Subrogation Page2

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Plaintiffs' other cited caselaw does not change this conclusion. For example, Plaintiffs cite to Mort v. United States [ 96-1 USTC ¶50,315], 86 F.3d 890, 894 (9th Cir. 1996), to establish that they are not volunteers, but Mort relied on a more restrictive definition of volunteer supplied by California law. Specifically, the Mort court read California law as allowing subrogation for a "person who lends money to pay off an encumbrance on property and secures the loan with a deed of trust on that property," id.; this is clearly contradictory to Michigan law as pronounced in Lentz and Lewis. Plaintiffs also argue that the government would unjustly receive a windfall if the Court denied subrogation here, because the USA 's lien would have its priority elevated with the 1999 mortgage's priority disappearing. See Dietrich Indus., Inc. v. United States , 988 F.2d 568, 573 (5th Cir. 1993). Plaintiffs' windfall argument is not persuasive, however, because allowing subrogation would give Plaintiffs the windfall; further, the logic of Plaintiffs' argument would have applied just as well in Lentz or Lewis, and both of those courts denied subrogation. Finally, Plaintiffs cite to United States v. Baran, 996 F.2d 25, 29 (2nd Cir. 1993), but Baran never discussed the volunteer issue. In conclusion, the Court denies Plaintiffs equitable subrogation argument.

B. Citizens Bank's Mortgage gets priority over the tax lien as a purchase money mortgage under federal law

Both parties agree that Citizens Bank has a purchase money mortgage on the property, but disagree over whether such a mortgage gets priority over the tax lien. Plaintiffs argue that the current state of Michigan law favors their position. Specifically, Plaintiffs contend that a Michigan Appeals Court decision, Graves v. American Acceptance Mortgage Corp., 246 Mich. App. 1 (2001), held that purchase money mortgages always have highest priority. Plaintiffs acknowledge that the Michigan Supreme Court later overruled Graves , but observe that the Michigan Supreme Court has since vacated its overruling opinion to reconsider the case. Plaintiffs conclude that with the Supreme Court opinion vacated, the Appeals Court opinion is once again good law. The government responds that state law is unsettled as to the priority of a purchase money mortgage versus other liens and securities. The USA continues to say that the state of Michigan law is irrelevant, because priority in this case is governed by federal law, and federal law allows for no special priority for purchase money mortgages.

As both parties agree, state law dictates the existence of property interests, but the priority of those interests with respect to tax liens or other portions of the tax law is an issue of federal law. United States v. National Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 722 (1985); Blachy v. Butcher [ 2000-2 USTC ¶50,629], 221 F.3d 896, 905 (6th Cir. 2000). Defendant is correct that the dispute over Graves is moot, as the question of priority is not governed by state law. Federal law, however, does generally give priority to purchase money mortgages. The Supreme Court has held that a federal tax lien is subordinate to "a purchase-money mortgage regardless of whether the agreement was entered into before or after the filing of a tax lien." Slodov v. United States [ 78-1 USTC ¶9447], 436 U.S. 238, 257-58 (1978). "Decisional law has long established that a purchase-money mortgagee's interest in the mortgaged property is superior to antecedent liens prior in time ... and, therefore, a federal tax lien is subordinate to a purchase-money mortgagee's interest notwithstanding that the agreement is made and the security interest arises after notice of the tax lien." Id. at n. 23; accord First Interstate Bank of Utah , N.A. v. Internal Revenue Serv. [ 91-2 USTC ¶50,303], 930 F.2d 1521, 1523 (10th Cir. 1991). This fact has recently been recognized by another court in this District. Wilson v. Wilson [ 2003-1 USTC ¶50,153], No. 02-CV-70833, 2002 WL 31545995, at *8 (E.D. Mich. Oct. 21, 2002 ) (citing First Interstate Bank [ 91-2 USTC ¶50,303], 930 F.2d at 1523). Thus, the government's tax lien seems at first glance subordinate to Citizens Bank's mortgage.

The Court, however, agrees with Defendant that Slodov is distinguishable from the instant case because the mortgagor in Slodov was the taxpayer himself, whereas here, the mortgagor is Bednarowski, a separate purchaser. Defendant insists that this is a crucial distinction between Slodov and the instant case because of the rationale underlying the priority given to purchase money mortgagees. In a typical purchase money mortgage situation, the property-buyer receives a loan from the lender to buy property, and secures that loan by granting the lender a mortgage on the purchased property. In such a scenario, the purchase of the land and the mortgage are seen as simultaneous events, so that the mortgagor obtains the land already encumbered by the mortgage. United States v. New Orleans R.R., 79 U.S. 362, 365 (1870); cited in Slodov [ 78-1 USTC ¶9447], 436 U.S. at n. 23. In other words, it is not the case that the mortgagor acquires the land and then gives a mortgage interest to the lender.

