Can a Mortgage or Lien Holder Obtain a Writ of Sequestration to Forestall Waste or Alienation of Encumbered Property on An Ex Parte Application ?
In Mitchell v. W.T. Grant Co., 416 U.S. 600, 610, 40 L. Ed. 2d 406, 94 S. Ct. 1895 (1974), the United States Supreme Court examined a Louisiana statute which allowed a mortgage or lien holder to obtain a writ of sequestration to forestall waste or alienation of encumbered property on an ex parte application.
The Court held that the statute comported with due process because, as a whole, the statute adequately protected the parties' interests. See Mitchell, 416 U.S. at 610.
Although the Court was primarily concerned with judicial participation in the process, which it considered necessary to diminish the possibility of improper sequestration, it identified the aspects of the procedure that operated to protect the parties' interests and concluded the protection was sufficient.
Specifically, the Court noted the following factors as protective of due process:
(1) a writ will only be issued upon a judge's authority and only upon a verified affidavit;
(2) the creditor must file a sufficient bond;
(3) the debtor may immediately seek dissolution of the writ, placing the burden on the creditor to show grounds for issuance;
(4) if the creditor fails to show grounds for issuance, the court may order return of the property and assess damages.
In his concurrence, Justice Powell stated:
In my view, the constitutional guarantee of procedural due process is fully satisfied in cases of this kind where state law requires, as a precondition to invoking the State's aid to sequester property of a defaulting debtor, that the creditor furnish adequate security and make a specific factual showing before a neutral officer or magistrate of probable cause to believe that he is entitled to the relief requested.
An opportunity for an adversary hearing must then be accorded promptly after sequestration to determine the merits of the controversy, with the burden of the proof on the creditor.
Mitchell, 416 U.S. at 625 (Powell, J., concurring).