Homesteaded Property page2

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Supplemental Memorandum Decision

The Memorandum Decision of this Court dated July 12, 1957, and filed in the above actions on that date as the Findings of Fact and Conclusions of Law in said actions is supplemented and amended to the extent and in the manner hereinafter stated.

In the eighth paragraph of said Memorandum Decision dated July 12, 1957, it is stated that L. B. Mast, one of the persons named by Mary Stone in her last will and testament as one of the independent executors of said will, died before the will of Mary Stone was probated on August 24, 1953. This statement is erroneous. L. B. Mast is still alive, but he failed and refused to qualify as one of the independent executors of the Estate of Mary Stone.

In the Memorandum Decision dated July 12, 1957, it was found and concluded that in the event the proceeds from the foreclosure sale of the J. E. Stone Property exceed the court costs accrued in Civil Action No. 1933, the amount of the indebtedness of J. E. Stone and Mary Stone to Plaintiff for income taxes assessed against them for the years 1940 and 1950 and against J. E. Stone for the year 1947 and the taxes assessed against the J. E. Stone Property and owed the City of Nacogdoches, Texas, and the Nacogdoches Independent School District for the years 1955 and 1956, such part of such proceeds in excess of said amounts should be made available to J. E. Stone for investment in a homestead provided said J. E. Stone invests said funds in a homestead within six months from the date of the sale of said J. E. Stone Property, which said six months period was found to be a reasonable time within which to allow J. E. Stone to invest such funds in a homestead. Such conclusion is unquestionably correct under the holding of the Supreme Court of Texas in Lucas v. Lucas, 143 S. W. 1153, even though Mary Stone by her will devised her undivided one-half interest in the J. E. Stone Property to her children, share and share alike, subject to a life estate therein devised to J. E. Stone. As to the judgment that should be entered in Civil Action No. 1933 the original Memorandum Decision, above referred to, directed that such judgment should provide that in the event the proceeds from the foreclosure sale of the J. E. Stone Property is such that there would remain in the registry of the Court as a part of said proceeds a sum in excess of the amount necessary to pay the costs incurred in connection with the sale, the costs of Court in Civil Action No. 1933, the amount of the indebtedness of J. E. Stone and the Estate of Mary Stone, Deceased, to Plaintiff for income taxes for the years 1949 and 1950 and the amount of the income taxes owed Plaintiff by J. E. Stone for the year 1947 and the amount of the taxes assessed against the J. E. Stone Property and owed the City of Nacogdoches, Texas, and the Nacogdoches Independent School District for the years 1955 and 1956, such excess sum would be held in the registry of the Court for distribution to J. E. Stone, upon order of this Court, for investment in a homestead provided J. E. Stone elected to invest said sum in a homestead within said six months period, and in the event said J. E. Stone did not elect to invest said sum in a homestead within said six months period, such funds would be subject to distribution, per order of this Court, to Texas Power and Light Company and Texas Employers Insurance Association in satisfaction of the judgments against J. E. Stone owned by them, respectively. In giving further consideration to the matter, I have concluded, in view of the fact that the undivided one-half interest of Mary Stone in the J. E. Stone Property passed to her children, subject to a life estate therein in J. E. Stone, that in the event there remains in the registry of this Court out of the proceeds of the sale of the J. E. Stone Property an amount subject to investment in a homestead by J. E. Stone, and J. E. Stone does not elect to invest said sum in a homestead within the six months period following the sale of the J. E. Stone Property, such excess sum should be distributed, per order of this Court, as follows: one-half thereof to the children of Mary Stone and one-half thereof to Texas Power and Light Company and Texas Employers Insurance Association in satisfaction of the judgments against J. E. Stone owned by them, respectively; and the judgment entered in said Civil Action No. 1933 should so provide.

The original Memorandum Decision dated July 12, 1957, and above referred to, as amended by this Supplemental Memorandum Decision, together with this Supplemental Memorandum Decision, will constitute the Findings of Fact and Conclusions of Law herein.

¹ Stone v. Huffstutler (5th Cir.) 227 Fed. (2d) 217.

² 26 U. S. C. A. (1946 ed.) Sec. 3670; and 26 U. S. C. A. (1954 ed.) Sec. 6321.

³ 26 U. S. C. A. (1946 ed.) Sec. 3671; and 26 U. S. C. A. (1954 ed.) Sec. 6323.

⁴ 26 U. S. C. A. Sec. 6323.

⁵ Art. 8, Sec. 15, Texas Constitution; and Art. 7320, Vernon 's Civil Statutes of Texas , Annotated.

⁶ Harms v. Ehlers ( Tex. Civ. App.) 179 S. W. 2d 582 (Writ of Error Refused); Hughes v. Groshart ( Tex. Civ. App.) 150 S. W. 2d 827; Oakwood State Bank v. Durham ( Tex. Civ. App.) 21 S. W. 2d 586; and Savage v. Cowan ( Tex. Civ. App.) 113 S. W. 319 (Writ of Error Refused).

⁷ Hunter v. Wooldert, 55 Tex. 433; North v. Shearn, 15 Tex. 175; and Wood v. Wheeler, 11 Tex. 122.

⁸ United States v. Kaufman, 267 U. S. 408 [1 USTC ¶116]; Randolph Products Co. v. Manning (3rd Cir.) 176 Fed. (2d) 190 [49-2 USTC ¶9370]; and Scherf v. Commissioner of Internal Revenue (5th Cir.) 161 Fed. (2d) 495 [47-1 USTC ¶9260] (Certiorari Denied) 332 U. S. 810.

⁹ Art. 3995, Vernon 's Civil Statutes of Texas , Annotated.

¹⁰ U. S. Fidelity & Guaranty Co. v. The First National Bank of Dallas (5th Cir.) 172 Fed. (2d) 258; Trinidad Asphalt Mfg. Co. v. Gregory (5th Cir.) 166 Fed. (2d) 745; U. S. v. Georgia Marble Co. (5th Cir.) 106 Fed. (2d) 955; and Title Guarantee & Trust Co. v. McIlwain (9th Cir.) 73 Fed. (2d) 754.

¹¹ Lessing v. Russek ( Tex. Civ. App.) 234 S. W. 2d 891, 894 (Writ of Error Refused NRE); Ball v. Parks ( Tex. Civ. App.) 278 S. W. 2d 189, 192; Sloan v. Dahl, 27 S. W. 2d 284, 285; and Ewing v. Schultz ( Tex. Civ. App.) 220 S. W. 625 (Writ of Error Refused).

 

 

 

United States of America , Plaintiff v. J. Francyl Howard, a/k/a J. F. Howard; Mary B. Howard, et al., Defendants

U. S. District Court, Dist. Ore., Civil No. 68-51, 296 FSupp 264, 12/3/68

[Code Secs. 6322, 6335, 7402 and 7424]

Lien for taxes: Action to enforce lien: Foreclosure: Various defenses.--Government's motion for a summary judgment in an action to foreclose its tax lien was granted. The District Court had no jurisdiction to consider the taxpayer's argument that the tax assessments were based upon the use of written evidence and documents taken from the taxpayer in an unlawful search and seizure in violation of his constitutional rights, since such would require a judicial review of a Tax Court decision which is within the exclusive jurisdiction of the Court of Appeals. Further, the time for filing a petition for review had expired and the Tax Court decision was res judicata as to the tax liability of the taxpayers. Nor did the Court have jurisdiction to set aside a prior judicial sale of property under a lien foreclosure in the absence of a charge of fraud or a showing that the sales price was so inadequate as to amount to fraud. Nor did the Oregon Homestead Act exempt the property from foreclosure. Also, the Government's present foreclosure action was not barred by the statute of limitations since its lien is enforceable as long as its judgment against the taxpayers remains unenforceable.

Sidney I. Lezak, United States Attorney, Jack G. Collins, First Assistant United States Attorney, Portland, Ore., for plaintiff. Robert Y. Thornton, Attorney General, G. F. Bartz, Assistant Attorney General, 403 State Office Bldg., Salem, Ore., Courtney R. Johns, District Attorney, P. O. Box 100, Albany, Ore., for defendants.

Opinion and Summary Judgment

KILKENNY, District Judge:

Before the Court is the motion of the plaintiff for a summary judgment as to all issues, or, in the alternative, for a partial summary judgment as to certain of the defenses claimed by defendants Howard.

[Foreclosure]

Plaintiff seeks to foreclose a tax lien created by a 1958 Tax Court judgment. The tax lien was previously foreclosed in this Court on other property by judgment dated April 29, 1966. The property which was the subject of the lien in that foreclosure was sold under execution issued out of this Court, the sales being confirmed by orders of the Court dated August 9, 1966. Certified copies of all of the proceedings in said foreclosure are before the Court. No appeal was taken from the decision of the Tax Court, nor was there an appeal from the decree of foreclosure in this Court.

[Jurisdiction]

First, defendants claim that the tax assessments made by plaintiff against the defendants were based upon the use of written evidence and documents taken from the defendants in an unlawful search and seizure in violation of their constitutional rights.

Not even the Court of Appeals has jurisdiction to review a decision of the Tax Court once the time has expired for filing a petition for review. Lasky v. Commissioner [56-2 USTC ¶9684], 235 F. 2d 97 (9th Cir. 1956); Schaffner v. Bingler [59-1 USTC ¶9446], 268 F. 2d 76 (3d Cir. 1959). If any jurisdiction exists in the District Court to review a decision of the Tax Court, in a proceeding such as this, it is certainly no greater than in the jurisdiction of the Court of Appeals. Sprague Elec. Co. v. Tax Court [64-2 USTC ¶9565], 230 F. Supp. 779 (D. Mass. 1964), aff'd. [65-1 USTC ¶9184] 340 F. 2d 947 (1st Cir. 1965); Baglivo v. Commissioner [64-2 USTC ¶9712], 235 F. Supp. 493 (E. D. Pa. 1964). Aside from that, the judgment entered in the Tax Court in April, 1958, is res judicata on that tax liability of the defendant taxpayers. Commissioner v. Sunnen [48-1 USTC ¶9230], 333 U. S. 591 (1948).

To be kept in mind is the fact that the proceedings in this cause are civil in nature, rather than criminal. Even Mathis v. United States [68-1 USTC ¶9357], 391 U. S. 1 (May 6, 1968), while warning that routine tax investigations are not immune from constitutional requirements, is no authority for the position of defendants. In Mathis, the defendant was in custody, although on a different charge, and the proceedings were criminal, rather than civil. I do not mean that the constitutional issue may never be raised in a civil case. I do say this issue, on those facts, cannot be raised after two final adjudications, one in the Tax Court and the other in the District Court.

