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When a Tax Deed Notice is Returned ‘Undeliverable’, What Constitutes Reasonable Diligence in Conducting Further Searches for an Alternative Address?

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The Colorado Court of Appeals took on this question in Wells Fargo v. Olivas, No. 16CA2158, (2017COA158).  In this case, Buyers purchased a home in Pueblo in 2004. Buyers signed a deed of trust in favor of Wells Fargo Financial Colorado, Inc. (“WFFC”), for a mortgage loan, and an open-end deed of trust to Wells Fargo Financial Bank (“WFFB”), doing business out of Sioux Falls, South Dakota, to secure a line of credit. Both deeds of trust were recorded in the Pueblo County Clerk and Recorder’s Office. Beginning in 2008, buyers failed to pay both the monthly mortgage installments to WFFC and the property taxes on the house. WFFC did not maintain an escrow account on the mortgage loan, but it paid the 2008 taxes in September 2009. Bob Houseman (“Houseman”) paid the taxes in 2009, 2010, 2011, and 2012. In 2013, Housman applied for a tax deed. In early January 2014, the Treasurer took steps to notify all parties with an interest in the property of an impending issuance of a tax deed and a right to redeem by May 28, 2014.

The Treasurer acquired a title report and, on January 2 and 3, 2014, sent notices by certified mail to the buyers, the public trustee of Pueblo County, and to WFFB and WFFC at the addresses on the two deeds of trust on record. The Treasurer also had a notice posted on the property and advertised for three consecutive weeks in a local newspaper, the Pueblo Chieftain. The notice mailed to WFFC was returned, marked ‘undeliverable.’

Although the notice to WFFC was returned, the Treasurer believed that he had provided the notice required by law because one Wells Fargo entity had received the notice. He testified that he believed that WFFB and WFFC were “the same entity” because they operated under the “same trade name,” and he assumed that WFFB, which received a notice, would notify the proper office if necessary.

The Treasurer issued Housman a tax deed on the house on May 28, 2014. Housman sold the property to John Moran (“Moran”) a few weeks later, and Housman continued to hold a deed of trust on the property. On December 30, 2014, WFFC requested related records from the Treasurer. And on May 20, 2015, WFFC filed a complaint seeking to void the tax deed to Housman, the special warranty deed from Housman to Moran, and the deed of trust held by Housman.

Housman and Moran moved for summary judgment, arguing that because the correct address for WFFC did not appear in the county records for the subject property, the Treasurer’s failure to follow up was of no effect and could not invalidate the tax deed. WFFC responded that the Treasurer’s failure to do anything when there was more that could reasonably be done was a violation of the statute and a deprivation of due process, and required summary judgment in favor of WFFC. The district court granted summary judgment to Houseman and Moran.

On appeal, WFFC contends that the district court’s order granting summary judgment was erroneous. The Court of Appeals presumes a tax deed to be valid. A plaintiff attacking the validity of a tax deed on the ground of defective notice of a pending tax sale has the burden of presenting evidence of the defect. However, when notice is defective because it was given without the diligent inquiry required by law, the tax deed is voidable.

The Colorado Supreme Court recognized the duty of diligent inquiry applies to a treasurer’s diligence in inquiring as to all interested parties and their correct addresses. A further duty of diligent inquiry may arise if the facts show that the interested party could not have received notice of the pending tax deed. Colorado appellate courts have consistently found that a further duty of diligent inquiry arises when notice to a taxpayer is returned as undeliverable.

The Treasurer testified that he believed that notice had been mailed to one entity at two separate addresses and that one of the notices had been delivered. This Court concludes that a reasonably diligent treasurer should know that secured parties on two different deeds of trust, securing two different loan amounts, with two different (though similar) names and two different addresses, should not be construed as the same compay. The Court believes the Treasurer therefore should have known that WFFC did not receive notice.

Once a treasurer knows that a notice of tax sale has not been received by an interested party, a re-examination of the records related to the subject property is required. WFFC contends that the Treasurer should have searched the county database, and that if he had performed a search of the county records for all properties naming it as grantor or grantee and looked at the documents recorded for those properties, he would have easily found an alternative address. This Court agrees, concluding that a treasurer exercising a fair degree of diligence should re-examine the records of the subject property and, in the event that an alternative address does not emerge, the treasurer should conduct a reasonable search of the county’s available electronic records to find an alternative address.

Because the treasurer in this case took no action when receiving the returned notice to WFFC, this Court concludes that the Treasurer failed, as a matter of law, to perform his statutory duty to exercise reasonable diligence. Summary judgment in favor of Defendants is reversed and this case is remanded.

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