The Public Policy Team monitors Alabama’s courts for impacts on the real estate industry and property laws in general. When noteworthy events occur or important opinions are released, summaries and analysis of the cases will be provided as the Alabama REALTORS® Judicial Monitor. For the first edition of the Judicial Monitor, we review an Alabama report recommending additional judgeships, a HUD complaint alleging discrimination against a property management company in Mobile and three court opinions - one opinion deals with the impact of liens (Medicaid) after a foreclosure sale, the next with redemption, and the final opinion deals with takings and inverse condemnation.

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I. Commission Recommends Additional Judgeships

On July 23, 2018, the Judicial Resources Allocation Commission (JRAC) issued a report, recommending that the Alabama Legislature create one additional circuit judgeship in five different circuits. The JRAC is tasked with analyzing the caseload in each judicial circuit and making recommendations when new judgeships are needed. The five circuits recommended to receive the additional judgeship are the 6^th (Tuscaloosa), 13^th (Mobile), 19^th (Autauga, Chilton, Elmore), 23^rd (Madison) and 28^th (Baldwin). The JRAC indicated in the report that the recommendations stem from “immediate, critical needs” in these circuits.    

This is an important step in relieving overburdened judges in these five circuits, and if approved by the Legislature, the additional judgeships should help increase the timeliness of the courts in these circuits. For real estate professionals and others involved in litigation, the increased efficiency should shorten the timeline between filing and final adjudication of a lawsuit. All of these areas of the state have seen population growth and consistently strong real estate markets.

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II. HUD Files Fair Housing Complaint Against Mobile, AL Property Management Company

On June 27, 2018, the U.S. Department of Housing and Urban Development (HUD) charged Bienville Property Management, a company doing business as Showhomes in Mobile and Baldwin Counties, with violations of the Fair Housing Act. HUD’s complaint states that Bienville discriminated against prospective tenants based on their familial status.

According to the complaint, a woman with three minor-aged children was told that she could not rent a property managed by the company because she had too many children. A tester from the Center for Fair Housing experienced the same discriminatory conduct. A company employee who spoke with the tester confirmed that the company’s rule was tenants could only have two minor children live with them, which was why the rates were so reasonable according to the employee. HUD filed the complaint against the property management company for violations of the Fair Housing Act’s prohibition on discrimination with respect to the rental of a dwelling based on familial status. HUD is seeking an order that awards compensatory damages to the woman, assesses civil penalties against the company, and mandates the company management and employees attend fair housing training.

REALTORS® must always be aware of the requirements of federal fair housing laws, as well as the REALTOR® Code of Ethics.

• Fair Housing Law: Under federal law, actions like refusing to sell or rent or “steering” prospective buyers or renters based on their membership in a protected class are prohibited. The protected classes under federal law are race, color, religion, national origin, sex, familial status and handicap.
• REALTOR® Code of Ethics: REALTORS® are also prohibited from discrimination based on sexual orientation and gender identity under the REALTOR® Code of Ethics, Article 10.

   

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III.  Alabama Medicaid Agency v. Southcrest Bank et al. (Ala. Civ. App. 2018).

Summary: On August 3, 2018, the Alabama Court of Civil Appeals issued an opinion dealing with a foreclosure sale, excess funds from the foreclosure sale and a Medicaid lien on the foreclosed property. [i] The parties in the case were a lender, who held excess funds after foreclosing on a property and conducting a foreclosure sale, and claimants to the excess funds. The claimants disagreed about who had greater priority to the excess funds from the foreclosure sale in order to satisfy the liens on the property. The trial court split the excess funds amongst the claimants, giving Medicaid a lower priority. One of the claimants, the Alabama Medicaid Agency, appealed the trial court’s decision to the Alabama Court of Civil Appeals.

Background: In this case, a lender foreclosed on a piece of property which was subsequently sold at a foreclosure sale. After the foreclosure sale, the funds owed to the lender were satisfied, leaving a surplus totaling $15,352.95. The lender filed an action in the Chilton County Circuit Court seeking to interplead the funds into the court to determine who was entitled to the surplus funds. Parties with claims to the surplus funds included the Alabama Medicaid Agency as a junior lienholder, the funeral home who provided funeral services to the deceased property owner, and the attorney who served as guardian and conservator of the deceased’s estate.

The Chilton County Circuit Court entered a judgment distributing the surplus funds as follows:

• $11,000 to the attorney serving as guardian/conservator
• $664 to the funeral home
• $750 in attorney’s fees to the lender for filing the interpleader action
• $2,938.95 in remaining funds to Medicaid

Additionally, the trial court held that Medicaid, as a junior lien holder, had the right to redeem the property. Medicaid appealed the trial court’s decision to the Court of Civil Appeals, arguing that its lien against the property had priority over the claims of the other parties claiming an interest in the interpleaded funds.

