Aaron Solomon: Deficiency Notices and Due Process

Editor’s Note: The Tenth Circuit Court of Appeals issued its opinion in Pater v. City of Casper on Monday, July 25, 2011.

In Pater v. City of Casper (No. 09-8084), the Tenth Circuit held that property owners may be able to state a due process claim when a deficiency notice is recorded against their property by a municipality.

In this case the City of Casper claimed that the plaintiffs were contractually obligated to reimburse the City for certain street improvements. Based on the Tenth Circuit’s description of the facts the City had some holes in its argument. A few weeks after making its demand for payment, without further communication and before received any response, the City recorded a “Notice of Apportionment and Assessment” against the plaintiffs’ property. This may have been an attempt to compel a settlement by clouding the plaintiffs’ title. If so, it failed. The plaintiffs sued, alleging, inter alia, a due process violation.

The District Court dismissed the due process claim and remanded various state claims. On appeal, the Tenth Circuit first held that the notices, while not judgment liens, nevertheless sufficiently encumbered the property to constitute a deprivation of a protected property interest. In reaching this conclusion the court relied in part on the City’s view that the notices were intended to “run with the land” and bind future purchasers. The plaintiffs were also apparently prepared to offer an expert to testify that a purchaser could not obtain tile insurance until the Notices were satisfied. The Tenth Circuit noted that the existence of a common law action for slander of title strongly suggested that the notices had the potential to cause a legal injury. Finally, the Tenth Circuit identified and resolved a circuit split. The Second Circuit has indicated a lis pendens trigger Due Process protection. The Second Circuit has held that it does not.

The court then considered whether the plaintiffs had been provided sufficient process to satisfy the fourteenth amendment. Because the District Court did not reach this issue, the Tenth Circuit remanded for it to address this issue in the first instance. However I think it is pretty clear from the facts that there was no process at all, at least pre-deprivation.