Donna Independent School District v. Balli

United States Court of Appeals,

Fifth Circuit.

No. 93-7243.

DONNA INDEPENDENT SCHOOL DISTRICT and Hidalgo County, Plaintiffs-
Appellants,

v.

Guillermina G. BALLI, Etc., et al., Defendants,

Guillermina G. BALLI, Individually, Etc., and FDIC, as Receiver
for Hidalgo County Bank & Trust Co., Defendants/Cross-Defendants-
Appellees,

v.

CITY OF DONNA, Defendant/Cross-Claimant-Appellant.

May 24, 1994.

Appeal from the United States District Court for the Southern
District of Texas.

Before POLITZ, Chief Judge, KING and GARWOOD, Circuit Judges.

POLITZ, Chief Judge:

Three Texas taxing units, the City of Donna, the Donna

Independent School District, and Hidalgo County, appeal a judgment

prohibiting their foreclosure on property tax liens without

preserving liens held by the Federal Deposit Insurance Corporation

in its capacity as receiver for certain failed financial

institutions. We affirm.

Background

The underlying facts would have involved a routine effort by

local taxing units to collect delinquent ad valorum real estate

taxes but for one development—the financial institutions holding

deed of trust liens on the properties became insolvent and the FDIC

1
was appointed receiver. The affected realty consists of 110 lots

owned by Reynaldo Balli and his family, all but one of which were

mortgaged to Hidalgo County Bank & Trust Company, with the

remaining lot being mortgaged to The First National Bank of

Weslaco. The taxing units brought a foreclosure action against the

Ballis and named the FDIC in its capacity as receiver for the

banks. The FDIC removed to federal court which entered summary

judgment for the taxing units but decreed that foreclosure on the

tax liens would be subject to the FDIC's deed of trust liens. The

taxing units timely appealed.

Analysis

The taxing units contend that the FDIC's liens are

subordinate to the tax liens and are thus extinguished in a tax

sale. The FDIC agrees that the tax liens have priority but

maintains that 12 U.S.C. § 1825(b)1 preserves its liens. We

recently addressed that issue in Matagorda County v. Law,2 holding

that the local taxing authorities may not foreclose on property

subject to an FDIC lien without the FDIC's consent. That precedent

governs.

Alternatively, the taxing units maintain that the operation

of section 1825(b)(2) works a compensable taking under the fifth

1
12 U.S.C. § 1825(b)(2) provides:

No property of the Corporation shall be subject to
levy, attachment, garnishment, foreclosure or sale
without the consent of the Corporation, nor shall any
involuntary lien attach to the property of the
corporation [emphasis added].
2
19 F.3d 215 (5th Cir.1994).

2
amendment. That is a closer question. Recognizing in Matagorda

County that the statute delayed the collection of delinquent taxes,

we did not find a problem of constitutional dimension in the length

of the delay presented therein. We noted, however, that

"[u]nmitigated delay, coupled with diminishment of distinct

investment-backed expectations, may, at some point, infringe on the

entire "bundle' of rights enjoyed by the [taxing units] to the

point that a compensable taking occurs."3

The delay in Matagorda County was 27 months; the FDIC

acquired its liens in August of 1990 and the judgment decreeing the

tax liens was entered on November 10, 1992. We characterized that

period as "approaching" the maximum permissible without being a

taking.4 The delay in the instant case is significantly longer.

The FDIC acquired the First National Bank of Weslaco lien on

February 20, 1987 and the Hidalgo County Bank & Trust lien on July

27, 1989. Judgment decreeing the tax liens was entered herein on

April 1, 1993.

We would likely find a taking herein but for a critical

distinction between the facts of this case and those in Matagorda

County. There, the adjudged value of the property was $333,660 and

the outstanding balance on the notes underlying the FDIC lien was

$891,000 plus interest. "As a practical matter," we found that the

taxing units could not sell the property with the FDIC lien in

place. Here, by contrast, the value of the property is $529,578

3
19 F.3d at 225.
4
19 F.3d at 225 n. 11.

3
and the outstanding balance on the Balli notes is $196,689.73 plus

interest.5 Unlike Matagorda County, the survival of the FDIC liens

does not prevent a tax sale. The causal connection between the

delay and the statutory protection accorded the FDIC's liens is

significantly attenuated. We perceive no taking cognizable under

the fifth amendment in this factual scenario.

AFFIRMED.

5
The taxing units place the value at $333,660 and the
delinquent taxes at $154,039. From these figures, they argue
that preservation of the FDIC liens precludes a tax sale because
there is no equity in the property. The Final Judgment, however,
indicates value of $529,578 for Lots 1-109 and 117, the tracts at
issue herein, and delinquent taxes of $73,488.83 plus interest.
There is sufficient equity to permit a tax sale.

4