This chronology is critical in explaining why purchase money mortgages get priority over preexisting liens. A preexisting lien, i.e., a tax lien, encumbers whatever property the lienee thereafter acquires. Thus, when a lienee buys property, the lien automatically attaches to it. This is in contrast to a non-purchase money situation, in which the lien is the first encumbrance on the property. If the lienee subsequently gives out a mortgage on that property, the lien takes priority over the mortgage because the lien attached first. In a purchase money situation, on the other hand, the property enters the lienee's hands with the mortgage already attached, and so the lien attaches after the purchase money mortgage, even though the lien existed in time before the purchase money mortgage. Thus, the purchase money mortgage has priority over the lien, because it attached to the property before the lien. Put another way, the lien can only extend to the property actually owned by the lienee; the priority given to purchase money mortgages reflects the fact that the property comes to the mortgagor already "owned" to a certain extent (the extent of the mortgage amount) by the mortgagee. Slodov [ 78-1 USTC ¶9447], 436 U.S. at n. 23 (citing New Orleans R.R., 79 U.S. at 365; Rev. Rul. 68-57, 1968-1 C.B. 553). Therefore, the lienor's interest in the property is subordinate to the mortgagee's, because the lien does not encumber the portion of the property "owned" by the mortgagee.

The Court finds that the rationale for granting priority to purchase money mortgages does not apply in the case at bar. In the instant case, the tax lien had already attached to the Property before Plaintiffs got involved. In this way, Bednarowski acquired the Property with the lien attached. Even though the mortgage to Citizens Bank occurred simultaneously with Bednarowski's acquisition of the property, it still occurred after the tax lien had attached. Put another way, when the tax lien attached, Citizens Bank did not yet have an interest in the Property, unlike the classic purchase money mortgage situation described above. While Citizens Bank's mortgage would take priority over any tax liens imposed on Bednarowski, it does not take priority over a preexisting tax lien on Wallace that was inherited by Bednarowski in its purchase of Wallace's property. Therefore, the Court concludes that the purchase money mortgage in this case does not take priority over the tax lien.



V. CONCLUSION

For the reasons set forth above, the Court GRANTS Defendant's Motion for Summary Judgment and DENIES Plaintiff's Motion for Summary Judgment. Specifically, the Court holds that the Property is encumbered by the tax lien, and that the tax lien has priority over Citizens Bank's mortgage.

IT IS SO ORDERED.

 

In re Karl Rob ert Simms, Debtor. Equicredit Corporation, Plaintiff v. Karl R. Simms, Jane Doe, unknown spouse of Karl Simms, United States of America, General Motors Acceptance Corp., Ohio Bureau of Employment Services, Ohio Department of Job & Family Services, Pamela Simms Leasure, Carlile Patchen & Murphy, and the Washington County Treasurer, Defendants.

U.S. Bankruptcy Court, So. Dist. W.V.; 02-40183, 300 BR 877, May 30, 2003.

[ Code Secs. 6323 and 6871]

Bankruptcy: Validity and priority against third parties: Equitable subrogation. --

A mortgage company was not entitled to the proceeds on the sale of a debtor's home because it did not have priority over federal tax liens recorded before the mortgage. The mortgage company claimed that it satisfied the debtor's previous home mortgage and, as a result, was subrogated to the rights of the previous mortgage, which was incurred before the tax liens at issue. However, the doctrine of equitable subrogation was not applicable because the mortgage company was negligent in failing to do a title search before extending credit to the debtor, which would have revealed the tax liens. As such, the mortgage company had no reasonable expectation of priority.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

PEARSON, Bankruptcy Judge: Pending are motions for summary judgment filed by the defendants, United States of America and Karl R. Simms ¹ . At issue is entitlement to the proceeds of the sale of real estate owned by the debtor upon which various liens had attached. The legal issues underlying the motions have been fully briefed, and the Court finds them ripe for review.

FACTUAL BACKGROUND

With this Court's permission, the Debtor, Karl Rob ert Simms, sold his real property located a 207 VanBergan Street , Marietta Ohio , free and clear of liens. The proceeds from the sale, which amounted to $75,857.31, were placed in the registry of the Court. The plaintiff, Equicredit Corporation filed this proceeding alleging that it had a valid first priority mortgage on the property which entitled its lien to have priority over all others and demanded that it receive a portion of the sale proceeds before all other creditors.

