
[First United Security Bank and Paty
Holdings, LLC,] will be made payable to ...
Russell. ...
"'...'
"The parties subsequently stipulated that Black
River Holdings, LLC, 'the current owner' of the
property, had proposed to redeem the property and
had assigned any rights it had to the excess funds
to First United Security Bank. The parties also
stipulated that the excess tax-sale proceeds were to
be held pending the trial court's determination of
the case.
"On May 25, 2012, the trial court entered a
judgment, stating:
"'1. The primary issue in this case is
... between ... First United Security Bank
and Paty Holdings, LLC, and ... Wayne Allen
Russell, Jr. who qualifies as the "owner"
or the "person legally representing such
owner" under Ala. Code [1975,] Section
40–10–28. In First Union National Bank of
Florida v. Lee County Commission[, 75 So.
3d 105] (Ala. ... 2011), the Alabama
Supreme Court addressed this very issue
when it concluded "that when the
Legislature directs in Section 40–10–28[,
Ala. Code 1975,] that the excess funds from
a tax sale shall be paid over to the owner
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or his agent," the term "owner" means "the
person against whom taxes on the property
are assessed." Under the Stipulated Facts
of the parties, that person would be ...
Wayne Allen Russell, Jr.
"'2. [First United Security Bank and
Paty Holdings, LLC,] argue that the result
in this case should be different from that
in First Union National Bank, because
unlike the mortgagee in First Union
National Bank, there had been a foreclosure
by the mortgagee in this case. Thus, in
this case [First United Security Bank and
Paty Holdings, LLC,] contend that as the
foreclosing mortgagee, ... First United
Security Bank is the full owner of the
subject property. This argument would be
persuasive if the foreclosure had occurred
prior to the tax sale, as it is clear from
the opinion in First Union National Bank
that the Supreme Court was referring to a
foreclosure which occurred prior to the tax
sale and not after the tax sale as occurred
in this case.
"'....
"'Accordingly, the Court finds in
favor of [McCollum, Cochrane, and Russell]
and against [First United Security Bank and
Paty Holdings, LLC]. It is therefore the
order of the Court that the relief
requested by [First United Security Bank
and Paty Holdings, LLC,] is hereby denied.
It is the further order of the Court that
... Russell ... is entitled to the refund
of the excess funds from the tax sale at
issue in this case. Costs are taxed to
[First United Security Bank and Paty
Holdings, LLC].'"
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First United Sec. Bank v. McCollum, [Ms. 2110828, Nov. 30,
2012] ___ So. 3d ___, ___ (Ala. Civ. App. 2012) (emphasis
added).
II. Standard of Review
"Our standard of review is de novo: 'Because the
issues presented by [this appeal] concern only
questions of law involving statutory construction,
the standard of review is de novo. See Taylor v.
Cox, 710 So.2d 406 (Ala. 1998).' Whitehurst v.
Baker, 959 So. 2d 69, 70 (Ala. 2006). ..."
Ex parte Birmingham Bd. of Educ., 45 So. 3d 764, 767 (Ala.
2009).
III. Analysis
The issue presented here is whether a purchaser at a
foreclosure sale is an "owner" entitled under Ala. Code 1975,
§ 40-10-28, to receive the excess proceeds from a tax sale of
the real property foreclosed upon.1 Section 40-10-28, as it
read at the time of the foreclosure and attempted redemption
in this case, provided, in pertinent part:
"The excess arising from the sale of any real
estate remaining after paying the amount of the
decree of sale, and costs and expenses subsequently
accruing, shall be paid over to the owner, or his
agent, or to the person legally representing such
owner, or into the county treasury, and it may be
1
Section 40-10-28 was amended while this case was pending.
See note 2, infra.
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paid therefrom to such owner, agent or
representative in the same manner as to the excess
arising from the sale of personal property sold for
taxes is paid. ..."
This provision does not define "owner" and does not, by its
terms, impose any limitation on when the owner must have
acquired its interest in the property in order to be eligible
to receive the excess proceeds from a tax sale of the
property.
In First Union National Bank of Florida v. Lee County
Commission, 75 So. 3d 105 (Ala. 2011), this Court held that
the term "owner" in § 40-10-28 meant "the person against whom
taxes on the property were assessed," 75 So. 3d at 117, and
that the term "owner" does not include a mortgagee who has not
foreclosed on its mortgage. In reaching this conclusion, this
Court noted (1) that the statute does not define the term
"owner" and (2) that Ala. Code 1975, § 40-10-120(a), specifies
a broader range of persons who are entitled to redeem the
property from a tax sale. This Court then concluded that the
different language in the two related statutes limits the
breadth of the term "owner" in § 40-10-28 so as to exclude
mere mortgagees.
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This Court in First Union also rejected the argument that
a mere mortgagee is an "owner" by virtue of the fact that
Alabama is a "title" state in which the mortgagee holds legal
title to property and the mortgagor holds only equitable
title. This Court provided a thorough discussion of
precedent, including Loventhal v. Home Insurance Co., 112 Ala.
108, 115, 20 So. 419, 420 (1896), in support of the
proposition that "equitable title is more than an interest in
property; it is ownership of the property." First Union, 75
So. 3d at 113.
Lastly, this Court in First Union rejected various policy
and equitable arguments in favor of treating a mortgagee as an
owner entitled to the excess proceeds, noting, among other
things, that mortgagees have potential remedies regarding
excess tax-sale proceeds. In this regard, we specifically
made note of the mortgagee's ability to "foreclose upon the
property, purchase it at the foreclosure sale, and thereby
merge the equitable title with the legal title, thus becoming
entitled to any excess funds." 75 So. 3d at 116 (emphasis
added).