[Objection and Previous Foreclosure Sale ]

As a second defense, the defendants Howard charge that plaintiff conducted the previous sales of property of the defendants in such an unlawful and an unconscionable manner that the properties of defendants were sold to persons who were not the highest bidders and at prices which were a small fraction of the value of the property. Defendants made no objection to the sales, nor did defendants appeal from the orders confirming the sales. Generally, after a confirmation of a judicial sale, neither the inadequacy of the price, nor offers of higher prices, nor anything less than actual fraud, mistake or accident, will permit a Court to set aside the sale. Morrison v. Burnette, 154 F. 617 (8th Cir. 1907), appeal dismissed sub. nom. Laurel Oil & Gas Co. v. Morrison, 212 U. S. 291 (1909); Weir v. United States , 339 F. 2d 82 (8th Cir. 1964). The charges in defendants' answers are mere conclusions and do not fall within the rule just stated. Under Rule 56(e), FRCivP, effective July 1, 1963, a party may not rest upon the mere allegations or denial in his pleadings, but must set forth specific facts showing that there is a genuine issue for trial. Turner v. Lundquist, 377 F. 2d 44 (9th Cir. 1967); Scarboro v. Universal C. I. T. Credit Corp., 364 F. 2d 10 (5th Cir. 1966); Int'l. Longshoremen's & Warehousemen's Union v. Kuntz, 334 F. 2d 165 (9th Cir. 1964); Trustees of the Puritan Church v. United States [61-1 USTC ¶9135], 191 F. Supp. 670 (D. C. 1960), aff'd. [61-2 USTC ¶9567] 294 F. 2d 734 (D. C. Cir. 1961). Without a charge of fruad or a showing that the sales price was so inadequate as to amount to a fraud, defendants should not be permitted to collaterally attack a judicial sale made over nineteen months prior to the challenge.

[ Homestead Exemption]

The third defense presented by defendants is that the property in question is used by defendants, both as a residence and for their business purposes, and that the property has been so used since 1937. While the pleading is inexpertly drawn, it is assumed that the defendants are attempting to claim the property as a homestead under Oregon law. Unfortunately for defendants, the Internal Revenue Code makes no provision for a homestead exemption. The Oregon exemption law is of no avail. Leuschner v. First Western Bank & Trust Co. [58-2 USTC ¶9723], 261 F. 2d 705 (9th Cir. 1958); United States v. Haffron [47-1 USTC ¶9194], 158 F. 2d 657 (9th Cir. 1947); Kieferdorf v. Commissioner [44-1 USTC ¶9323], 142 F. 2d 723 (9th Cir. 1944).

[Limitations]

It is difficult to follow the defendants' claim that a statute of limitations bars the claim. The record is clear that defendants executed waivers extending the six year statute of limitation to December 31, 1966. Prior to that date, on September 30, 1965, Judge Solomon granted to the Government a partial summary judgment against defendants for unpaid taxes, interest and penalties, on the 1958 Tax Court judgment. Later, on April 29, 1966 in the same action, as previously stated, judgment of foreclosure was entered directing the sale of certain property. Defendants cite no statute which would apply to these facts, nor have I been able to find one. The life of the Government's lien is measured by 26 U. S. C. §6322. The waiver and the judgments previously mentioned prevented the lien from expiring. The lien is enforceable as long as the judgment remains enforceable. United States v. Hodes [66-1 USTC ¶9232], 355 F. 2d 746 (2d Cir. 1966), cert. denied 386 U. S. 901 (1967).

On the record before me, I find there is no genuine issue of fact to be resolved. Consequently, the plaintiff's motion for a summary judgment must be allowed.

 

 

 

Delores A. Rippley, Plaintiff v. United States of America , Defendant

U. S. District Court, Dist. N. Dak., Southwestern Div., A1-75-43, 10/20/75

[Code Secs. 6321 and 6323]

Lien for taxes: Priority over homestead exemption: Tax liens under state law: North Dakota.--A Federal tax lien had priority over the homestead exemption claimed under North Dakota law by the taxpayer's wife.

Joseph A. Vogel, Jr., P. O. Box 484 , Mandan , N. Dak., for plaintiff. Harold O. Bullis, United States Attorney, Fargo, N. Dak., Vincent J. Ferraro, Department of Justice, Washington, D. C. 20530, for defendant.

VAN SICKLE, District Judge:

The singular issue involved in Defendant's pending motion to dismiss is whether the Plaintiff (wife of the taxpayer) can assert whatever homestead rights she may have under North Dakota law to effectively preclude the Defendant from selling real property solely owned by her husband to satisfy a federal tax lien.

Plaintiff forcefully argues that a determination of such issue hinges on whether the North Dakota homestead laws confer upon the wife a present property interest as opposed to a mere exemption, and asserts that this question has not been litigated and finally adjudicated.

My reading of the opinion of the Court of Appeals for the Eighth Circuit in United States v. Heasley et al. [60-2 USTC ¶9744], 283 F. 2d 422, at page 427, clearly reveals, however, that such issue was considered on its merits and decided against the Plaintiff here. The Court therein considered North Dakota homestead statutes and stated:

"Furthermore, exploration of the question on the merits has convinced us that as against federal tax liens, homestead exemptions prescribed by state laws, are of no effect." (Emphasis added.)

Subsequent to the decision in Heasley, supra, this Court (the late Chief Judge Register), when presented with a similar argument, quoted the above statement in holding against the proponent. United States v. Olgierson et al. [68-1 USTC ¶9302], 284 F. Supp. 655, 658.

Finally, a recent decision of the Eighth Circuit reaffirms the position of that Court taken in Heasley by stating that:

". . . state exemption laws . . . even if the state, through case interpretation, statute, or constitutional provisions, characterizes its homestead exemption statute as creating a present property interest--do not preclude the United States from levying upon and selling the taxpayer's interest in the property." Herndon v. United States [74-1 USTC ¶16,127], 501 F. 2d 1219, 1222-3 (8 Cir. 1974).

Now Therefore, the Court having considered the pending motion to dismiss, together with briefs and other pertinent documents on file herein, and being fully advised in all the premises, it is

ORDERED that said motion be, and the same hereby is, granted, for failure to state a claim upon which relief can be granted. Rule 12(b)(6) of the Federal Rules of Civil Procedure.

I deem it proper to add this advice, in the words of Judge Gibson found at page 1223 in Herndon, supra:

"We think it advisable as a matter of fairness under the circumstances of this case that the Government in selling this real estate should advise all prospective purchasers that the real property is being sold subject to any homestead interest that Mrs. (Rippley) may have under ( North Dakota ) law. The possible purchasers should also be advised of the litigation in this case."

Notice of Entry of Judgment of Dismissal

PLEASE TAKE NOTICE that the above judgment of which the enclosed is a copy, was duly entered in the above entitled action on October 28, 1975.

Dated this 28th day of October, 1975.

Judgment

The above-entitled matter having come on for hearing before the Court upon the Defendant's Motion to Dismiss, the Plaintiff having filed a Brief resisting the same and the Court having entered a Memorandum and Order granting said Motion to Dismiss,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the aboveentitled matter be and hereby is dismissed with prejudice and without cost to either party.

Notice of Entry of Memorandum and Order Granting Motion to Dismiss

PLEASE TAKE NOTICE that the above Memorandum and Order of which the enclosed is a copy, was duly entered in the above entitled action on October 20, 1975.

 

 

 

United States of America, Plaintiff v. Robert H. Olgeirson, Evelyn N. Olgeirson, Bank of North Dakota, Humble Oil & Refining Co., Stephens Lumber Co., Unemployment Compensation Division and Division of Workmens Compensation Bureau of the State of North Dakota, Quality Builders, Inc., Snell Sash & Door Co., Meisner & Co., W. T. Jennings Lumber Co., State of North Dakota, Defendants

U. S. District Court, Dist. N. Dak., Southwestern Div., Civil N. 704, 284 FSupp 655, 3/20/68

[1954 Code Sec. 6323]

Liens for taxes: Priorities: State law.--In an action to enforce federal tax liens against property occupied as a homestead, the federal liens were superior to state tax and judgment liens. The state tax liens were unperfected at the time the federal liens were filed since the amount of the liens was not established. The judgment liens had not attached to the subject property since, at the time the judgments were entered, the property was being occupied as a homestead and the judgment lienors had not come within any of the conditions required by state law for such liens to attach.

[1954 Code Secs. 6321 and 6323]

Liens for taxes: Priority of federal liens: Unpaid income tax lien v. unpaid withholding tax liens: Property owned jointly by husband and wife: Homestead exemptions.--Federal tax liens may validly attach to homestead property even though state law may prescribe an exemption. However, as between competing federal liens, a federal income tax lien against homestead property held jointly was entitled to priority over federal liens for unpaid withholding and unemployment taxes. The assessment for unpaid income taxes was against the husband and wife jointly, while the assessments for unpaid withholding taxes had been assessed against the husband only. On the sale of the property, the income tax lien was to be satisfied from the entire proceeds but the withholding liens were to be satisfied from the husband's share only. BACK REFERENCES: 68FED ¶5357.09, 68FED ¶5357.1245, 68FED ¶5357.1275 and 68FED ¶5362.9408.

John O. Garaas, United States Attorney, Fargo, N. Dak., for plaintiff. Drey & Tuntland, P. O. Box "A", Garrison, N. Dak., for Stephens Lumber Co.; Charles Tighe, Bismarck, N. Dak., for R. Olgeirson; Lawrence E. Watson, Assistant Attorney General, Bismarck, N. Dak., for Unemployment Compensation Division of N. Dak. Workmen's Compensation Bureau; Joseph R. Maichel, Special Assistant Attorney General, Bismarck , N. Dak. , for N. Dak. State Tax Comm'r.; Pearce, Engebretson, Anderson & Schmidt, First Federal Savings & Loan Bldg., 320 N. Fourth St., Bismarck, N. Dak., for Meisner & Co.; Helgi Johanneson, Attorney General, Bismarck, N. Dak., for State of N. Dak.; Robert A. Birdzell, Special Assistant Attorney General, Bismarck, N. Dak., for Bank of N. Dak.; Kenneth M. Jakes, Special Assistant Attorney General, Bismarck, N. Dak., for State Tax Dept.; for defendants.

Memorandum and Order

REGISTER, District Judge:

This is a civil action whereby the Plaintiff seeks a judgment for unpaid federal taxes and to foreclose certain tax liens against real property owned by the taxpayer-Defendants Robert H. and Evelyn N. Olgeirson. Jurisdiction of this Court is found in Title 28, Section 1340, U. S. C. and Section 7402(a) of the Internal Revenue Code of 1954. Default judgments have been rendered against the Defendants Humble Oil & Refining Company, Quality Builders, Inc., Snell Sash & Door Company, and W. T. Jennings Lumber Company. On June 28, 1967, Plaintiff filed its motion for judgment on the pleadings; this was followed on June 30 with the filing of a motion for judgment on the pleadings by Defendants Olgeirson. On August 30, 1967, a hearing concerning the then pending motions was held, at which time the testimony of Defendants Olgeirson was taken. On this date also, the Defendant Bank of North Dakota filed its motion for dismissal. Following the August 30 hearing, all motions were taken under abvisement pending receipt of briefs, the last of which was filed on November 17, 1967.