On October 15, 1992 , the Debtor granted a mortgage to First Bank of Marietta on the subject property. Subsequently, this mortgage was released ² . On July 26, 1995 , defendant United States of America , through the Internal Revenue Service, recorded in the proper county a lien against the Debtor in the amounts of $688.75 and $38,162.56. On September 28, 1995 , the IRS recorded another tax lien in the amount of $34,769.79. Thereafter, but before February 14, 2000 , additional liens were filed against the Debtor in the county where the subject property was situated. On February 14, 2000 , the Debtor granted a mortgage on the subject property to Equicredit Corporation which was recorded on March 6, 2000 . Out of the funds secured by the Equicredit Mortgage, $36,340.41 was paid to satisfy the mortgage of First Bank of Marietta .

DISCUSSION

Bankruptcy Rule 7056 incorporates the standards set forth in Federal Rule of Civil Procedure 56, which governs when summary judgment is appropriate. That rule provides that summary judgment shall be rendered if the pleadings, discovery, or affidavits submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

The moving party has the initial burden of proving that no genuine issue of fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the nonmoving party to demonstrate that a triable issue of fact exists which precludes summary judgment against the nonmovant. Holland v. Double G. Coal Co., 898 F.Supp. 351 (S.D. W.Va. 1995). For a genuine issue of fact to exist, there must be sufficient evidence that a reasonable jury could find, by a preponderance of the evidence, for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

Where competing liens involve a federal tax, federal law controls. Aquilino v. United States [ 60-2 USTC ¶9538], 363 U.S. 509 (1960); In re Darnell [ 88-1 USTC ¶9123], 834 F.2d 1263, 1269 (6th Cir. 1987). Under federal law, the priority of competing liens is determined by the principle of "first in time is first in right." United States v. McDermott [ 93-1 USTC ¶50,164], 507 U.S. 447, 449 (1993); United States v. Vermont [ 64-2 USTC ¶9520], 377 U.S. 351, 355 (1964); United States v. New Britain [ 54-1 USTC ¶9191], 347 U.S. 81 (1954); In re Priest [ 83-2 USTC ¶9530], 712 F.2d 1326, 1327-28 (9th Cir. 1983); In re Alliance Transp. Inc., 47 B.R. 473, 475 (Bankr. N.D. Ga. 1985). In the present case, it is undisputed that the United States ' tax liens were filed in July and September 1995, while the plaintiff's mortgage lien was executed on February 14, 2000 and recorded on March 6, 2000 . Thus, the tax liens are "first in time" and have priority over the plaintiff's mortgage lien.

However, the plaintiff has argued that it has priority over the other liens on the subject property on the basis that it is subrogated to the rights of First Bank of Marietta as a result of satisfying the purchase money mortgage on the subject property.

Under Ohio law, "[i]n order to entitle one to subrogation, his equity claim must be strong and his case clear." Ohio Dept. of Taxation v. Jones, 61 Ohio St.2d 99, 399 N.E. 2d 1215 ( Ohio 1980); see also Associates Financial Servs. Corp v. Miller, 2002 WL 519667 (Ohio App. 2002) "Equitable subrogation will not be used to benefit parties who were negligent in their business transactions, and who were obviously in the best position to protect their own interests." Associates, 2002 WL 519667.

In Jones, the Ohio Supreme Court refused to apply equitable subrogation, finding that Jones' "own actions led to its dilemma of not obtaining the best priority lien." Jones, 61 Ohio St.2d at 102, 399 N.E.2d at 1218. The Court pointed out that Jones was "in complete control of the refinancing application, and yet by [his] own actions and inactions the state, without acting fraudulently, was able to secure priority" of its state tax lien Id. , 61 Ohio St.2d at 102-103, 399 N.E.2d at 1218.

Similarly, the plaintiff in the present case negligently extended financing under circumstances that prevented Equicredit from obtaining adequate security. A simple title search prior to the extension of financing would have disclosed the existence of liens that far exceeded the value of the property. Any creditor who expects to acquire a valid mortgage is required to do at least this much. Moreover, if Equicredit was aware of the liens and chose to extend the financing anyway, then it would have had no reasonable expectation of having priority. Thus, the fact that Equicredit does not have priority in this case is due entirely to its own carelessness. Therefore, the doctrine of equitable subrogation does not apply in this case.