Court of Civil Appeals Decision:  Reversing and remanding the trial court’s decision, the Court of Civil Appeals held that the trial court was incorrect in awarding funds to the funeral home and guardian/conservator before Medicaid’s lien was satisfied. Additionally, the Court found that the trial court was incorrect in awarding attorney’s fees to the lender’s attorney before Medicaid’s lien was satisfied. Because Medicaid is a state agency, awarding attorney’s fees prior to Medicaid’s lien being satisfied violated constitutional law.[ii]

Takeaways: This case provides a few takeaways for REALTORS® :

• The Alabama Medicaid Agency: Medicaid liens can be placed on property when a patient enters a long-term care facility, or a stay becomes long-term. If a patient qualifies for Medicaid but for owning his or her house, Medicaid may record what is called a TEFRA (pre-death) lien on the patient’s house.[iii] Without the lien, the patient or the patient’s family cannot rely on Medicaid to pay the long-term facility bills. By way of notice, the patient actually signs the lien before it is recorded. Medicaid liens are considered junior liens, meaning that taxes owed to the state and mortgages take precedent. The Alabama Medicaid Agency plans to be more proactive in satisfying unpaid balances through property liens.[iv]
• Title Search and Legal Advice: Real estate agents should always recommend a title search by an experienced title company before closing on a property. This is especially true when dealing with property in foreclosure and with tax liens. Consult an experienced real estate attorney to assist you in this process. An ounce of prevention on the front end of a transaction can be worth a pound of cure after closing.
• Interpleader: Interpleader is the method for a court to decide the proper ownership of disputed funds, such as earnest money or surplus from a foreclosure sale. The Legal Helpdesk previously published an article on interpleader, which can be found here.
• Junior Lienholders Have Priority: Junior lienholders, such as Medicaid in the case above, have priority over other, non-lienholder claims to surplus funds from a foreclosure sale. Additionally, if a junior lienholder is the state or a state agency, they have priority over claims for attorneys’ fees.
• Junior Lienholders’ Right to Redeem: Additionally, junior lienholders have a right to redeem the property for which they hold a lien. Thus, potential buyers should be mindful of whether any liens exist on foreclosed property as those lienholders have a right to redeem the property if their lien is not satisfied through the foreclosure sale. The Legal Helpdesk previously published an article on the right of redemption, which can be found here.

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IV. Equity Ventures, LLC v. Cheaha Bank (Ala. Civ. App. 2018).

Summary: On July 20, 2018, the Court of Civil Appeals released another opinion of interest to REALTORS®, dealing with redemption of property after a tax sale.[v] The parties in this case were a bank that held a mortgage on a property sold at a tax sale and a company who purchased the tax deed on the property. The bank and the company disagreed about whether the bank had to pay a certain sum to redeem the property under a legal process called administrative redemption or a much larger sum (including attorney’s fees) under judicial redemption. While the Court of Appeals limited its opinion to a procedural issue, the information REALTORS® can glean from the Court’s opinion is still very informative.

Background: In May of 2012, the State of Alabama purchased a tax lien on the property at a tax sale. A company later purchased the state’s interest in the property in January 2015 and eventually obtained the tax deed for the property from the county probate court by December of 2015. In October 2016, a bank that held a mortgage on the property sent the company a letter stating that the bank sought to redeem the property through administrative redemption.[vi] Administrative redemption allows a private party to redeem, within a certain time period, real property sold at a tax sale if the party deposits with the probate court an amount of money which includes the purchase price for the property from the tax sale, plus value for improvements, plus a certain amount of interest.[vii]

The company replied that since the tax sale had occurred more than three years before the bank sent the October 2016 letter, administrative redemption would not be available to the bank by law, so the bank would need to redeem the property through judicial redemption.[viii] A major difference between judicial redemption and administrative redemption, and the main issue in this case, is that attorney fees can be assessed under judicial redemption. The company told the bank it would accept redemption at $15,989.67, which included $12,290.88 in attorney fees.

In November 2016, the bank filed a petition for administrative redemption with the probate court, which the probate court granted. The probate court ruled that the bank could obtain a certificate of redemption for the property upon payment of $ 4,776.24. The company filed motions to quash the certificate of redemption and to vacate the judgment with the probate court, which were denied. In March 2017, the company filed a petition for a writ of mandamus with the local circuit court, asking the circuit court to vacate the probate court’s ruling. The circuit court dismissed that petition without providing a reason for its decision, and the company appealed that decision.

Court of Civil Appeals Decision: The main issue on appeal was whether the company’s only option to overturn the probate court’s decision was to file a petition for a writ of mandamus with the local circuit court. In its opinion, the Court of Appeals noted that Alabama’s statute governing the appellate jurisdiction of a circuit court does not directly discuss appeals concerning certificates of redemption for the sale of land.[ix] However, the court ruled that, based on precedent,[x] circuit courts are the proper venue to seek review of such decisions. The court remanded the case to the circuit court to address whether the probate court erroneously allowed the bank to use the administrative redemption process.