The real property here involved is and has been since November of 1951 occupied as the homestead of Olgeirsons; ownership thereof is vested in Robert H. Olgeirson and Evelyn N. Olgeirson, husband and wife, as joint tenants.

For reasons of brevity and clarity, the various liens asserted against the subject property are categorized as follows:

(1) The judgment liens asserted by the Defendants Meisner & Company and the Unemployment Compensation Division, Workmens Compensation Bureau of the State of North Dakota;

(2) The statutory income tax and use tax liens asserted by the Defendant State of North Dakota;

(3) The mortgage liens asserted by Defendants Stephens Lumber Company and Bank of North Dakota; and

(4) The federal tax liens asserted by the Plaintiff United States of America.

I. Judgment Liens

Section 47-18-04, N. D. C. C., sets forth the exceptions to the general provision exempting a homestead from execution or forced sale in satisfaction of a judgment lien (section 47-18-01, N. D. C. C.). That excepting provision reads as follows:

"47-18-04. When homestead subject to execution. A homestead is subject to execution or forced sale in satisfaction of judgment obtained in the following cases:

1. On debts secured by mechanics' or laborers' liens for work or labor done or performed or material furnished exclusively for the improvement of the same;

2. On debts secured by mortgage on the premises executed and acknowledged by both husband and wife, or an unmarried claimant;

3. On debts created for the purchase thereof and for all taxes accruing and levied thereon; and

4. On all other debts when it appears that said homestead is within a town plat and, upon an appraisal as provided by section 47-18-06, it appears that the value of said homestead is more than twenty-five thousand dollars over and above liens or encumbrances thereon, and then only to the extent of any value in excess of the sum total of such liens and encumbrances plus said twenty-five thousand dollars."

It is undisputed that the judgment of Meisner & Company and the two judgments of the Unemployment Compensation Division were entered at a time when the subject property was being occupied as a homestead by the judgment debtor. It is further undisputed that the judgments of the Unemployment Compensation Division were rendered in connection with unpaid unemployment contributions owed by the judgment debtor Robert H. Olgeirson. There is no showing by either of the judgment creditors that the homestead has been appraised, or that its value over and above liens or encumbrances is in excess of twenty-five thousand dollars; in fact, at the August 30 hearing, upon inquiry by the Court, no counsel asserted that the gross value of the property exceeded twenty-five thousand dollars. There is no assertion made by the judgment creditor Meisner & Company that its judgment was rendered in connection with any of the matters set forth in Section 47-18-04.

A review of the facts presented leads this Court inescapably to the conclusion that the judgments above referred to do not come within the exceptions provided by Section 47-18-04, N. D. C. C., and that they are therefore not liens against the property here sought to be foreclosed.

It is pertinent to observe that neither of the judgment creditors here involved (Meisner & Company and the Unemployment Compensation Division, Workmens Compensation Bureau) submitted briefs in connection with this matter.

II. Statutory Tax Liens

The Defendant State of North Dakota, by its Tax Commissioner, asserts a statutory lien for unpaid use taxes and penalties, and a statutory lien for unpaid income taxes and penalties. The Tax Commissioner contends that applicable North Dakota statutes provided for the attachment of these alleged liens on a date which would place them high in priority under the "first in time, first in right" rule. The Plaintiff, on the other hand, contends: First, that the unpaid taxes giving rise to the alleged liens do not come within the exception of Section 47-18-04(3), N. D. C. C., and, Second, that the alleged liens were not choate at the time the federal tax liens attached and must therefore fail under the "first in time, first in right" rule.

It is stipulated by all parties that notice of the latest of the several federal tax liens was filed in the appropriate office on November 18, 1964. It is further stipulated by all parties that it was not until May 6, 1965 that the Tax Commissioner notified the lienor (Robert H. Olgeirson) to file correct and sufficient returns, based upon estimated amounts computed by the Tax Commissioner, concerning unpaid use taxes; and, further, it is stipulated that said Robert H. Olgeirson on May 6, 1965 filed with the Tax Commissioner returns establishing his state income tax liabilities for certain prior years. Upon these facts, the Plaintiff asserts that one of the elements of a perfected, or choate, lien was missing until May 6, 1965--that element being, of course, the necessary fact that the amount of the lien was not established. See: United States v. New Britain [54-1 USTC ¶9191], 347 U. S. 81, at page 84; and United States v. Equitable Life Assur. Soc'y [66-1 USTC ¶9444], 384 U. S. 323.

Since this matter has been argued and briefed, the Court of Appeals for the Eighth Circuit has rendered an opinion in United States v. First National Bank & Trust Company of Fargo, North Dakota, Trustee of Travis Bros. Body Works, Inc., Bankrupt, and State of North Dakota [68-1 USTC ¶9102], 386 F. 2d 646 (1967), in which that Court reversed the Honorable Ronald N. Davies, a Judge of this Court, for holding precisely in line with what the Tax Commissioner argues here. The gist of the decision of the Court of Appeals in that case is that, in line with New Britain , supra, and Equitable Life Assur. Soc'y, supra, a state tax lien does not become specific, perfected or choate until the amount of the lien is established. The undisputed facts before us reveal that date to be May 6, 1965. It follows that the federal tax liens, the last of which was noticed of record on November 18, 1964, are entitled to priority over the alleged statutory liens of the State of North Dakota for unpaid use and income taxes under the "first in time, first in right" doctrine.

Because of the dispositive effect of this conclusion, together with the fact that all parties have stipulated that the mortgage liens are prior in time and entitled to priority over all other liens asserted in this action, this Court need not and will not determine the issue whether North Dakota statutory tax liens of this character will attach to homestead property--a question which apparently has not been resolved by the Supreme Court of North Dakota.

III. Mortgage Liens

The mortgage liens asserted by Defendants Stephens Lumber Company and Bank of North Dakota have been, as above stated, stipulated to be prior and superior to all other liens here involved. Therefore, there is no question of their priority before the Court. However, the Defendant Bank of North Dakota has filed a motion to dismiss, based upon all the records, documents and other pertinent matters here on file, which motion has not in any manner been resisted by any of the parties hereto. This being the case, and good cause herefor appearing, the subject property will be ordered sold subject to the valid, subsisting first mortgage owned by said Bank of North Dakota.

IV. Federal Tax Liens

Taxpayer-Defendants Olgeirsons first contend that their homestead property is not subject to federal tax liens by virtue of the homestead exemption laws (Chapter 47-18, N. D. C. C.). The short answer to this assertion is found in United States v. Heasley [60-2 USTC ¶9744], 283 F. 2d 422, 427 (8 Cir., 1960), wherein it is stated:

"Furthermore, exploration of the question on the merits has convinced us that as against federal tax liens, homestead exemptions prescribed by state laws, are of no effect." (Emphasis added.)

Upon this authority, we hold that the federal tax liens asserted in this action are valid, choate and existing liens upon the homestead property owned by the Defendants Olgeirson, and are subject to foreclosure action upon order of this Court.

Having determined that the Plaintiff is entitled to an order foreclosing its tax liens against the property described in the Complaint, and an order directing that such property be sold at public sale, we turn to the problems spawned in making proper allocation of the proceeds of such sale.

We previously noted that the subject property is owned by the Defendants Olgeirson and held by them as joint tenants. As such joint tenants, each of the Olgeirsons owns an equal share in the property and is entitled to be credited with an equal share of the proceeds derived from a sale thereof. This conclusion is apparently not disputed by any of the parties.

There are two categories of federal tax liens involved in this action: (1) a federal lien for unpaid income taxes, assessed against both Robert H. and Evelyn N. Olgeirson, notice of such lien being filed in the appropriate office on August 20, 1963; and (2) three separate federal liens for unpaid withholding and FUTA taxes, assessed against Robert H. Olgeirson only, notices of such liens being filed in the appropriate office on August 8, September 16 and November 18, 1964. As between these two categories of federal tax liens, it thus appears that the lien for unpaid federal income taxes asserted against the taxpayers Olgeirson, together, is superior and prior to the federal tax liens asserted solely against the taxpayer Robert H. Olgeirson.

For many years prior to and including the year 1959, the Defendants Olgeirson filed a joint federal income tax return. No income tax returns were filed by either of the Defendants Olgeirson for the years 1960 and 1961. Appropriate action by the Internal Revenue Service resulted in assessments being made against the Defendants Olgeirson for the years 1959, 1960 and 1961, for unpaid personal income taxes, penalties and interest. The amount of taxes due for each of the years in question was determined by an agent of the Internal Revenue Service, and culminated in the preparation and execution of an Internal Revenue Service Form 870 (Gov. Exhibit 1). This form, entitled "Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment" sets forth the amount of income tax and penalty due for each of the three years involved, computed upon the basis of a joint income tax return being made by the Defendants Olgeirson, and was executed by Robert H. Olgeirson and Evelyn N. Olgeirson on April 5, 1963.

Upon the basis of the assessments as made in this document, the Plaintiff contends that the liability for unpaid income taxes, penalties and interest is joint and several for each of the three years involved. Defendants Olgeirson, while conceding that the liability for the year 1959 is a joint and several liability, nevertheless argue that the liability for the years 1960 and 1961 is the sole liability of Robert H. Olgeirson--not withstanding the existence of the executed Form 870. Olgeirsons recognize the monetary benefit accruing to them by reason of computing the taxes due on a joint basis, rather than an individual basis, but contend that, since Evelyn N. Olgeirson had no income for the years 1960 or 1961, they (Olgeirsons) probably would not have filed joint returns for those years. Mrs. Olgeirson testified that Form 870, when presented to her for her signature, was not explained to her; that she, in effect, did not comprehend exactly what she was signing; but that she did sign such form upon the advice and direction of her husband.

The Court rules in favor of the Plaintiff on this issue. Clearly, the advantage to Olgeirsons lies with the execution and filing of a consent to the assessment (Form 870) as if a joint return had been filed, since they are then benefited by reduced tax rates. Had Olgeirsons elected not to execute Form 870 jointly, then the Internal Revenue Service would have had no alternative but to make an assessment against Robert H. Olgeirson only, computed upon an individual basis at the higher tax rate. Under the circumstances here present, it is clear that the Defendants Olgeirson intended to take advantage of the reduced tax rates afforded those filing joint returns by signing jointly the Form 870. A finding to the contrary would be wholly unrealistic.