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The bank argues that this case is distinguishable from
First Union because First United foreclosed its mortgage
before the demand for or the payment of the excess funds and
thus became the "owner" by virtue of owning both legal and
equitable title to the property. We agree.
The Court of Civil Appeals rejected the bank's argument,
holding that First Union stands for the proposition that the
excess funds "are payable only to the person in whose name the
taxes are assessed at the time of the tax sale (or his agent
or representative)." ___ So. 3d at ___ (emphasis added). In
so doing, however, the Court of Civil Appeals erroneously
added a temporal qualification to this Court's holding in
First Union. This addition extends this Court's holding in
First Union beyond its context and imposes a temporal element
on ownership that is not found in the statute itself or in
this Court's opinion in First Union. Nothing in First Union
suggests that there is, or should be, a distinction between
one who completes a foreclosure purchase (or other purchase
for that matter) and becomes the "owner" of the property
before a tax sale and one who completes a purchase after the
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tax sale, but before the payout of any excess tax-sale
proceeds.
The issue in First Union was not the timing of a sale or
foreclosure, but whether a mere mortgagee -- with only a bare
legal title to the property -- was an "owner" of the property.
In First Union, the only claimants to the excess proceeds were
a mortgagor/owner (who was also the owner listed on the
assessment, and who apparently was still in possession of the
property) and a mortgagee who had not foreclosed and who had
only bare legal title.
The reference in First Union to "owner" as "the person
against whom taxes on the property are assessed," 75 So. 3d at
114, was not intended to impose any temporal limitation on
when a person must become an "owner" in order to be entitled
to the excess proceeds. Nor was it intended to limit "owner"
to the person or entity listed on the tax assessment, whether
or not that person or entity is the actual owner at the time
of the tax sale (and whether or not the owner was correctly
listed on the assessment).
The Court of Civil Appeals' limitation of "owner" of the
property to the person in whose name the taxes were assessed
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at the time of the tax sale not only adds a temporal element
not found in the statute, but also is contrary to (1) the
ordinary meaning of the word "owner" (which does not
ordinarily betoken a prior owner who does not retain any
interest in the property at the time of the events at issue)
and (2) the ordinary expectations of purchasers and sellers of
real estate. Ordinarily, the conveyance of real property
transfers not only the property itself but also all rights
appertaining thereto, unless excepted. We see no reason not
to include the right to receive the excess proceeds in the
rights transferred. See W. Hereford and J. Haithcock, Money
for Nothing: Who Is Entitled to the Excess Paid at a Tax
Sale?, 73 Ala. Law. 424, 427 (2012) (seller of real estate
ordinarily gives up all rights to the sold property, including
the right to the excess proceeds); Ala. Op. Att'y Gen.
2011-087 (2011) (warranty deed normally conveys all rights in
the property, including the right to excess proceeds);
McGallagher v. Estate of DeGeer, 934 So. 2d 391, 40 (Ala. Civ.
App. 2005) (right to rents and profits runs with the land).
Further, as noted above, the opinion in First Union
specifically indicated that one of the possible remedies by
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which a mortgagee could protect itself would be a foreclosure
of the mortgage, thereby causing a merger of legal and
equitable title in the foreclosure purchaser and a resulting
entitlement to the excess proceeds. We see no reason to
conclude that such a merger is any more complete when it
occurs before a tax sale than when it occurs after it.
Finally, limitation of the term "owner" to the owner in
whose name the taxes were assessed at the time of the tax sale
often would lead to inequitable results. The "assessed owner"
may not be the actual or equitable owner at the time of the
tax sale, either because the property was sold between the
October 1 assessment date and the date of the tax sale, or
because the assessment was not changed after a sale to reflect
the name of the new owner. In either of those instances,
payment of the excess proceeds to the assessed owner would
represent a windfall to the assessed owner and would unfairly
penalize the purchaser/current/actual owner. The injustice is
particularly acute if the current owner paid the excess
proceeds in order to redeem the property, but the excess
proceeds are then returned to the assessed owner, who did not
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pay the taxes, did not contribute to the redemption amount,
and no longer has any interest in the property.2
IV. Conclusion
Based on the foregoing, we conclude that the bank is
entitled to the excess tax-sale proceeds. We reverse the
judgment of the Court of Civil Appeals and remand the case for
further proceedings consistent with this opinion.
2
While this case was pending, the legislature amended
§ 40-10-28 to provide that the excess tax-sale proceeds shall
be paid to "a person or entity who has redeemed the property."
Act No. 2013-370, Ala. Acts 2013 (emphasis added). In
addition to the argument made by the bank as to the meaning of
§ 40-10-28 as written at the time of the events at issue, the
bank also argues that we should consider the amendment to §
40-10-28 to be retroactive and to apply to any property as to
which the excess proceeds had not been paid out as of
August 1, 2013, the effective date of that amendment. The
defendants disagree, contending that the amendment was
intended to apply only to tax sales made on or after that date
and, furthermore, that any other interpretation would upset
settled expectations and would be unconstitutional. Our
judgment of reversal in favor of the bank in this particular
case is not dependent on the bank's argument on this issue.
Even if the bank were correct, in this case the entity
actually attempting to redeem the property is also the "owner"
of the property.
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REVERSED AND REMANDED.
Stuart, Bolin, Parker, Shaw, Main, and Wise, JJ., concur.
Moore, C.J., concurs in the result.
Bryan, J., recuses himself.*
*Justice Bryan was a member of the Court of Civil Appeals
when that court considered this case.
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