It is accordingly,

ORDERED that the Motion for Summary Judgment filed by the defendant, United States of America is GRANTED and the proceeds from the sale of the subject property shall be distributed to the United States of America to the full extent of its liens and any remaining funds shall be distributed to creditors based on their lien priority without subrogating the lien of the plaintiff.

IT IS SO ORDERED.

¹ The plaintiff, Equicredit Corporation, has not filed a motion for summary judgment but has asserted in its response to the defendants' motions that it is entitled to judgment as a matter of law.

² Equicredit asserts that this mortgage was released following payment with monies obtained by the Debtor which were secured by a mortgage granted to Equicredit on February 14, 2000 .

 

[2001-1 USTC ¶50,367] United States of America , Plaintiff v. Harold Morrell and Michael F. Morrell, Defendants

U.S. District Court, East. Dist. N.Y., 97 CV 5344 (NG), 3/23/2001

[Code Sec. 6323 ]

Liens and levies: Enforcement: Validity: Foreclosure: Transfer of property subject to lien.--Federal tax liens on a residence conveyed by married taxpayers to their son and an annuity traceable to securities also transferred to their son, in exchange for a promise of future support were valid and could be foreclosed. The parents conceded that they divested themselves of their assets through the conveyance, rendering them unable to satisfy their tax obligations and the son admitted that the purported agreement arose after the transfer had taken place. Further, there was no supporting documentation for the claim that the son purchased the securities with his own money. Thus, there was no basis for concluding that the shares had not been transferred to the son in the same manner as other securities were transferred or that the transfer occurred before the tax assessments were made.

[Code Sec. 6323 ]

Liens and levies: Enforcement: Validity: Foreclosure: Transfer of property subject to lien: Purchaser: Oral agreement.--An individual who promised to provide future support for his parents in exchange for their transfer to him of their home was not a purchaser whose interests in the transferred property were superior to federal tax liens on the property. The purported oral agreement under which the property was transferred was unenforceable under the statute of frauds and the son admitted that the agreement arose after the property was transferred. Moreover, courts have repeatedly rejected the argument that promises of future support constitute fair consideration.

[Code Sec. 6323 ]

Liens and levies: Enforcement: Validity: Foreclosure: Transfer of property subject to lien: Purchaser: Equitable subrogation.--An individual who promised to provide future support for his parents in exchange for their transfer to him of their home was not entitled equitable subrogation. He did not have an equitable lien superior to the government's lien because he did not satisfy a senior encumbrance on any of the properties, nor did his payments to his parents confer any benefit upon the government. Moreover, equitable principles did not point to the type of relief requested by the taxpayer.
ORDER

GERSHON, District Judge:

The United States moves pursuant to Rule 56, Fed. R. Civ. P., for summary judgment to declare the validity of certain tax liens and to order foreclosure on the liens and sale of property, consisting of a residence conveyed by taxpayers to their son and an annuity traceable to securities that had been transferred by taxpayers to their son, that is subject to the liens. Defendants oppose the motion, arguing that there are factual issues for trial: (1) that the son"s interests in the real and personal property that had been transferred to him are superior to the tax liens; (2) that some of the funds used to purchase the annuity came from the son's independently accumulated assets, or alternatively, from property transferred by the taxpayers before the liens attached; and (3) that the government is not entitled to the appreciation in the value of assets after the transfers by the parents to the son.

The Facts

The facts, which in part are set forth in a Joint Agreed Statement of Material Facts ("Joint Statement") entered into by the parties, are undisputed except as indicated. Defendant Harold Morrell invested in tax shelters and claimed deductions on his joint income tax returns filed with his wife, Dolores Morrell, for the years 1977--1980. ¹ The IRS disallowed the deductions for these four years and assessed deficiencies. Harold and Dolores Morrell contested the deficiencies in Tax Court. On August 13, 1990 , the Tax Court entered an agreed decision finding deficiencies for those years, exclusive of interest, of $182, 645, which with interest had grown to over $750,000 as of the date of the decision and approximately $1.4 million when the parties entered into the Joint Statement.

The IRS separately assessed the deficiencies and demanded payment for each of the years 1977--1980 between November 15 and December 10, 1990, thereby creating liens against all property of Harold and Dolores Morrell pursuant to 26 U.S.C. §§6321 and 6322. These statutes provide that a lien attaches at the time of assessment to "all property and rights to property" of the taxpayer for the amount of the assessment, including interest that may accrue, and continues until the liability is satisfied or becomes unenforceable by lapse of time. Tax liens were filed against Harold and Dolores Morrell in Suffolk County on September 11, 1991 . Harold Morrell does not contest the deficiencies, and agrees that judgment should be entered against him for the full amount of the liability.