We therefore find that the liability for deficiencies in unpaid income taxes for the years 1959, 1960 and 1961, assessed as a result of the authorization contained in Government Exhibit 1 (Form 870), is joint and several.

We have purposely avoided making reference to dollar amounts in discussing the liens here involved, for the reason that apparently certain payments or other adjustments have been made since the filing of the complaint and the several stipulations. Undoubtedly in preparing a judgment herein, counsel and the parties are in a position to arrive at current, true amounts.

Now Therefore, having considered the motions now pending, together with the testimony, exhibits, briefs and other pertinent documents on file herein, and being fully advised in all the premises, it is

ORDERED that the Motion for Dismissal presented by the Defendant Bank of North Dakota be, and the same hereby is, in all things, granted; and its further

ORDERED that the within action and complaint against said Bank of North Dakota be, and the same hereby is, in all things, dismissed. Counsel for said Bank of North Dakota will forthwith prepare and submit appropriate form of judgment in conformity herewith.

It is further

ORDERED that the pending Motion for Judgment on the Pleadings presented by the Defendants Olgeirson be, and the same hereby is, in all things, denied. It is further

ORDERED that the Plaintiff has a valid and subsisting lien on the real property jointly owned by Defendants Olgeirson, described as Lot Eight (8), Block Four (4), Highland Acres Addition to the City of Bismarck, North Dakota; that such liens be foreclosed against said property; and that such property be sold (subject to the valid and subsisting mortgage lien of Bank of North Dakota) according to law, and that distribution of the proceeds thereof, after deducting the costs of such sale, be made in the following manner:

(1) The lien of Stephens Lumber Company be fully paid and satisfied;

(2) The lien of Plaintiff United States of America for unpaid income taxes for the years 1959, 1960 and 1961 be in all ways fully paid and satisfied;

(3) The sum remaining after satisfaction of the liens referred to in paragraphs (1) and (2) be equally divided and one-half thereof be turned over to Evelyn N. Olgeirson;

(4) From the sum remaining after disposition has been made in fulfilling paragraphs (1), (2), and (3) hereof, the federal liens for unpaid withholding and FUTA taxes be fully paid and satisfied. In this connection, if the funds remaining are insufficient to satisfy this requirement, then the Plaintiff shall have a deficiency judgment against Robert H. Olgeirson in an amount equal to the unpaid balance.

(5) If there remains any monies from the aforesaid sale, after satisfying the requirements of paragraphs (1), (2), (3), and (4) hereof, then the same shall be paid over to Robert H. Olgeirson.

Counsel for the Plaintiff shall forthwith prepare and submit an appropriate form of Judgment in conformity with this memorandum and order.

We consider the foregoing memorandum and order to fully satisfy the conditions of Rule 52(a), Federal Rules of Civil Procedure.

 

 

 

United States of America , Plaintiff v. George E. Myers, Jr., Helen J. Myers, and Security Trust & Savings Bank of Billings , Defendants

U. S. District Court, Dist. Mont., Billings Div., Civil No. 1093, 6/14/76

[Code Secs. 6321 and 7403(c)]

Lien for taxes: Foreclosure: Priority over homestead exemption: Montana.--Federal tax liens attaching to the home of the delinquent taxpayer were valid and had priority over any other lien. The Court did not feel it was within its discretion to refuse to enter a decree of foreclosure. Taxpayer's wife could not block sale of the house under the Montana homestead provisions since such provisions are merely exemption provisions and create no independent property interest. Therefore, foreclosure of the liens was appropriate.

Robert Zimmerman, Assistant United States Attorney, Billings , Mont. , for plaintiff. Cliff Schleusner, Schleusner & Jones, Alpine Village, 16th St. West , Billings , Mont. , for defendants.

Memorandum and Order

BATTIN, District Judge:

Presently pending is the plaintiff's motion for summary judgment.

The defendant, George Myers, has consented to the granting of the plaintiff's motion. Defendant Helen J. Myers filed a partial consent and counter-motion to the plaintiff's motion, asking that her interest in their home not be sold during her lifetime to satisfy any portion of the judgment against her husband.

Helen Myers argues that the fact that the Government has a lien under 26 U. S. C. §6321 does not automatically give it the right to foreclose the lien and sell the home pursuant to 26 U. S. C. §7403. §7403(c) reads as follows:

"Adjudication and decree.--The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States. If the property is sold to satisfy a first lien held by the United States , the United States may bid at the sale such sum, not exceeding the amount of such lien with expenses of sale, as the Secretary or his delegate directs."

In asserting that the Court has discretionary power to refuse to enter a decree of foreclosure, the defendant relies on United States v. Boyd [57-2 USTC ¶9791], 246 F. 2d 477 (5th Cir. 1957), cert. den. 355 U. S. 899. There, the Court stated that Congress intended that the Court function with full traditional flexibility of the power of equity. In speaking of Section 7403(c), the Court stated:

"Indeed, broader language could hardly be suggested since the Court, Section 7403(c), is required to '* * * proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property * * *.' As though this were not enough, Congress, presumably conscious of the purpose of the change, amended the Act, 49 Stat. 1648, Sec. 802, to substitute the word 'may' for 'shall' in the predecessor to Section 7403, so that it now reads, note 7, supra, '* * * in all cases where a claim or interest of the United States therein is established, [the Court] may decree a sale of such property * * * and a distribution of the proceeds * * *.'

"Merely because the statute speaks in terms of foreclosure does not compel the court to use that remedy. If under controlling legal principles, the lien does not exist, if it has been lost, if the property is not that of the taxpayer, if the Federal tax lien is junior to undisputed prior liens which will exhaust the full value of the property, a decree of foreclosure would be neither appropriate nor effective. A court required by the express terms of the statute to adjudicate all matters, the merits of all claims to and liens upon the property and, in the event of a sale, distribute the proceeds in accordance with the findings respecting the interests of all parties and the United States (Section 7403(c), note 7, supra) has the full capacity, and corresponding duty, to assure that the liens and interests are effectually respected in accordance with the court's determination of validity, rank and priority."

U. S. v. Boyd, supra at 481-2.

The issue presented in Boyd "concerns the extent and circumstances under which a nonjudicial sale under a valid power to foreclose a mortgage lien superior to a federal tax lien extinguishes or affects the government lien or its rights to a federal court foreclosure or other protective decree." The Court held that Section 7403 is flexible enough to permit the mortgagee to exercise its powers of a nonjudicial sale commenced but not completed prior to institution of the Section 7403 foreclosure action. While the statute uses the word "may", the defendant has stretched the Boyd decision to give this Court more equitable power than it actually has. The Court cannot ignore the remedy of foreclosure once the priority of the Government's lien is established. Since the priority and validity of the tax lien is unquestioned, foreclosure is appropriate.

The defendant, Helen Myers, also relies upon United States v. Hershberger [73-1 USTC ¶9289], 475 F. 2d 677 (10th Cir. 1973), where the Court refused to order the sale of a home in which a taxpayer's wife had a homestead right and joint tenancy ownership. But in Montana , the homestead provisions are merely exemption provisions and create no independent property interest. Aronow v. United States, [65-2 USTC ¶9692], (D. Mont. 1965).

For the foregoing reasons, IT IS ORDERED that:

1. The defendant taxpayer, George E. Myers, Jr., is indebted to the United States for Federal Income Taxes in the amount of $23,760.68 plus interest from November 15, 1974, to the date of entry of summary judgment, at the rate of $2.23 per day;

2. The federal tax liens arising from the assessment against Mr. Myers attach to the subject real property located at 2207 Virginia Lane , Billings , Montana ;

3. The federal tax liens attaching to the subject property be foreclosed pursuant to a judicial sale, with one-half the proceeds to be distributed to Helen K. Myers, who has a one-half interest in the real property, and with one-half of the proceeds of the sale to be distributed to the United States towards satisfaction of its liens;

4. If the amount that is distributed to the United States is insufficient to fully satisfy the outstanding tax liens, the United States is entitled to a judgment for the deficiency against the taxpayer, George E. Myers, Jr.

Judgment

This action came on for (hearing) before the Court, Honorable James F. Battin, United States District Judge, presiding, and the issues having been duly tried (heard) and a decision having been duly rendered.

It is Ordered and Adjudged: 1. The deft. taxpayer, George E. Myers, Jr., is indebted to the U. S. A. for Fed. Income taxes in the amount of $23,760.68 plus interest from Nov. 15, 1976, to date of entry of Summary judgment at the rate of $2.23 per day.

2. The federal tax lien arising from the assessments against Mr. Myers attach to the subject real property located at 2207 Virginia Lane , Billings , Montana .

3. The federal tax liens attaching to the subject property by foreclosed pursuant to a judicial sale, w/1/2 proceeds to be distributed to Helen K. Myers, who has 1/2 interest in the real property, w/1/2 proceeds of the sale to be distributed to the U. S. A. towards satisfaction of its liens.

4. If the amt. that is distributed to the U. S. A. is insufficient to fully satisfy the outstanding tax liens the U. S. is entitled to a judgment for the deficiency against the taxpayer George E. Myers, Jr.

 

 

 

Frances G. Aronow, Plaintiff v. The United States ofAmerica, et al., Defendants

U. S. District Court, Dist. Mont. , Missoula Div., Civil No. 1228, 9/30/65

[1954 Code Sec. 6321]

Tax liens: Real property: Effect of homestead declaration: Montana.--Under the Montana statutes, the filing of a homestead declaration creates merely a privilege or exemption rather than an interest in the property involved. Therefore, where federal tax liens attached to a husband's joint tenancy interest in property on which a homestead declaration had been filed and such interest was later transferred to his wife, the transferred interest, including the husband's homestead interest, was still subject to the tax liens.

Robert G. Anderson, Aronow & DeGrandpre, 153 Main St. , Shelby , Mont. , for plaintiff. Moody Brickett, United States Attorney, Donald A. Douglas, Assistant United States Attorney, Butte, Mont., for defendant.

Memorandum Opinion

[Nature of Action]

JAMESON, District Judge:

Plaintiff seeks to quiet title to certain real property located in Flathead County , Montana . ¹ The case was originally filed in Montana state court naming the United States, ² the State of Montana, and four corporations as party defendants. The cause was removed to this court upon petition of the Government. Except for the United States , all the named party defendants either have filed disclaimers or were defaulted for failure to answer.

The matter came on for trial and was heard on August 16, 1965. Post-trial briefs were filed by both parties.

