County of Mecklenburg v. Ryan (21-205) 2/15/2022
Tax Sale Opinion Rests upon Inadequate Service of Process
Chris Burti, Vice President and Senior Legal Counsel

The plaintiff, Mecklenburg County, appealed the trial court's order setting aside an entry of default and a default judgment. The individual defendant also cross appealed from the trial court's order. At issue in the opinion in addition to service of process were; good faith purchaser standards and the right of redemption.

The individual defendant at all relevant times was confined to a wheelchair, legally blind, owned and resided at the property at issue. In 2018, Mecklenburg County commenced an action to foreclose on the Property for past due ad valorem taxes for the years 2014, 2015, and 2016. The 2017 property taxes and interest for 2017 property taxes subsequently became delinquent.

Initially, a civil summons was issued, but not served and an alias and pluries summons was timely issued.? ?Mecklenburg County was unsuccessful in its attempt to effect personal service. Mecklenburg County then unsuccessfully attempted service by certified mail and by designated delivery service. The opinion states: "Although 'Ryan had previously informed [Mecklenburg] County (in a different context) that because of her disabilities, it can be difficult for her to access mail, and that the best way to reach her was via email,' Mecklenburg County did not attempt to email Ryan." Then, Mecklenburg County attempted service by publication, which was completed on May 22, 2018. The factual narrative in the opinion is interesting. Once publication was completed, Mecklenburg County:

... filed an "Affidavit of Jurisdiction and Failure to Plead" and a certificate of taxes due, which contained a statement of the amount of outstanding taxes Ryan allegedly owed. The certificate of taxes due stated that Ryan owed $20,775.33. Mecklenburg County also filed a motion for entry of default and a motion for default judgment on August 1, 2018. Entry of default and a default judgment were entered against Ryan that same day.

Mecklenburg County subsequently filed a notice of sale to foreclose on the Property on September 18, 2019. The notice of sale was published on September 4, 2018, and September 11, 2018. On September 12, 2018, Ryan "became aware of the foreclosure action and immediately emailed Neal Dixon, the Mecklenburg County Tax Collector/Department Director ("Mr. Dixon") regarding the unpaid taxes." Ryan emailed the Tax Collector approximately three times but did not receive a response. On September 14, 2018, Ryan called the Mecklenburg County Tax Office and was given a payoff amount of $21,438.25. Ryan's affidavit states that she immediately paid this amount over the phone and was provided with confirmation codes confirming the payment. The payoff amount of $21,438.25 was deducted from Ryan's bank account that same day.

According to Deputy Tax Director Frank Wirth, personnel from the Tax Office called Ryan fourteen times between November 10, 2015 and September 11, 2017 to discuss her delinquency. These phone calls went unanswered. In addition to the phone calls, personnel from the Tax Office completed two field visits, posted two delinquency notices, posted seven advertisements of the delinquencies in the Charlotte Observer, posted two notices of delinquency online, and sent five set-off debt submissions to the North Carolina Department of Revenue. The Tax Office never received a response from Ryan during that time.

The Deputy Tax Director conceded that Ryan attempted to make a payment on her bills in the amount of $21,438.25 by use of the Mecklenburg County Tax Office's 'E-Pay' feature. . . . The use of this service for payment . . . does not provide any person-to-person contact. . . . Furthermore, the E-Pay payment method only provides confirmation of a payment submission; it does not provide either (i) confirmation of acceptance of the payment by the Tax Collector, nor (ii) any indication that the payment represents a payment in full that would update the record and remove the tax lien.

Mecklenburg County conceded at oral argument before this Court that Ryan made a payment of $21,438.25 and that the County did not refund the payment to Ryan until approximately eight to ten weeks later. Although Ryan made the payment, the County proceeded with the foreclosure sale anyway. Mecklenburg County filed a report of foreclosure sale on September 18, 2018; however, there were multiple upset bids. Jacob Belk ("Belk") made the final upset bid on October 15, 2018.

On October 31, 2018, Belk went to the Property and knocked on the door. Ryan did not answer the door, but Belk "stayed at the door and explained he was the new owner of the property and eventually left." "Sometime in early November 2018," Ryan posted a note on the front door of the Property, stating "if this [is] about the taxes, they were paid in full before the sale and the house still belongs to [Ryan]." Ryan also contacted the Kania Law Firm to inform them that she "has paid taxes to the County." On November 28, 2018, an employee of the Kania Law Firm responded to Ryan via email and informed her that her "right of redemption no longer exist[ed]."

Upon completion of the sale procedure, the defendant was forcibly evicted and subsequently filed a motion to set aside the order and writ of possession which the trial court denied. Next, the defendant moved to set aside the default judgment, or, in the alternative, the judgment of confirmation of the sale and moved to strike the commissioner's deed. The trial court determined that Mecklenburg County exercised due diligence prior to service by publication; that the defendant had the right to rely on the Tax Collector's representative's oral statement as to the total amount of outstanding taxes; that she had exercised her right of redemption; that the high bidder at the sale was a good faith purchaser; and that the defendant was entitled to restitution and dismissing the bidder, finding that his interest could not be affected by the proceedings.

The defendant contended that the trial court erred in denying her motion to set aside the entry of default and default judgment because "[Mecklenburg] County failed to exercise due diligence as required under Rule 4," rendering the judgment void. The opinion notes that:

A trial court may also "set aside and relieve a defendant from a default judgment if the judgment entered is void." Dowd v. Johnson, 235 N.C. App. 6, 9, 760 S.E.2d 79, 82 (2014).