Takeaways: While the Court of Appeals’ decision was limited to a procedural issue, the case offers several important insights for REALTORS®:

• Latent Tax Issues on Real Property: This case arose years after the tax sale on the property initially took place. Encourage your client to consult a tax professional and attorney experienced in real estate matters for specific analysis of questions involving properties that have experienced tax delinquency issues. The Legal Helpdesk recently wrote an article explaining property tax issues generally and also discussing unpaid taxes on property, which you can view here.
• Period of Redemption After Tax vs. Mortgage Foreclosure: The timeline for redeeming property following a mortgage foreclosure sale is six months for qualified[xi], residential property and one year for all other property types. The redemption period for property sold due to delinquent taxes is very complicated, lengthy and at times, unclear.
• Seeking Review of Probate Court Issuing a Certificate of Redemption: The Court’s holding in this case means that, in order to seek review of a probate court’s decision to issue a certificate of redemption, a party should file a petition for a writ of mandamus with the circuit court.
• Attorney Fees in Administrative vs. Judicial Redemption: Unlike judicial redemption, if you are the party seeking to redeem a property through administrative redemption, attorney fees generally will not be included in the total amount you must pay to redeem.

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V. Chmielewski v. City of St. Pete Beach, 890 F.3d 942 (11^th Cir. 2018).

Summary: On May 16, 2018, the U.S. Court of Appeals for the 11^th Circuit (which includes the states of Alabama, Florida and Georgia) issued an opinion in an inverse condemnation case that represents a big victory for property rights. The dispute was between the City of St. Pete Beach, Florida and a family who owned beachfront property. The City created an easement on part of the family’s property by establishing public beach access there. The family claimed that this action resulted in a “taking,” which under the U.S. Constitution’s 5^th Amendment requires just compensation, and the jury at the trial court agreed. The 11^th Circuit upheld the trial court’s verdict, resulting in a victory for the family and property owners in general.

Background: The City of St. Pete Beach, Florida acquired title to a property next to a family beach house. The City built a community center and a city park with a beach access trail that gave the general public the right to continuously trespass on the family’s beach property. The City zoned the family’s beach area as a recreation/public park area and even facilitated use of the beach as an event space for rent. One time, the City even organized a large “wiffle ball tournament” on the beach parcel, which was attended by “(s)everal hundred individuals,” where a City police officer told one of the family members that “the event was private” and “made him leave his own property.”[xii] The family sued the City in the United States District Court for the Middle District of Florida, claiming that they had been subjected to a taking and were thus owed just compensation under the 5^th Amendment. 

Following a trial, the jury found that a taking had occurred through the “continuous occupation” of the property by members of the general public.[xiii] The jury found that the City had “encouraged public occupation by placing beach access signs, clearing vegetation, creating nearby parking spaces, hosting events at the property, and refusing to remove trespassers.”[xiv] The jury awarded the family $1,489,700, which was the amount the family’s appraiser determined as just compensation “for the value of the entire beach parcel plus the severance damages to the residential property.”[xv] The City then appealed the decision to the 11^th Circuit.

11^th Circuit Court of Appeals Decision: The City argued that its actions did not result in a taking. The court relied on the U.S. Constitution’s 5th Amendment for its analysis, which provides that private property cannot be taken without just compensation.[xvi] The court agreed with the trial judge that, in effect, the City had created an easement on the beach parcel without providing the property owners with compensation for doing so.[xvii] The court cited Nollan v. California Coastal Commission, one of the preeminent U.S. Supreme Court cases on takings, stating that the public in this case had been given “a permanent and continuous right to pass to and fro, so that the real property may continuously be traversed, even though no particular individual is permitted to station himself permanently upon the premises,” thereby creating a public easement and resulting in a taking under the 5^th Amendment.[xviii]  Therefore, the court agreed with the property owners that the City owed them compensation for the easement that had been created on their land. The City also argued that if it was to pay compensation for the value of the property as determined by the jury in the trial court, it should be awarded title to the property itself. The court disagreed, finding that the City had only compensated the owners for the easement’s effect on their property value, rather than for the price of full ownership of the property.[xix]

Takeaways:
 

• What is a “Taking?”: There is no single definition of a taking. However, as the court determined here, the creation of a “permanent right” of the public “to pass to and fro” on someone’s land (i.e., an easement) would be considered a taking.
• Just Compensation Required for a Taking: This opinion affirmed the rule that if a government entity creates an easement on someone’s property (even without officially labeling it as one), that would mean the government owes just compensation to the property owner. The jury at the trial court level in this case relied on an appraiser’s evaluation of “just compensation,” which the 11^th Circuit upheld.
• Takings in Depth: The Legal Helpdesk recently wrote a series of articles discussing takings law in depth, accessible at the links here and here.