[Facts]

The facts giving rise to the controversy may be summarized as follows: Plaintiff and her husband, Willard B. Aronow, purchased the property on February 12, 1957, title being taken in the names of both as joint tenants. On February 28, 1961, plaintiff and her husband executed and filed a declaration of homestead. In April, 1963, Willard Aronow conveyed all of his interest in the property to plaintiff. Prior to the transfer of Willard Aronow's interest to plaintiff the Government had filed with the Clerk and Recorder of Flathead County, Montana, notices of tax liens against the property of the husband, as follows:

                                                                Balance

Filing                Assessment                                as of

Date                        Date             Amount           8-13-65

12-27-60         8-19-60 .......         $ 6,906.55          $ 417.71

5-31-61          5-12-61 .......          15,605.57         11,155.23

5-31-61          5-12-61 .......           6,170.67          6,170.67

7-7-61           5-19-61 .......           1,216.22          1,216.22

 

Plaintiff contends that the notices of tax liens filed against her husband constitute a cloud upon her title to the homestead property. Accordingly, she seeks a decree (1) adjudging that the defendant United States has no right in or encumbrance against the property, and (2) quieting her title against the United States .

In view of the nature of the relief sought some initial observations are in order. The case does not involve a foreclosure of the tax liens or other lien involving the question of priorities between various lien holders. Rather plaintiff seeks to extinguish the United States ' liens against the property, and the Government seeks to prevent the extinguishment. The crux of the plaintiff's argument centers around the nature and extent of her homestead interest in the property. Before considering that specific point, however, some related matters should be disposed of.

By virtue of the conveyance in April, 1963, plaintiff is now the sole record owner of the property. However, at the time of the filings of the notices of the tax liens, the property was held in joint tenancy by plaintiff and her husband. With the filings of the notices all her husband's interest in the property, including his homestead interest, become subject to the liens. Kieferdorf v. Commissioner, 9 Cir. 1944, [44-1 USTC ¶9323] 142 F. 2d 723; United States v. Heffron, 9 Cir. 1947, [47-1 USTC ¶9194] 158 F. 2d 657; 26 U. S. C. A. §6321. The subsequent transfer of the husband's interest was of course made subject to these liens.

The law is also clear, as both parties concede, that the liens are valid only against Willard Aronow's interest in the property. The tax liens in no way encumbered plaintiff's joint interest. Shaw v. United States supra.

[Shaw Case Relied Upon]

This brings us to the question of the extent of plaintiff's interest in the homestead. Both parties cite and rely upon Shaw v. United States , supra. In Shaw the wife of a taxpayer brought an action to quiet title upon joint tenancy property held by her husband and upon which, pursuant to California law, a declaration of homestead had been filed. She also sought to have cancelled and set aside a federal tax lien, notice of which was filed in connection with a tax assessed against her husband. Although the court recognized an apparent conflict in the authorities as to whether a federal tax lien is valid upon a homestead, it ruled that under California law the homestead declaration did not create an interest in the property, but was merely a privilege attaching to it and not otherwise affecting title. The court dismissed the wife's action for failure to state a claim upon which relief could be granted due to her failure to show any invasion of property interests of her own.

The United States relies upon Shaw in support of its position that the filing of the homestead declaration created merely a privilege or exemption and did not give plaintiff any property right in her husband's joint tenancy interest. Accordingly, it is contended that the federal tax liens, having been filed prior to the conveyance by the husband to plaintiff, constitute valid liens against the husband's entire joint interest, including the homestead interest, so conveyed to plaintiff. Plaintiff, on the other hand, argues that Shaw was based upon relevant California law, and that while the California courts have held that a homestead declaration is merely a privilege or exemption, under the Montana law the homestead declaration created a property interest.

The Montana court has not determined the nature of the homestead interest in this state. However, the personal property exemption statutes (R. C. M. 1947, sections 93-5813 and 5814) which were enacted pursuant to the same constitutional authority as the homestead statutes (Montana Constitution, Art. XIX, Section 4), ³ have received judicial construction.

In Mettler v. Rocky Mountain Security Co. 1923, 68 Mont. 406, 409, 219 Pac. 243 the Montana Supreme Court, citing Mennell v. Wells, 1915, 51 Mont. 141, 149 Pac. 954, stated: "[T]his court [has] held that our exemption statute confers a right as distintinguished from a personal privilege." (Emphasis added.) A careful reading of Mennell discloses the meaning of the right spoken of in Mettler. The right is a family right which in effect gives not only the debtor, but also the wife or any other person upon whom the care of the family has been cast, the right to invoke the exemption provisions. In support of this conclusion the court in Mennell recognized that "the expression 'head of the family' as defined in the title of the Revised Codes relating to homestead, clearly includes the abandoned wife"; that "where the husband fails to select a homestead the wife may select it"; and that "the husband cannot abandon his homestead merely by the desertion of his wife and family". (51 Mont. at 148.)

It does not follow from a recognition of these rights, however, that a declaration of homestead in itself creates an indivisible vested property interest. As noted supra, the liens attached to the husband's homestead interest when they were filed. Had the husband retained his joint tenancy interest, the lien would still attach to his entire interest, including the homestead interest. His conveyance to plaintiff did not, in my opinion, terminate or affect the liens which had already attached prior to the conveyance.

[Shaw Principle Followed]

As noted supra, Montana 's homestead statutes were taken from California . The California courts have held repeatedly "that the filing of a homestead declaration in that state creates merely a privilege or exemption attached to but not otherwise affecting title". Shaw v. United States, supra, at 331 F. 2d 497, and cases there cited. It is of course true, as plaintiff contends, that even though the Montana statutes were taken from California, the Montana courts are not bound by California's construction of those provisions. As I read the Montana statutes and cases, however, I find nothing which leads me to conclude that the question here presented would be decided differently in Montana . In the absence of any specific holding by the Montana court, I conclude that the declaration of homestead by plaintiff and her husband did not create a property interest in plaintiff which prevents the tax liens from being effective against the property to the full extent of Willard B. Aronow's interest at the time the liens attached. ⁴

In her reply plaintiff suggests that if it is held that the interest conveyed by Willard B. Aronow, including his homestead interest, is still subject to the tax liens, then provision should be made for an allowance of costs and attorney fees in quieting title, so that upon the sale of the property "these costs should be paid in full before any of the balance of the purchase price of the property in question is divided between plaintiff and the defendant United States of America". As noted supra, however, the action seeks merely to quiet title and not to foreclose any lien. It does not appear that the court would have any authority in this action to direct the sale of the property or do more than enter a decree quieting title in plaintiff subject to the tax liens against the interest Willard B. Aronow conveyed to the plaintiff.

It is the court's recollection that it appeared from the testimony of the trustee in bankruptcy that there are ample funds in the bankrupt estate to pay the Government tax liens in full. Possibly arrangements may be made for the payment of the tax liens from these funds. If not, and if the parties are unable to agree upon a form of decree in the light of this opinion, both parties will be given an opportunity to present their views to the court regarding the form of decree to be entered.

¹ The property is described as follows:

"Lot Seven (7) of Block Seven (7) of Cameron's Addition to the City of Kalispell according to the official map or plat of said Addition on file and of record in the office of the County Clerk and Recorder of said County of Flathead ."

² Jurisdiction over the United States was obtained pursuant to 28 U. S. C. A. §2410. See Shaw v. United States, 9 Cir. 1964, [64-1 USTC ¶9421] 331 F. 2d 493.

³ Section 4 of Article XIX provides: "The legislative assembly shall enact liberal homestead and exemption laws."

⁴ Plaintiff also relies strongly upon the decision of the Court of Appeals for the Tenth Circuit in Jones v. Kemp, 1944, [44-2 USTC ¶9410] 144 F. 2d 478, holding that an Oklahoma wife had an indivisible and vested interest in homestead property which could not be subjected to levy and sale for the federal tax liability of her husband. However, as recently as 1956, the Oklahoma court re-stated the rule that under Oklahoma law the homestead right is not an estate in land but a mere privilege of exemption from execution of such estate as the holder has. Evans v. Evans , Okla. , 1956, 301 P. 2d 232. See also Mercer v. McKeel, 1940, 188 Okla. , 280, 108 P. 2d 138. Regardless of the interpretation given the Oklahoma law by the Tenth Circuit, I feel that the interpretation of the effect of this type of interest given by the court in Shaw is binding upon this court.

 

 

 

Builders Supply Company of Hattiesburg , et al. v. Pine Belt Savings & Loan Association, et al.

Supreme Court Miss. , No. 51,067, 4/4/79

[Code Secs. 6323 and 6334]

Federal tax liens: Validity of: Priorities: Property exempt from levy: Homestead exemption.--The government's federal tax lien attached to the amount of the taxpayer's homestead exemption ($5,000) and had priority over various judgment lien creditors. The court noted that Code Sec. 6334(a) does not recognize homesteads as property that is exempt from federal tax levies.

M. Carr Ferguson, Assistant Attorney General, Department of Justice, Washington, D. C. 20530, Stone D. Barefield, Hattiesburg, Miss., for appellee. Van C. Temple, H. A. Moore, III, Moore, Jones & Moore, First Magnolia Federal Building, Hattiesburg, Miss. 39401, J. Kearney Travis, Jr., Travis, & Travis, 400 Citizens Bank Building, Hattiesburg, Miss. 39401, for appellant.

Before SMITH, SUGG and COFER, Judges.

SUGG, Justice:

This appeal involves three questions: (1) Was the holder of the second deed of trust entitled to payment of its junior lien out of any surplus arising from a sale under a first deed of trust? (2) Were the homestead exemptionists entitled to an exemption of $15,000 under Miss. Gen. Laws, Ch. 323, Sec. 5 (1970), which increased the exemption from $5,000 to $15,000? (3) Was the United States entitled to apply exempt proceeds to satisfy a federal tax lien?

Mason M. Baker and wife, Charlene P. Baker, executed a deed of trust on May 21, 1965, securing a debt due Pine Belt Savings & Loan Association. After default, the property described in the deed of trust was sold at a foreclosure sale for $29,882.17 on December 11, 1975. The trustee applied the proceeds to the debt due Pine Belt, the trustee's fee and expense of sale, leaving a surplus of $15,911.37.

Three classes of creditors claimed the surplus. (1) Builders Supply Company claimed part of the surplus to satisfy the amount due on its second deed of trust. (2) Thirteen judgment creditors claimed the surplus to satisfy their judgment aggregating $15,784.48 which were enrolled on varying dates from February 5, 1969 to July 17, 1970. (3) The United States claimed the surplus proceeds to satisfy its tax lien in the amount of $17,050.82 which was filed on the 6th day of February, 1975. In addition, the Bakers claimed $15,000 of the surplus as a homestead exemption.

I. WAS THE HOLDER OF THE SECOND DEED OF TRUST ENTITLED TO SATISFY ITS JUNIOR LIEN OUT OF THE SURPLUS ARISING FROM THE SALE UNDER THE FIRST DEED OF TRUST?