A defect in service of process by publication is jurisdictional, rendering any judgment or order obtained thereby void. If a default judgment is void due to a defect in service of process, the trial court abuses its discretion if it does not grant a defendant's motion to set aside entry of default. Jones v. Wallis, 211 N.C. App. 353, 356, 712 S.E.2d 180, 183 (2011) (citation omitted) (cleaned up).

The defendant contended that the opinion of In Re Foreclosure of Ackah, 255 N.C. App. 284, (2018), where service was deemed insufficient because the foreclosing party failed to use an email address that it had and knew was valid applied the facts of this case and Mecklenburg County failed to exercise due diligence in service of process because it did not attempt to serve her via email while having her email on file. The Court of Appeals found this persuasive noting:

... it is undisputed that the Mecklenburg County Tax Office had Ryan's email on file. Indeed, the trial court's finding that Mecklenburg County had prior notice of a need to email Ryan due to her disabilities remains unchallenged by Mecklenburg County on appeal.

As to setting aside the Commissioner's deed, the Court notes that the opinion of In re Foreclosure of George, 377 N.C. 129, (2021) makes it clear where service of process in an action is deficient, N.C.G.S. Section 1-108 provides that when a judgment is set aside, title to property sold under such judgment to a good faith purchaser is not affected and the remedy of restitution to the wronged landowner may be ordered by the trial court. This observation by the Court of Appeals lead to an analysis of the issue of good faith on the part of the high bidder.

The trial court did not set aside the commissioners deed or the confirmation of the sale because it found that the high bidder was a good faith purchaser. The opinion observes that the North Carolina Supreme Court addressed the issue in In re Foreclosure of George, 377 N.C. 129, (2021). The Supreme Court found that the trial court had not abused its discretion in concluding the purchasers were not good faith purchasers and concluded that:

A purchaser in good faith or an innocent purchaser is a person who purchases without notice, actual or constructive, of any infirmity, and pays valuable consideration and acts in good faith. An innocent purchaser lacks notice of any infirmity or defect in the underlying sale when (a) he has no actual knowledge of the defects; (b) he is not on reasonable notice from the recorded instruments; and (c) the defects are not such that a person attending the sale exercising reasonable care would have been aware of the defects.

Applying this doctrine to the facts, the opinion concludes that the high bidder was a good faith purchaser. As this conclusion is fact driven, we will include the Court's analysis verbatim.

Here, the trial court made a conclusion of law that "Belk's status as a good faith purchaser is determined as of the time he made his bid and obligated himself to purchase the Property, and not as of the time he accepted the deed." While it is true that the record is devoid of evidence that Belk knew of a defect in the foreclosure sale at the time he made the final upset bid, it is also true that Belk had knowledge of Ryan's claim that the outstanding taxes had been paid prior to accepting the commissioner's deed.

Indeed, the record indicates that Belk went to the Property, stood outside the door, and informed Ryan that he was the purchaser. Specifically, the trial court found in fact number twenty-one, "Ryan informed Belk of the paid property taxes when Belk came to the property after making the bid." "The bid is but a proposition to buy, and, until accepted and sanctioned by the court, confers no right whatsoever upon the purchaser." Beaufort Cnty. v. Bishop, 216 N.C. 211, 4 S.E.2d 252, 527 (1939) (quotation marks and citation omitted). We decline to hold, however, that Belk was not permitted to rely on Mecklenburg County's assertion that the Property was to be sold due to the outstanding taxes. Belk reasonably relied on the County's assertion and the certificate of taxes due when he purchased the Property. See Matter of George, at ¶ 24 (recognizing that a purchaser is a good faith purchaser if "the defects are not such that a person attending the sale exercising reasonable care would have been aware of the defects" (brackets omitted)); see also Miller v. Lemon Tree Inn, Inc., 39 N.C. App. 133, 141, 249 S.E.2d 836, 841 (1978). Accordingly, we hold the trial court did not err by concluding that Belk was a good faith purchaser.

Mecklenburg County argued that the trial court erred by concluding that the plaintiff exercised her right of redemption. The Court's summarization of the law with respect to tax redemption is clear.

An owner of real property has the right to redeem his land from the lien of unpaid taxes by paying the taxes with accrued interest, penalties and costs, and the court costs at any time before the entry of a valid judgment in a tax foreclosure action confirming the judicial sale of the land for the satisfaction of the lien. Chappell v. Stallings, 237 N.C. 213, 216, 74 S.E.2d 624, 627 (1953).

Where a debtor deposits "sufficient money to redeem and for the purpose of redeeming the land from the tax lien" and the foreclosure sale "ha[s] not then been confirmed," the debtor should be "permitted to redeem the land." Bishop, 216 N.C. at 215, 4 S.E.2d at 527; see also Beck v. Meroney, 135 N.C. 532, 534, 47 S.E. 613, 613 (1904).

The findings affirmed by the Court of Appeals were that the plaintiff called the Tax Office, inquired about the amount owed, made a payment of $21,438.25 which was deducted from her bank account. It was undisputed that she made this payment after being told by an authorized representative of the Mecklenburg County Tax Office that the outstanding balance was $21,438.25. Mecklenburg County's contention that, because her payment was refunded to her, she did not redeem the property was not convincing. Indeed, the opinion notes the significance of the fact that her payment exceeded the amount due under the terms of the default judgment and was more than the amount listed on Mecklenburg County's certificate of taxes due.

The Court of Appeals determined that the trial court was correct in concluding that the plaintiff was entitled to restitution where she properly redeemed the property subsequently sold at the foreclosure sale, leaving the amount as the sole issue before trial court upon remand.

This is a cautionary tale as to why title insurance companies are reluctant to insure title resting upon tax sales and as to why proper service of process is critical.