Opinion ID: 15644
Heading Depth: 3
Heading Rank: 4

Heading: Analysis of Federal Law

Text: The fundamental issue implicated by the federal law arguments on appeal involves whether, and to what extent, section 1825(b)(2) is incompatible with the Texas state laws governing foreclosure of tax liens against real property and the subsequent conveyance of that property at a tax sale. In one of our most recent pronouncements on this question, FDIC v. Lee, 130 F.3d 1139 (5th Cir. 1997), we held that a tax sale under Louisiana law violated section 1825(b)(2). In Lee, the FDIC, in its capacity as receiver for a failed bank, succeeded to a mortgage on a parcel of land located in Jefferson Parish, Louisiana. The owner of the land failed to pay the taxes due, resulting in the transfer of the property at a tax sale. Because the FDIC’s lien interest in the land was not properly recorded, and because it had failed to request a notice of tax delinquency pursuant to Louisiana statute, the FDIC was not informed of the sale of the property. Soon after the sale, however, the tax sale purchaser contacted the FDIC to inquire whether it intended to file 13 for redemption of the property. The FDIC took no action for approximately three years, but eventually filed a writ of mandamus in state court seeking to compel the issuance of a redemption deed. Id. at 1140. The state court denied and dismissed the writ because the FDIC refused to reimburse the tax sale purchaser for repairs and maintenance of the property as was required under the Louisiana statute governing redemption. Id. The FDIC subsequently filed suit in federal court seeking to have the tax sale declared void, arguing that the sale had violated its constitutional due process right to notice. Id. We based our holding on the ground that the tax sale violated section 1825(b)(2) because the FDIC had not consented to the sale. Id. at 1143. We reasoned that the provision’s prohibition on “foreclosures” applied to tax sales as conducted under Louisiana state law, and stated that “[t]he controlling principle of this case is that 12 U.S.C. § 1825(b)(2) represents the express will of Congress that the FDIC must consent to any deprivation of property initiated by the state.” Id. at 1143. We held “that the tax sale was conducted without the consent of the FDIC” and, accordingly, “violated 12 U.S.C. § 1825(b)(2) and thus is null and void.” Id. In Trembling Prairie Land Co. v. Verspoor, 145 F.3d 686 (5th Cir. 1998), we applied the reasoning of Lee to a case in which the FDIC sought to redeem property subject to an FDIC lien that had been sold at a tax sale without its consent. We held that the 14 FDIC’s right of redemption constituted “property” within section 1825(b)(2). Id. at 690. Concluding that tax sales under Louisiana law were functionally equivalent to the Texas foreclosure procedures, we held the tax sale “null and void” because it had been conducted in violation of section 1825(b)(2). Id. at 690-91. In summarizing the rationale of our holding, we quoted our previous statement in Lee that section 1825(b)(2) “represents the express will of Congress that the FDIC must consent to any deprivation of property initiated by a state.” Id. at 691 (citation omitted). In both Lee and Verspoor, we summarized section 1825(b)(2) as requiring that the FDIC must consent to any “deprivation” of property initiated by the state. This simple articulation of the undergirding principle of section 1825(b) accurately represents the analytical thread that runs through the line of cases interpreting this provision. Obviously, the FDIC cannot be “deprived” of any property interest it never owned. Here, the FDIC never had more than a lien; it never had the right to prevent transfer of the Property (or an interest therein) subject to its lien; and it never had the right to prevent Metroplex, or any party holding an interest in the Property under Metroplex, from pleading the statute of limitations once the statute had run. For example, in Irving Indep. School Dist. v. Packard Properties, 970 F.2d 58, 62 (5th Cir. 1992), we rejected an argument by the FDIC that certain preexisting liens securing 15 previously-assessed penalties had “the same effect as the imposition of a direct liability” and therefore violated 12 U.S.C. § 1825(b)(2) and (3). We concluded that allowing enforcement of these preexisting liens subsequent to sale of the assets by the FDIC did not constitute a deprivation of the FDIC’s “property.” We reasoned that because the liens had been in place when the FDIC acquired the assets, the “liens have not caused a reduction in the value of the receivership’s assets,” explaining that the “assets have the