Mr. and Mrs. Baker executed a second deed of trust on the 4th day of October, 1968, which secured an indebtedness to Builders Supply Company. The chancellor held that the balance due on March 16, 1977, on the Builders Supply debt was $10,319.22, which was itemized as follows:

Principal ................         $ 5,500.00

Interest .................           3,473.25

Attorney's Fees (15%) ....           1,345.98

Total ....................         $10,319.23

 

The chancellor held that the foreclosure of the Pine Belt's senior deed of trust terminated the lien created by Builders Supply second deed of trust, and the Builders Supply was not entitled to satisfy its lien out of the surplus arising from the forclosure of the senior deed of trust. This holding by the chancellor was erroneous because we stated in O'Reilly v. Hendricks, 10 Miss. 388, 2 S&M (1844), the following:

As a general rule a junior lien entitles the holder to the residue of the encumbered property, after an older lien has been satisfied. In equity the junior claimant would be entitled to the surplus of arising from a sale under the older lien. ( Miss. at 400).

In Great Southern Land Co. v. Valley Securities Co., 162 Miss. 120, 137 So. 510 (1931) we stated:

The general rule is that, where a surplus remains after satisfying a senior mortgage, it should be applied on the junior mortgage. O'Reilly v. Hendricks, 2 Smedes & M. 388. (162 Miss. at 136, 137 So. at 514).

We have not departed from the rule announced in O'Reilly v. Hendricks, supra, that the surplus arising from a sale under a senior lien should be applied on a junior lien. We therefore reverse the chancellor on this issue. On remand, the trial court shall allow Builders Supply, from the surplus, the sum of $10,319.23 which was due it on March 16, 1977, plus interest at the rate of 7 1/2% from March 16, 1977, until paid on the principal of $5,500 and attorney's fees of 15% on the additional interest as provided in the note.

II. WERE THE BAKERS ENTITLED TO A HOMESTEAD EXEMPTION OF $15,000?

Miss. Gen. Laws Ch. 323, Sec. 5 (1970), was approved April 6, 1970, effective July 1, 1970. Among other things, the act increased the homestead exemption from $5,000 to $15,000. The act provided:

Section 7. Nothing in this act shall affect any execution or attachment upon which levy has been made and under which an execution sale or attachment is pending at the time of the effective date of this act, but such execution or attachment may proceed in all respects according to the law prevailing at the time such levy or attachment is made.

Section 8. This act shall not affect any matter in any court of this state that is pending at the time this act takes effect.

Sections 7 and 8 of the act indicate that the legislature recognized that it could not enlarge the exemptions of property from liability to existing creditors thereby impairing the obligations of contracts prohibited by the federal and state constitutions. ¹ It is firmly settled that any law which materially increases the amount of exempt property withdrawn from liability for the debts of the owner of the property impairs the obligation of existing contracts and is, as to existing creditors, unconstitutional because an exemption may not be applied retroactively. Odom v. Leuhr, 226 Miss. 661, 85 So. 2d 218 (1956); Johnson v. Fletcher, 54 Miss. 628 (1877); Lessley v. Phipps, 49 Miss. 790 (1874).

We held in Odom that the landowner in that case was entitled to the increased exemption because the judgment in question was not obtained until after the effective date of the increase in the homestead exemption. Odom did not involve an existing contract but was an action for damages for a tort committed by the landowner. Although the cause of action accrued and suit was filed in Odom before the effective date of the increased homestead exemption, we held this fact did not bring the case within the prohibition of the federal and state constitutions against the legislature passing a law impairing a contract.

Odom reaffirmed the rule stated in Johnson v. Fletcher, supra, that the execution rights of a judgment creditor becomes fixed when he obtains his judgment and the legislature cannot increase the exemption as to existing debts.

In this case, all of the judgments were obtained and enrolled before July 1, 1970, the effective date of the amendment increasing the homestead exemption, except the claim at Atlas Brick Company. The judgment in favor of Atlas Brick Company was rendered July 17, 1970, in the Cricuit Court of Lamar County . The judgment recites that it was a suit on a promissory note and that personal service of process was had on the defendant, Mason Baker, returnable to a prior term of the court. The claim of Atlas Brick Company was pending on the effective date of the act increasing the homestead exemption so the increased exemption did not apply. (Section 8, supra.)

We therefore conclude that the $5,000 exemption which existed before the amendment was applicable to the claims of all the judgment creditors and the chancellor erred in holding that the landowners were entitled to a homestead exemption of $15,000.

III. IS THE UNITED STATES ENTITLED TO APPLY EXEMPT PROCEEDS TO SATISFY A FEDERAL TAX LIEN?

The chancellor held that the United States was entitled to recover the amount of the homestead exemption to satisfy its tax lien. Section 6334(c) of the Internal Revenue Code of 1954 (26 U. S. C.) provides that the only property exempt from a levy to satisfy unpaid federal taxes is the property specified by Section 6334(a). Section 6334(a) does not recognize homestead exemption. The appellants have not challenged the correctness of this holding of the chancellor. Accordingly that part of the decree specifying that the United States is to receive the amount of the homestead exemption is affirmed; however, since we have held that the homestead exemption of $5,000 applies rather than $15,000, recovery by the United States will be limited to $5,000.

Conclusion

The chancellor will order distribution of the surplus as follows: (1) the claim of Builders Supply in the amount heretofore set forth; (2) $5,000 to the United States ; (3) any balance remaining to be distributed to the judgment creditors in accord with the final decree of March 21, 1978. We are unable to ascertain the balance remaining for distribution to the judgment creditors because the surplus proceeds were invested and the amount of interest accruing is not shown by the record; therefore, it is necessary to remand for entry of a final decree of distribution to the judgment creditors.

AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

PATTERSON, C. J., SMITH, P. J., ROBERTSON, P. J., AND WALKER , BROOM, LEE, BOWLING AND COFER, JJ., CONCUR.

¹ Art. 1, §10 ¶1 United States Constitution and Art. 3, §16 Mississippi Constitution of 1890.

 

 

 

Melba L. Harvey v. Noel Thomas, Nehemiah L. Palmer, Sheriff v. Melba L. Harvey et al.

La. Supreme Court, No. 43409, 119 SO2d 446, 3/21/60

Lien for taxes: Priority over homestead exemption claimed under state law.--Proceeds from the sale of a federal income tax delinquent's homestead in Louisiana, in an amount sufficient to satisfy the Government's lien for such taxes, were payable to the United States, since the Louisiana homestead exemption is ineffective against a recorded federal income tax lien.

Joseph A. Gladney, 130 St. Louis St., Baton Rouge, La., and Ponder & Ponder, Carondelet Bldg., New Orleans, La., for Mr. and Mrs. Noel Thomas, Richard Kilbourne, Clinton, La., for Mrs. Inez Durham. Seale, Kelton & Hayes and John McK. Taylor , 700 Florida St. , Baton Rouge , La. , for Melba L. Harvey.

HAWTHORNE, Judge:

The primary issue in these matters is whether appellant Noel Thomas is entitled to be paid, by virtue of his homestead exemption, the full sum of $4,000.00 from the proceeds of a sheriff's sale. The property sold was seized under a judgment in favor of Melba L. Harvey for the principal sum of $2,500.00 plus 8 per cent per annum interest from December 22, 1951, until paid, 10 per cent attorney's fees on the principal and interest, and all costs. After seizure of the property but before public sale, the judgment debtor, Thomas, intervened alleging that the property seized was his homestead, and that he was entitled to be paid $4000.00 out of the proceeds of the sale because of this homestead exemption. At the sale the property was adjudicated to the judgment creditor for $18,000.00 in cash, and the sheriff, after paying all costs of the proceedings and the full amounts due under first and second mortgages, instituted a concursus proceeding, deposited the balance of the proceeds in the registry of the court, and cited all claimants, including the judgment debtor who was claiming the amount of his homestead exemption, to appear and assert their respective claims.

[ Homestead Exemption]

The concursus proceeding was tried, and the district court rendered judgment ordering disbursement of the proceeds of the sale, including payment of $768.40 ¹ to Thomas, the homestead claimant. In due course the clerk of court disbursed the funds under the authority of the judgment, and thereafter Thomas took a devolutive appeal.

The mortgage certificate obtained by the sheriff and read by him before the sale disclosed that there were some 16 encumbrances against the property including conventional mortgages, judicial mortgages, and various liens, and that the proceeds of the sale were insufficient to pay and discharge all of these claims. It was conceded that the property seized and sold was the homestead of the judgment debtor and had been his homestead since January 1, 1952.

Under the provisions of Article 11, Section 1, of the Louisiana Constitution of 1921, if the homestead exceeds $4,000.00 in value, the beneficiary shall be entitled to that amount in case the sale of the homestead under legal process realizes more than that sum. Under Section 2 of this article, however, this homestead exemption does not apply to certain debts specifically enumerated. Among these are debts (No. 2) "For labor, money, and material, furnished for building, repairing or improving homesteads" and (No. 4) "For taxes or assessments".

As stated previously, the property sold was burdened with numerous encumbrances. Article 3329 of our Civil Code provides that among creditors mortgages, whether conventional, legal, or judicial, take rank in the order in which they are recorded. Bank of Erath v. Broussard, 161 La. 657, 109 So. 347; see Central Sav . Bank & Trust Co. v. Tucker, 182 La. 289, 161 So. 759; Union Homestead Ass'n v. Finck, 180 La. 437, 156 So. 458. Although mortgages must be paid according to their rank, mortgages without homestead waiver cannot encroach upon the homestead exemption of $4,000.00, but the holder of a mortgage superior in rank which does not contain a homestead waiver has the right to be paid out of the excess of the proceeds above the $4000.00 homestead exemption in preference to subsequent mortgages which enjoy a homestead waiver. Bank of Erath v. Broussard, supra.

With these principles of law in mind, let us now consider the disbursement of the proceeds of the sheriff's sale in the present case.

[Disbursement of Funds from Forced Sale ]

As stated above, the property was sold for $18,000.00 in cash, and the sheriff after paying all costs paid in full the holder of the first mortgage in rank (as disclosed by the mortgage certificate), in which there was no homestead waiver. This mortgage was properly paid from the excess above the $4000.00 homestead exemption, there being a sufficient amount in this excess to pay this mortgage in full. The sheriff then paid the second mortgage in rank, which contained a homestead waiver. This left a balance of $7709.85. The sheriff deposited this balance in the registry of the court in the concursus proceeding, and cited the numerous claimants to appear and assert their respective rights to be paid from this sum.

The question for decision is: How should this fund be disbursed under the principles of law set forth above?

The court costs of $52.40 in the concursus proceeding were paid first. There was also paid to the clerk of court $73.00 as costs incurred in the concursus proceeding in a matter growing out of the claim of L. A. Picou to be paid the 10 per cent attorney's fees provided for in the judgment of the seizing creditor Melba L. Harvey. After payment of these two items there remained a balance of $7584.45.

