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58 • May 2017 • Western Real Estate Business www.REBusinessOnline.com UTAH TAX SALES REQUIRE DUE PROCESS State Supreme Court finds that due-process error bars statute of limitations on title challenge. By Steven P. Young and Pamela B. Hunsaker T he Utah Supreme Court has affirmed the right of property owners to challenge tax sales con- ducted without constitutionally adequate no- tice to the property owner, even when the challenge takes place after the prescribed statutory limitations period has expired. The court's Jan. 10, 2017, decision in Jordan vs. Jen- sen overruled its 1955 decision in Hansen vs. Morris, where it had held that once the limitations period had passed, the purchaser of a tax deed could retain title against a challenge from an earlier deed holder even when the tax sale had violated due process. The case centered on the question of whether or not a taxing entity's failure to provide adequate, constitutionally required notice to an interested party of a tax sale prevented the application of a statute of limitations specific to tax title challenges. Utah law prohibits parties from challenging a tax title holder's ownership of real property more than four years after the property was conveyed. In Jordan vs. Jensen, the property at issue was sub- surface mineral rights that had been severed from the surface interests in 1995. The owner of the sur- face estate failed to pay property taxes between 1995 and 1999, and Uintah County seized the property and sold it in a tax sale in 2000. The purchaser of the tax deed then sold the property to the Jensens. The Jordans were the owners of the severed min- eral interest and neither they nor their predecessors had ever received notice of tax assessments for the mineral estate, nor did they receive notice of the surface owners' failure to pay taxes or of the tax sale. Although the mineral interest had been sev- ered from the surface interest in 1995, the 2000 tax deed purported to convey the land without reserva- tion or exceptions. A lessee of the Jordans' mineral rights secured two title opinions in an effort to ensure that the Jor- dans actually owned the leased mineral interests. Both attorneys expressed their concerns that the mineral estate might have passed to the Jensens un- der the tax deed. When the Jordans became aware of the title con- cerns in 2013, they asked the Jensens to sign a min- eral rights quitclaim deed to settle the issue. The Jensens responded by claiming ownership of the mineral estate for the first time. The Jordans filed a complaint to quiet title, alleg- ing that the mineral interest could not have passed as a result of the tax sale because the Jordans never received notice of the sale. The Jensens counter- claimed, seeking title to the mineral interest and alleging that the Jordans' action was barred under Utah's judicial code because more than four years had passed since the tax sale. In the code's chapter on statutes of limitations, Section 206 prohibits a party from challenging conveyance in a tax sale after the passage of four years, as follows: "An action or defense to recover, take possession of, quiet title to, or determine the ownership of real property may not be commenced against the holder of a tax title after the expiration of four years from the date of the sale, conveyance, or transfer of the tax title to any county, or directly to any other purchaser at any public or private tax sale." The Jensens invoked this provision in defense against the Jordans' action to quiet title, claiming that inasmuch as the tax sale had occurred more than four years prior to the lawsuit, the Jordans could not challenge the validity of the tax sale. The Jensens argued that the tax sale would have been voidable for failure to provide notice within the four-year period, but that the limitations period protected the tax title from legal challenges after that time. Both parties filed motions for summary judg- ment. Neither disputed that the county failed to provide constitutionally adequate notice of the sale. Therefore, the only issue was whether that defi- ciency prevented the application of Section 206. The district court held that the four-year limitations period did not apply because the county had violated constitutional require- ments of due process by not pro- viding notice to the Jordans of the tax sale, and that failure prevent- ed the mineral interest from pass- ing at the tax sale. The Jensens ap- pealed the district court's decision to the Utah Supreme Court. On appeal, the Jensens relied on Hansen v. Morris (1955), wherein the court rejected a due-process challenge to the predecessor to Section 206. In that case, the Utah Supreme Court held that the ap- plication of the four-year limita- tions period was constitutional even when "statutory steps re- quired to perfect a tax title have not been taken, such as failure to give notice of sale, failure of the auditor to execute affidavits, etc." The Jordan court acknowledged that the Hansen court had rejected a due-process challenge to the application of section 206, but found that three sub- sequent United States Supreme Court decisions re- quired reversal of Hansen. In Mennonite Board of Missions vs. Adams (1983), state law provided a two-year redemption period after a county tax sale. However, the U.S. Supreme Court held that the mortgagee was deprived of due process and the two-year limitations period did not apply because the mortgagee had not received no- tice of the tax sale. In Schroeder vs. City of New York (1962), a statute required an aggrieved party to sue for damages within three years after the city diverted water. Schroeder sued more than three years after diver- sion had occurred, but the court held that the limi- tations period did not apply because the city had not given Schroeder notice that it had diverted the water. In Tulsa Professional Collection Services Inc. vs. Pope (1988), the court held that non-claim statutes re- quiring creditors to submit claims to the executrix within two months were limitations periods that required actual notice before they could bar a credi- tor's claim. According to the Utah Supreme Court, these U.S. Supreme Court cases established that "a statute providing a limitations period will not apply when it is triggered by constitutionally defective state ac- tion." There was no dispute that the Jordans had not received constitutionally sufficient notice of the tax sale, or that the tax sale constituted state action. Thus, the court held that the Jordans had the right to challenge the Jensens' claim to title in the mineral interest and that "the county's failure to provide notice prevented the Jordans' mineral interest from passing at the tax sale." Steven P. Young, Partner, and Pamela B. Hunsaker, Of Counsel, Holland & Hart law firm, the Montana, New Mexico, Utah and Wyoming member of the American Property Tax Counsel (APTC) Young Hunsaker