Harold and Dolores Morrell transferred real estate, stocks and other securities to their son, defendant Michael F. Morrell. The real estate, a home in Suffolk County having a fair market value of approximately $400,000 at the time, was transferred by deed dated May 24, 1991 , after the assessment and attachment of the government's lien. ² Harold and Dolores Morrell continued to reside there after the transfer as they had before. There was no mortgage on the property. Harold and Dolores Morrell also transferred to Michael Morrell in May 1991 their holdings in municipal trusts worth over $217,000. The transfer was effectuated by transferring the holdings from the parents' account at Dean Witter to Michael's account at Dean Witter. Michael subsequently transferred the municipal trusts to a joint Dean Witter account of Michael and his spouse. In April 1992, Harold and Dolores Morrell transferred stock holdings worth approximately $200,000 from their Dean Witter account to the Dean Witter account of Michael and his spouse.

Harold Morrell claimed in his deposition that all of these transfers, which admittedly followed the assessment, were not undertaken to avoid payment of tax deficiencies. Instead, he asserted, the assets were transferred in light of the declining health of Dolores Morrell, so that the parents would qualify for government medical assistance. Michael Morrell testified in his deposition that he shared the same understanding of the reason for the transfers of assets, and was not aware at that time of his parents' tax difficulties. For purposes of the summary judgment motion, the government does not contest motivation, but asserts that it is entitled to foreclose on its liens regardless of motivation.

Michael Morrell's assertion of an interest superior to the government liens is based upon the defendants' claim that in exchange for the transfer of assets, Michael orally agreed to support his parents and in fact did so. Defendants argue that Michael Morrell therefore is a "purchaser" protected under 26 U.S.C. §6323(a) or, alternatively, that he is entitled to an equitable lien for the hundreds of thousands of dollars he spent to support his parents over the years following the transfers of assets.

Harold Morrell testified at his deposition that he and his wife transferred their residence, stocks and securities pursuant to a unitary plan to divest themselves of all assets, and that no other assets were left after the transfers. ³ Harold Morrell testified as follows as to the timing of the alleged support agreement in relationship to the transfer of property:

Q. In connection with the transfer of the assets, did your son later make some promises to you as to what he would do for you?

A. Well, we had set up for a planned estate, and he agreed after we transferred everything over to his name he would support us. We were concerned about our health, my wife's health, which subsequently has died, but concerned about Medicare, so we didn't want to have anything around. So we made a deal. We decided that we'll have Michael take everything now and then support us so that we wouldn't be exposing the assets to Medicaid.

*****

Q. At the time of the transfers that you made to your son, had your son agreed to give you support?

A. Yes.

*****

Q. And your recollection is that his promise for the support was before the transfers were made, not after?

A. I don't remember whether it was before or after. I don't remember that part, before or after.

Q. It could have been one or the other?

A. Yeah, it could have been.

*****

Q. Everything was oral?

A. Oral.

Q. Did your son ever tell you what he would do for you in the way of providing you support?

A. He would support us the way we were--the way we lived, you know.

Michael Morrell admitted at his deposition that he first found out about the transfer of property to him during a telephone call from his father saying, "here is what I've done, and I'm really doing this because of these Medicare issues." As far as Michael knew, the documentation for effecting the transfer of securities consisted simply of a name change in ownership of the Dean Witter account. Michael Morrell testified that the circumstances surrounding the support arrangement "was simply, We're going to give you this money, and, you know, I agreed to support them. I mean it was no--there was no formal arrangement." Michael reiterated that he thought "the transfer took place and then we had the discussion," which could have taken place one or two months after the transfer. The discussion was: "I would just pay all their expenses." In the deposition, Michael Morrell recollected that the transfer of securities occurred after the real estate had been transferred; he believed the transfer of securities took place in late 1991.

Michael Morrell's affidavit submitted in opposition to the summary judgment motion simply states, in reference to the purported agreement: "In exchange for the transfer of the assets, I agreed to support my parents for their lifetime," and that he "kept that promise" by the substantial deposits to his parents' bank accounts and his purchase of a townhouse in 1996 where his father lives rent free. The affidavit identifies the transferred assets as his parents' entire portfolio of stock and municipal bonds, and their home. The affidavit states that the home was transferred in May 1991, and the securities in May 1991 and April 1992.