The next encumbrance in rank, No. 3 on the mortgage certificate, is a materialman's lien in favor of W. A. Hood Lumber Company for the amount alleged to be due for lumber and building materials sold to Thomas. The trial judge did not order this lien paid, and properly so, for the apparent reason that it was not reinscribed in the mortgage records within one year from the date of its initial recordation. R. S. 9:4812; Shreveport Long Leaf Lbr. Co. v. Wilson, 195 La. 814, 197 So. 566.

The next encumbrance in rank is the judicial mortgage of the seizing creditor Harvey. This mortgage enjoys no homestead waiver and cannot encroach upon Thomas' $4,000.00 homestead exemption, but, being next in rank of recordation, it is entitled to be paid from the excess above the homestead exemption, which excess was $3,584.45. ² The total amount due under this mortgage, including court costs, interest, and attorney's fees, exceeds the amount of this excess, ³ and accordingly Harvey is entitled to the entire excess. Thus at this point Thomas was left with the full amount of his homestead exemption of $4,000.00, and this sum is all that remained from the proceeds of the sale deposited in the registry of the court.

There are other conventional and judicial mortgages inferior in rank in point of recordation which do not enjoy any homestead waiver and which cannot encroach on Thomas' $4,000.00 homestead exemption. Consequently the holders of these mortgages are not entitled to receive anything from the proceeds of the sale.

We come next to the very crux of Thomas' complaint. Although the trial judge gave full recognition to his claim for $4,000.00 homestead exemption, the judge nevertheless ordered paid out of this $4,000.00 two claims for debts, although inferior in rank as regards recordation to numerous other judicial and conventional mortgages which did not enjoy the homestead waiver and whose owners received nothing from the proceeds of the sale. The first of these debts resulted from federal income tax liens amounting to $2,047.56, and the other was for materials sold for building, repairing, or improving the homestead as evidenced by a judgment in favor of Clinton Lumber Company, Inc., formerly W. A. Hood Lumber Corporation, on which judgment there was due the sum of $1,184.40. Apparently the trial judge ordered these items paid from the homestead exemption under the provisions of Paragraphs 2 and 4 of Section 2 of Article 11 of the Constitution, as set out above.

[Federal Tax Lien]

The first question for our determination is whether Thomas' homestead exemption is effective against recorded federal income tax liens.

The idential question was considered in United States v. Heasley, 170 F. Supp. 738 (D. C. 1959) [59-1 USTC ¶9295], in which it was held that the several states cannot carve out homestead exemptions from the effect of federal income tax liens; that the Congress of the United States created such federal tax liens, and they cannot be affected by state legislatures without the consent of Congress; and that it is basic that United States courts have the last word in federal tax matters. The court cited in support of these propositions United States v. Acri, 348 U. S. 211, 75 S. Ct. 239, 99 L. Ed. 264 [55-1 USTC ¶9138]; United States v. Snyder, 149 U. S. 210, 13 S. Ct. 846, 37 L. Ed. 705; United States v. Heffron, 158 F. 2d 657 (9 Cir.) [47-1 USTC ¶9194].

In Lafayette Bldg. Ass'n v. Spofford, 221 La. 549, 59 So. 2d 880, this court had occasion to consider Paragraph 4 of Section 2 of Article 11 of the Louisiana Constitution, which provides that the homestead exemption is not applicable to debts for taxes or assessments. In that case it was definitely and emphatically stated that the word "taxes" as there used embraced no other type of taxes than those assessed directly against the homestead property. The court in that case was dealing only with taxes levied and assessed by the state, for the question there was whether the word "taxes" in Article 11, Section 2, Paragraph 4, included excise taxes levied by the state and due by the one claiming the homestead exemption. The court held that a debt for excise taxes was not a debt to which the homestead exemption did not apply. Here, however, we are dealing with income taxes levied by the United States government, and under the federal authorities set out above we think the trial judge properly ordered these income taxes paid.

We also think he properly ordered the amount due under the lumber company judgment paid from the $4,000.00, for it was shown that this was a debt for materials incurred in repairing or improving the homestead. See La. Const. of 1921, Art. 11, Sec. 2, Par. 2.

After payment of these two debts there remained for Thomas under his homestead exemption only $768.04, and as this amount was paid to Thomas by the clerk of court, he has no cause for complaint.

To give Thomas his full homestead exemption we should have to disregard the principle of law that among creditors mortgages, whether conventional, legal or judicial, take rank in the order in which they are recorded. In other words, we should have to manipulate the mortgages so as not to pay them in accordance with their rank, and, as said in Bank of Erath v. Broussard, supra, "* * * Such a procedure would take away from prior mortgages which enjoy no homestead waiver their right to be paid out of such excess in preference to subsequent mortgages which enjoy such waivers, and hence could not be tolerated for a moment".

Appellant Thomas also claims that the clerk did not distribute the fund deposited in the registry of the court in accordance with the judgment rendered in the concursus proceeding. The clerk disbursed the the fund in accordance with our opinion and in accordance with the judgment of the district court, and appellant Thomas was entitled to receive from this fund only the amount with he did receive.

Melba L. Harvey, the owner of the judicial mortgage under which the property was seized, has answered the appeal claiming that the district court erred in ordering paid to the clerk of court $73.00 incurred in what he says was a rule instituted by him to have the amount of L. A. Picou's attorney's fees reduced from $2,500.00 to the amount ordered paid by the trial judge. We do not find in the record any rule instituted by Harvey for this purpose. However, there was a proceeding instituted by L. A. Picou in which he sought to be paid the 10 per cent attorney's fees provided in the seizing creditor's judgment. This proceeding was a part of the concursus proceeding itself, and L. A. Picou was recognized to be entitled to the 10 per cent attorney's fees set forth in the Harvey judgment. Consequently costs of this proceeding were properly taxes as costs by the trial judge and ordered paid to the clerk of court.

For the reasons assigned the judgment appealed from is affirmed, appellant to pay all costs of this appeal.

¹ There is a mathematical or clerical error in this figure; the sum ordered paid to Thomas should have been $768.04. This error, however, is inconsequential.

² There remained in the fund deposited in court after payment of costs $7,584.45. Consequently, after the homestead exemption of $4,000.00 was deducted, there remained in this fund $3,584.45.

³ In the amount to be paid Harvey there is included $332.25 representing the 10 per cent attorney's fees due L. A. Picou, which the trial judge ordered paid directly to Mr. Picou.

 

 

 

Rosalie Bedami, Plaintiff v. Laurie W. Tomlinson, Director of Internal Revenue of Florida, and his lawful agents and deputies, Defendants

In the United States District Court for the Southern District of Florida, Tampa Division, Civil. No. 2344-T, January 25, 1954

Injunctive relief: Sale of homestead property.--Where taxpayer sought temporary and permanent injunctions against the Director of Internal Revenue to restrain the levy and sale of her homestead property in aid of the collection of income taxes and penalties, it was held that the maintenance of such a suit is specifically barred by Code Sec. 3653, since taxpayer had adequate legal remedies. Director's motion to dismiss allowed.

Property subject to lien: Homestead property in Florida.--Homestead laws of the State of Florida , constitutional or statutory, must yield to Federal statutes authorizing the seizure and sale of real estate to satisfy unpaid income taxes when sufficient personalty is not found. BACK REFERENCES: Code Secs. 3670 and 54FED ¶3707 at 54FED ¶544 CCH 1765.159, 54FED ¶1766T.153.

Distraint proceedings: Injunctive relief and motion to dismiss: Irrelevancy of supporting evidence.--On a motion allowed to dismiss, with prejudice, a suit for injunctive relief against the sale of taxpayer's homestead, the Director is not entitled to introduce certified copies of taxpayer's income tax returns and other documents as evidence. Questions of fact are raised by answer and a motion for summary judgment, but they cannot be presented on a motion to dismiss, the grounds for which must be found within the four corners of taxpayer's complaint.

Talton A. Branch, John D. Goff, Tampa , Fla. , for plaintiff. James L. Guilmartin, United States Attorney, for defendants.

Memorandum

SIMPSON, District Judge:

Plaintiff's complaint seeks temporary and permanent injunctions against the defendant Director, restraining the levy and sale of the plaintiff's homestead property, in aid of the collection of income taxes and penalties assessed against the plaintiff and her husband for the eight years, 1944 to 1951, inclusive.

[Injunction Barred by Statute]

The maintenance of a suit for the purpose of restraining the collection of any tax is specifically barred by Section 3653, Title 26, U. S. Code. The plaintiff has adequate legal remedies.

[ Homestead Subject to Sale ]

Additionally, see the holding of the U. S. Court of Appeals, Fifth Circuit, in Shambaugh v. Scofield, 132 Fed. (2d) 345 [42-2 USTC ¶9826]; holding that homestead laws of the State of Taxes, constitutional or statutory, must yield to Federal Statutes authorizing the seizure and sale of real estate to satisfy unpaid income taxes when sufficient personalty is not found. The Florida homestead exemption laws and constitutional provisions are similar in substance to those of Texas .

An order dismissing the complaint, without leave to amend, and with prejudice, is accordingly being entered.

Order Dismissing Complaint, and Final Judgment of Dismissal With Prejudice

[Proofs Not Allowed]

This cause was this date argued and submitted by counsel for the respective parties, on the motion to dismiss (filed May 11, 1953) of the defendant Director of Internal Revenue. At said hearing defendant's counsel sought to have introduced and considered by the Court certified copies of the joint income tax return for the calendar year 1950 filed jointly by the plaintiff and her husband Angelo Bedami, and certified copies of waiver of restrictions on assessment and collection of deficiency in tax and acceptance of over-assessment for the years 1944, 1945, 1946, 1947, 1948, 1949, 1950 and 1951, filed jointly by the plaintiff and her husband with the defendant Director of Internal Revenue. Upon the objection of plaintiff's counsel, these documents are not received and are not considered by the Court in the entry of this order. They present questions of fact, which the defendant would have to raise by answer and motion for summary judgment, and cannot be presented in aid of his motion to dismiss, the grounds for which must be found within the four corners of the plaintiff's complaint.

Upon consideration, it is

ORDERED and ADJUDGED that the defendants' said motion to dismiss be and the same is hereby granted without leave to the plaintiff to amend her complaint, and said complaint and this cause be and the same are hereby dismissed with prejudice.

 

 

 

United States of America, Plaintiff v. Kenneth C. Tressler; Theresa Tressler; Leta P. Fuerstein; The Estate of W. J. Reynolds, Sr.; May Reynolds; C. E. Houchin; Pringle Tractor Co. Inc.; James L. Ralphs, Inc.; Corrine Talbot; Quality Press, Ltd.; L. J. Allen; Mrs. George W. Fink; Beatric Farina; Earl O. Schnetz; J. S. Butler; The California State Board of Equalization; State of California Department of Employment; Defendants

U. S. District Court, So. Dist. Calif. , No. Div., No. 2646 ND, 1/31/66

[1954 Code Secs. 6321-6323]

Tax liens: California homestead exemption: Priority.--Government's tax lien was superior to a California homestead exemption and trust deed liens in property of the delinquent taxpayers. Since the deeds of trust were not executed by the taxpayer husband, the homestead executed by the taxpayer wife for the joint benefit of her and her husband was a bar to the deeds of trust. The homestead was not, however, a bar to the tax claim.