same value today that they had when the FDIC obtained them.” Id. Because of this, we held that section 1825(b)(2) did not apply and that the preexisting liens could be enforced upon the FDIC’s sale or disposal of the encumbered assets. Id. Although we did not expressly state our conclusions in those terms, the key to our holding was that allowing future enforcement of the liens did not constitute a deprivation of the FDIC’s property. Because the term “property” has come to be somewhat broadly construed in the context of section 1825(b)(2), there exists a vast number of potential interests sufficient to constitute “property” under that provision. This makes the requirement that there be an actual “deprivation” crucial in analyzing whether a particular action taken under state law violates section 1825(b)(2). The reasoning of Irving illustrates our point as well as the distinction we seek to make. Absent some actual devaluation of, or loss of rights in, FDIC “property,” there is no “deprivation of 16 property” and section 1825(b)(2) is not violated under Lee. In Lee, the state court held that under Louisiana law, redemption of the property by the FDIC would only be allowed if the FDIC reimbursed the tax sale purchaser for repairs and maintenance of the property. 130 F.3d at 1140. Thus, the application of state law would have subjected the FDIC to payment of an additional, nonconsensual fee before it could exercise its rights under the mortgage as they had existed prior to the tax sale. In other words, the “deprivation” in Lee appears to have been the requirement that the FDIC pay to redeem the property, rather than the mere transfer of title pursuant to the tax sale. Similarly, in Verspoor the FDIC succeeded to a right of redemption, which a tax sale purchaser sought to extinguish by means of a suit to quiet title. 145 F.3d at 690. We held that the “property” involved in Verspoor was the right to redeem the land that had been sold at the tax sale. Id. The suit to quiet title sought, by operation of state law, to extinguish this right, thereby depriving the FDIC of “property” without its consent. As in Lee, we assume that the FDIC had no particular interest in who held legal title to the property in question as long as the FDIC’s equitable rights in the property were not prejudiced and could be exercised at the discretion of the FDIC without additional cost. In addition, we note that in the two cases in which we have considered tax sales under Texas law, Matagorda County v. Russell 17 Law, 19 F.3d 215 (5th Cir. 1994), and Donna Indep. School Dist. v. Balli, 21 F.3d 100 (5th Cir. 1994), we held that the tax liens could be foreclosed as long as the FDIC’s interests were preserved. In Matagorda, we stated that, although this was a permissible solution, it was not a realistic one under the circumstances of that case. 19 F.3d at 225 n.11. We also acknowledged that the FDIC itself had endorsed this general position. Id. at 223 n.7. In Balli, we affirmed the district court’s judgment, which held that the taxing units were permitted to foreclose their liens, but “decreed that foreclosure on the tax liens would be subject to the FDIC’s deed of trust liens.” Id. at 101. In the case at bar, the FDIC’s “property” in question consists of the FDIC’s mortgage on the Property. Unlike the actions taken pursuant to state law in Lee and Verspoor, the foreclosure and tax sale under Texas law did not extinguish the FDIC’s lien because the FDIC was not joined in the tax suit. The FDIC’s lien was not devalued, extinguished, or disturbed in any manner. The appellants took the Property subject to the FDIC lien, and the FDIC’s ability to enforce its rights under the lien were not prejudiced thereby. It had all the same rights following the judgment in the tax suit and the consequent tax sale as it did before the tax suit was filed. The FDIC could then have exercised its power of sale under the deed of trust against appellants just as easily as it could have prior to the tax suit judgment and tax sale. The FDIC was in 18 no different position following the tax suit and tax sale than it would have been had there been no such tax suit and tax sale and Metroplex had in March 1992 conveyed the Property (without the knowledge or consent of the FDIC) to Smith subject to the FDIC’s lien. Consequently, we hold that the tax sale did not constitute a deprivation of the FDIC’s property, and thus did not violate section 1825(b)(2). Accordingly, we conclude that the tax sale was not “null and void” in its entirety and did effectively convey such interest in the Property as was held by Metroplex, the mortgagorowner, to the appellants, subject to the FDIC’s lien.