In October 1995, Michael Morrell liquidated his joint Dean Witter account and used all of the proceeds to purchase a variable annuity for approximately $833,000. The government claims that its lien attaches to the entire amount of the annuity, which had increased in value to over $1 million as of March 31, 1998 . In opposition to the summary judgment motion, Michael Morrell claims that at least $380,000 in the Dean Witter account that was used to purchase the annuity represented separate savings accumulated by Michael and his wife and did not come from his parents. Michael also argues that the government should not be entitled to payment of the portion of the proceeds from his Dean Witter account used to purchase the annuity that represents appreciation in the Dean Witter account; Michael attributes that appreciation in asset value to his prudent and skillful management of the account.

The government agrees in principle that, to the extent that Michael could show that a portion of the annuity was purchased with funds that were not traceable to transfers from his parents after the lien attached, Michael would be entitled to retain a pro rata share of the proceeds of the annuity. However, the government contends that there is no genuine factual dispute that all of the funds in the Dean Witter account that were used to purchase the annuity are traceable to transfers made by Harold and Dolores Morrell after the tax liens had attached. The government also contends that, since the lien follows the property, it is entitled to foreclose on the entire value of the annuity, including any appreciation in value of the annuity or the Dean Witter fund used to purchase the annuity, until the deficiency, including accrued interest, is fully satisfied.

The property that Michael Morrell asserts had been purchased with his own funds is a tax free fund of Dean Witter. Neither Harold Morrell nor Michael Morrell produced most of their securities account records in discovery for the critical period of 1990 through the first few months of 1992, which would have shown all holdings and activity in the accounts in the periods preceding and following the assessments. Michael Morrell's affidavit in opposition to summary judgment attached his Dean Witter account statement for June 1991, which reflected a holding of 33,769 shares of Dean Witter New York Tax Free Inc. Fund, then worth approximately $378,000, as well as approximately $2,000 in a U.S. government money market fund. Michael claimed that these investments were acquired with his own funds and were not derived from property his parents transferred to him. Michael explained his failure to produce that statement and others or to discuss those holdings at his deposition by stating that he had only recently located some of these records, and that his memory had been impaired because of a heart condition. Michael Morrell did not produce any records that showed that he in fact purchased shares of this tax free fund from his own savings. The government responded to this new information by obtaining other records from Dean Witter, including the account statement for Harold and Dolores Morrell as of April 30, 1990 , showing that the exact same quantity, 33,769 shares of Dean Witter New York Tax Free Inc. Fund, then worth approximately $364,000, was held in the parents' account.

Because the account statements produced by the defendants and those obtained by the government from Dean Witter are incomplete, there is a gap between the April 1990 statement of the taxpayers and the June 1991 statement of Michael Morrell. Therefore, no document shows when, after April 1990, the 33,769 shares of Dean Witter New York Tax Free Inc. Fund were withdrawn from the taxpayers' account or where it went, or when, before June 1991, 33,769 shares of Dean Witter New York Tax Free Inc. Fund first were carried in Michael's account or where it came from. Defendants argue that there are factual issues, precluding the granting of summary judgment to the government, as to whether this fund was transferred from the parents to Michael Morrell, and if it was, when the transfer took place, i.e., before or after the tax liens attached in November and December, 1990.

Examination of the Dean Witter monthly statements for the account of Michael Morrell and his spouse from the end of 1991 until its liquidation in October and November 1995, when Michael used the entire proceeds to purchase the annuity, confirms the government's assertion that no new money or other assets were put into the account except for securities transferred by Harold and Dolores Morrell in April 1992. Defendants were afforded an opportunity after oral argument to identify any such assets that Michael put into the account, but their counsel notified the court that they had no further information to offer. The account statements show that there were few purchases and sales of securities, except for liquidations to withdraw funds from the account, and that all purchases of securities in the account during this time period were made with the proceeds from redemption of other securities held in the account and accumulated dividends and interest from those securities. Although Michael Morrell placed no new money in the account, he frequently made withdrawals from it between December 1992 and September 1995, for a total of approximately $119,000. The record contains no explanation of these withdrawals. As a result of these withdrawals, there was in fact negligible increase in the value of the account: it had a value of approximately $778,000 on March 31, 1992 , $807,000 on November 30, 1992 , $781,000 on February 28, 1995 , and $814,000 on May 31, 1995 , before being liquidated for approximately $833,000 in October and November, 1995.