Manuel L. Real, United States Attorney, Loyal E. Keir, Robert T. Jones, Assistant United States Attorneys, 808 U. S. Courthouse, Los Angeles, Calif., for plaintiff. Thomas B. Conway, Griffin, Conway & Jones, 1008 12th St., Modesto, Calif., William Meux, 605 Security Bank Bldg., Fresno, Calif., for Reynolds; S. Everett Phillips, Security Bank Bldg., 1060 Fulton Mall, Fresno, Calif., for L. Cook, defendants.

Memorandum (1/14/66)

CROCKER, District Judge:

The above-entitled case came on for trial before the court on December 10, 1965; the Government was represented by Robert T. Jones, Assistant United States Attorney; Defendant Leta P. Fuerstein was represented by S. Everett Phillips, Esq.; Defendants Williams J. Reynolds, Jr., Administrator of the Estate of W. J. Reynolds, Sr., and May Reynolds, were represented by William C. Meux, Esq.

In this action the Government seeks to foreclose tax liens on certain property to pay taxes of Kennth C. Tressler and Theresa Tressler. The property in question was the separate property of Theresa Tressler which she homesteaded on March 22, 1951, the Homestead reciting,

"that my husband K. C. Tressler is the head of a family; that he has not made any declaration of homestead and I therefore make this declaration for the joint benefit of myself and my said husband;"

On May 8, 1952, Theresa Tressler executed a note secured by a deed of trust on said property in favor of W. J. Reynolds and May Reynolds. However, her husband K. C. Tressler didn't execute this note or deed of trust.

On May 19, 1952, Theresa Tressler executed a note secured by a deed of trust on said property in favor of Leta P. Fuerstein. K. C. Tressler did not execute this note and deed of trust.

Default has been taken against all other defendants claiming an interest in the property.

The question of the priority of the above-mentioned deeds of trust, homestead interest and tax lien was submitted with written authorities.

[ Homestead ]

The Government contends that its claim under tax lien is prior to the answering defendants under their deeds of trust because the homestead does not bar the Government, U. S. v. Heffron [47-1 USTC ¶9194], 158 F. 2d 657, but does bar the other defendants.

The defendants contend that the homestead is not a bar because California Civil Code §1241.3 provides that a homestead is subject to execution in satisfaction of judgments obtained "On debts secured by encumbrances on the premises executed and acknowledged by husband and wife, by a claimant of a married person's separate homestead, or by an unmarried claimant."

However, the deeds of trust were not executed and acknowledged by the husband as required by this section and by Duncan v. Curry, 124 Cal. 106.

This homestead is not a married person's separate homestead as defined by California Civil Code Sections 1300-1304, but by its terms is a homestead for the joint benefit of the husband out of the wife's separate property. By this homestead Mrs. Tressler gave her husband an interest in her property which protects him not only from his creditors but also from his wife as well. The wife could not convey or encumber it without his signature (Cal. Civ. Code §1242), and she cannot partition the property, Kaupe v. Kaupe, 131 Cal. App. 2d 511.

Thus, while the deeds of trust are valid, they cannot be enforced against the valid homestead and the Government has first priority and may foreclose its valid tax lien against the property described in the complaint and sell it by judicial or revenue sale.

The proceeds should go first, to satisfy the tax lien of the United States; second, to the Tresslers up to the amount of their homestead exemption; third, to the Estate of W. J. Reynolds, Sr., and May Reynolds, for the balance due on the original note; fourth, to Leta P. Cook, sued as Leta P. Fuerstein, for the balance due on her note and deed of trust; and fifth, to the Estate of W. J. Reynolds, Sr., and May Reynolds for advances made on their note and deed of trust.

Counsel for plaintiff is directed to prepare and lodge findings of fact, conclusions of law and form of judgment in accordance with Local Rule 7.

The clerk of this court is directed to serve copies of this order by United States mail upon the attorneys for the parties appearing in this cause.

Findings of Fact and Conclusions of Law

This action having come on regularly for trial on December 10, 1965, at 10:00 A. M., before the Honorable Myron Crocker, United States District Judge for the Southern District of California, Northern Division; Manuel L. Real, United States Attorney for the Southern District of California, Loyal E. Keir, Assistant United States Attorney, Chief, Tax Division, and Robert T. Jones, Assistant United States Attorney, appearing for the plaintiff; William C. Meux, Esq., appearing for W. J. Reynolds, Jr., Administrator of the Estate of W. J. Reynolds, Sr. and for May Reynolds; S. Everett Phillips, Esq., appearing for Leta P. Fuerstein; and evidence both oral and documentary having been received by the Court; and the action having been briefed and argued; and the Court having duly considered same, now orders findings of fact and conclusions of law as follows:

Findings of Fact

I. This is an action to foreclose federal tax liens against defendants and taxpayers Kenneth C. Tressler and Theresa Tressler pursuant to the provisions of Section 7402 and 7403 of the Internal Revenue Code of 1954. [26 U. S. C.]

II. On May 26, 1961, the District Director of Internal Revenue, a delegate of the Secretary of the Treasury, made an assessment against the defendant-taxpayers Kennth C. Tressler and Theresa Tressler for individual income taxes, penalties, and interest to May 26, 1961 for the tax year 1956 in the total amount of $3,628.14.

III. Notice of and demand for payment of the above-described tax assessment was served on the defendant-taxpayers Kenneth C. Tressler and Theresa Tressler on May 26, 1961.

IV. There is presently due and owing from the defendant-taxpayers, Kenneth C. Tressler and Theresa Tressler, on the said tax assessment, the sum of $3,349.19, plus interest thereon according to law, which amount the defendant-taxpayers have neglected, failed, or refused to pay on demand.

V. On July 11, 1961, a Notice of Federal Tax Lien (Treasury form 668) in the amount of $4,647.59, relating to the assessment described above, was filed with the County Recorder of Fresno County , California .

VI. Defendant-taxpayer Theresa Tressler is the owner of certain real property located at 1103 West Vessar Avenue , Fresno , California ; a more particular description of which is:

"The East 65 feet of the North half of lot 16 of RAMONA ACRES, according to the map thereof recorded in Book 7, Page 37 of Plats, on May 18, 1914 in the office of the County Recorder of said County, EXCEPT the South 10 feet thereof.

VII. Defendant-taxpayer Theresa Tressler, on March 2, 1951, executed a written Declaration of Homestead for the joint benefit of herself and her husband covering the real property described at paragraph VI above; said Declaration of Homestead was recorded on March 22, 1951 with the County Recorder of Fresno County , California .

VIII. The other defendants were named in this action because each of them asserts claims against defendants Kenneth C. Tressler and/or Theresa Tressler, or against the subject property referred to above.

IX. On September 7, 1965 defaults and default judgments were entered against the following named defendants: Kenneth C. Tressler, Theresa Tressler, Pringle Tractor Co., Inc., James L. Ralphs, Inc., Corrine Talbot, Quality Press, Ltd., and J. S. Butler.

X. Disclaimers of any right, title, or interest, in the subject property are on file by the following named defendants: L. J. Allen, filed August 24, 1965; the C. E. Houchin Estate and all beneficiaries thereof (sued herein as C. E. Houchin), filed August 2, 1965; the State of California Department of Employment and Board of Equalization, dated July 27, 1965; Beatric Farina, filed August 18, 1965; and Earl O. Schnetz, filed May 27, 1965.

XI. Defendants the W. J. Reynolds, Sr. Estate and May Reynolds assert an interest in this property by virtue of two deeds of trust on the property described above in favor of W. J. Reynolds and May Reynolds, which deeds of trust were executed by Theresa Tressler on May 8, 1952, and recorded May 28, 1952. However, these deeds of trust were not executed by Mr. Kenneth C. Tressler.

XII. Defendant Leta Cook, sued herein as Leta Fuerstein, asserts an interest in the proprety described above by virtue of a deed of trust, the balance due with principal upon which is $173.07, which deed was executed May 19, 1952 and recorded on May 28, 1952. This deed also was not executed by Kenneth C. Tressler.

XIII. By stipulation filed December 10, 1965 defendant Mrs. George W. Fink conceded the priority of the United States and the other answering defendants in the proceeds of the subject property.

Conclusions of Law

I. This Court has jurisdiction of this action by virtue of Sections 7402 and 7403 of the Internal Revenue Code of 1954 [26 U. S. C.] and under Sections 1340 and 1345 of the Judicial Code. [28 U. S. C.]

II. Defendants and taxpayers Kenneth C. and Theresa Tressler are indebted to the United States for federal income taxes and interest thereon for the year 1956 in the amount of $3,349.19, plus interest as provided by law.

III. Plaintiff is entitled to foreclose its federal tax liens against defendants and taxpayers Kenneth C. Tressler and Theresa Tressler. [26 U. S. C. Sections 7402 and 7403.]

IV. Since the deeds of trust in question were not executed and acknowledged by Kenneth C. Tressler, husband of Theresa Tressler, the homestead executed by Theresa Tressler for the joint benefit of herself and her husband is a bar to the deeds of trust. [ Cal. Civ. Code §§ 1240 and 1241; Duncan v. Curry, 124 Cal. 106 (1899).]

V. The homestead, however, is not a bar to the tax claim of the United States . [United States v. Heffron [47-1 USTC ¶9194], 158 F. 2d 657 (9th Cir. 1957).]

VI. Accordingly, while the deeds of trust are valid, they cannot be enforced against a valid homestead and the Government has first priority and may foreclose its valid tax lien against the property described above, and may sell the property by judicial or revenue sale.

VII. The proceeds of sale of the subject property should go first, to satisfy the tax liens of the United States; second, to the Tresslers up to the amount of their homestead exemption; third, to the Estate of W. J. Reynolds, Sr., and May Reynolds, for the balance due on the original note; fourth, to Leta P. Cook, sued as Leta Fuerstein, for the balance due on her note and deed of trust; and fifth, to the Estate of W. J. Reynolds, Sr., and May Reynolds for advances made on their notes and deed of trust; and sixth, to defendant Mrs. George W. Fink in the amount of her judgment claim.

 

 

 

Sarah M. Harris, Plaintiff-Appellant v. United States of America , Defendant-Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 84-1703, 764 F2d 1126, 7/8/85, Affirming, 84-2 USTC ¶9715

[Code Secs. 6303, 6321 and 7403]