Discussion

Summary Judgment Standards

Motions for Summary judgment are granted if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Lipton v. Nature Co., 71 F.3d 464, 469 (2d Cir. 1995). The moving party must demonstrate the absence of any material factual issue genuinely in dispute. See id. A material fact is one whose resolution would "affect the outcome of the suit under governing law," and a dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court must view the inferences to be drawn from the facts in the light most favorable to the party opposing the motion. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). However, the non-moving party may not "rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986). Nor may the non-moving party "simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec., 475 U.S. at 586. The party must produce specific facts sufficient to establish that there is a genuine factual issue for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

"Purchaser" Under 26 U.S.C. §6323(a)

Section 6323(a) of Title 26, United States Code, provides that "[t]he lien imposed by section 6321 shall not be valid as against any purchaser" until notice of the lien has been filed. A "purchaser" is defined in Section 6323(h)(6) as "a person who, for adequate and full consideration in money or money's worth, acquires an interest . . . in property which is valid under local law against subsequent purchasers without actual notice." The Treasury Regulations define "adequate and full consideration" to require "consideration in money or money's worth having a reasonable relationship to the true value of the interest in the property acquired." 26 C.F.R. §301.6323(h)-1 (f)(3). "Money or money's worth" is defined in the regulation as including "tangible or intangible property, services and other consideration reducible to a money value," but excluding such things as "love and affection . . . or any other consideration not reducible to a money value." Id. §301.6323(h)-1(a)(3).

No reasonable juror could find that Michael Morrell was a "purchaser" within the meaning of this provision. First, defendants conceded during oral argument of the summary judgment motion that the purported oral agreement by Michael Morrell to support the taxpayers for their lives is unenforceable under the statute of frauds. Obviously, an unenforceable promise of future support is not "adequate and full consideration in money or money's worth" under any rational construction of the statute.

Second, there is no genuine issue of fact as to the existence of an agreement, even an oral one, in which Michael Morrell furnished consideration in exchange for which Harold and Dolores Morrell transferred these properties to him. Michael Morrell testified at his deposition that his best recollection was that any discussion he had with his father concerning support occurred after the property had already been placed in his name by the unilateral action of his parents. Viewed most favorably to him, Harold Morrell admitted that he could not recall whether any such discussion preceded or followed the transfers. Accordingly, there is no basis for a reasonable jury to find that consideration was furnished in exchange for the transfers of property, even if any such promise would have been enforceable.

Third, even if there had been an agreement that was enforceable before the transfers took place, Michael Morrell's promise to support his parents is not "adequate and full consideration in money or money's worth" for the immediate conveyance of unencumbered assets worth over $800,000 (or almost $1.2 million when the Dean Witter New York Tax Free Inc. Fund is included, see pp. 13-14 infra). The issue of adequate consideration is a matter of federal and not state law, and as the Second Circuit has stated, "a finding that [taxpayer] conveyed the Property to her daughters for adequate consideration under New York law, while helpful, does not provide a rule of decision that [the daughters] are federally protected 'purchasers' under Section 6323(a)." United States v. McCombs [94-2 USTC ¶50,363], 30 F.3d 310, 330 (2d Cir. 1994). Nevertheless, in the absence of reported federal cases construing Section 6323's requirement of "adequate and full consideration" when the consideration furnished by the reputed purchaser is a promise of parental support, and notwithstanding the variations in statutory language, the New York decisions that have construed the requirement of "fair consideration" under Section 273 of New York Debtor and Creditor Law in similar circumstances are persuasive. ⁴ Courts have rejected repeatedly the argument that promises of future support constitute fair consideration within the meaning of Section 273. Schmitt, 98 A.D.2d at 936 (purchaser's promises to take over payments on mortgage, furnace and taxes, to permit debtors to remain in house rent-free, and to convey ten acres to debtors' sons did not constitute "fair consideration" under §273; "[s]uch promises . . . are akin to promises of future support, which are insufficient as a matter of law to be considered a fair equivalent of the property transferred"); Petition of National City Bank of New York, 269 App. Div. 1040 (2d Dep't 1945) (promise of future support is not fair consideration); see United States v. Bushlow [93-2 USTC ¶50,556 ], 832 F.Supp. 574, 582 (E.D.N.Y. 1993) (promises of future services are not "fair consideration" under §273).

Defendants concede that Harold and Dolores Morrell divested themselves of virtually all their assets when they conveyed their real and personal property to their son, which rendered them unable to satisfy their tax obligations, and received nothing in return except at most an oral promise of support. It is not reasonable to find this promise to be "adequate and full consideration in money or money's worth."

Equitable Lien

Defendants argue that, even if Michael Morrell is not a purchaser within the meaning of Section 6323(a), he is entitled to an "equitable lien," that is superior to the government's lien, for the hundreds of thousands of dollars he spent to support his parents. Pursuant to 26 U.S.C. §6323(i)(2), equitable subrogation applies in certain circumstances where a transferee of property or a junior lienor has satisfied a lien that is superior to the tax lien. The statute provides: "Where, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by section 6321." Equitable subrogation is designed to avoid the unjust enrichment that would occur if the government could reap the benefit of having the senior lien satisfied but deprive the party who satisfied that senior lien of any benefit in a foreclosure proceeding. To avoid such unfairness, the party that satisfied the senior encumbrance is allowed to assume the position that had been occupied by the original holder of the senior lien, if equitable subrogation is authorized by state law. See United States v. Avila [96-2 USTC ¶50,357], 88 F.3d 229, 237-39 (3d Cir. 1996); Mort v. United States [96-1 USTC ¶50,315], 86 F.3d 890, 893-95 (9th Cir. 1996); Progressive Consumers Federal Credit Union v. United States [96-1 USTC ¶50,160], 79 F.3d 1228, 1234-37 (1st Cir. 1996).

Even assuming arguendo that the Second Circuit would recognize a non-statutory equitable doctrine applicable to tax liens, equitable principles do not point to the relief requested. ⁵ Michael Morrell did not satisfy a senior encumbrance on any of these properties; indeed, there was no mortgage on the real property. Nor did Michael's payments to his parents confer any benefit upon the government. Michael Morrell received property from his parents that they should have used to satisfy their indebtedness to the government and then gave money back to his parents so that they could continue to live in the same style as that to which they were accustomed, as if they had never incurred liability pursuant to an agreed judgment. Equity is not served by giving Michael Morrell credit for these payments to his parents.

Source of Funds for Annuity

It is undisputed that the residence and over $400,000 worth of securities were transferred from Harold and Dolores Morrell to Michael Morrell after the assessments were made. On review of the entire record, the undisputed facts also establish that additional securities worth approximately $380,000, consisting of 33,769 shares of Dean Witter New York Tax Free Inc. Fund also were transferred to Michael by his parents. With no supporting documentation of any kind, Michael Morrell claims that he purchased the 33,769 shares of the Dean Witter New York Tax Free Inc. Fund with his own money. There is no explanation for the astounding coincidence that a year before, the taxpayers had the exact same number of shares of the same fund in their account. Moreover, Harold Morrell testified that he transferred all of his assets to his son, ostensibly so that Harold and Dolores could qualify for government medical assistance, and defendants offer no other explanation for the fact that the 33,769 shares of the fund the parents held in 1990 were no longer owned by them later. Since all other securities were conveyed from parents to son by directing transfer of the securities from the parents' Dean Witter account to the son's Dean Witter account, there is no rational basis for concluding that the 33,769 shares in Michael Morrell's account had not also been transferred in the same manner.

Furthermore, no rational juror could find that the transfer of this fund was made by the parents to their son before the liens had attached. As set forth in the Facts section above, Harold Morrell testified that the transfer of all assets held by him and his wife to Michael took place pursuant to one plan to divest themselves of all assets. Michael Morrell testified that all securities he received from his parents were transferred after the residence had been conveyed to him; it is undisputed that the real property was transferred approximately six months after the assessments. The parties agree that the assessments were made in November and December 1990, the real property was conveyed in May 1991, and that other securities were transferred in May 1991 and April 1992. Accordingly, there is no basis in the undisputed evidence for finding that the Dean Witter New York Tax Free Inc. Fund was transferred before the assessments.

Appreciation

Michael Morrell's argument that the government is not entitled to foreclose on the annuity to the extent that it represents appreciation in the value of the security holdings after the transfers of assets from the taxpayers is erroneous. He does not question the well-settled principle that the lien follows the property. "The transfer of property subsequent to the attachment of the lien does not affect the lien, for 'it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere. . . .' " United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 57 (1958) (citations omitted). This principle has been held to mean that the lien attaches to any appreciation in the value of the property until the taxpayer's liability has been discharge. Avila [96-2 USTC ¶50,357], 88 F.3d at 231, 233-34 (government lien is not limited to taxpayer's equity when he conveyed the property subject to the lien; it also attaches to the appreciation in the value of the property after the conveyance); Han v. United States [91-2 USTC ¶50,486], 944 F.2d 526, 528-29 (9th Cir. 1991) (same); see United States v. Librizzi [97-1 USTC ¶50,263], 108 F.3d 136 (7th Cir. 1997) (government's lien extended to appreciated fair market value of deceased taxpayer's interest in the property at the time of foreclosure and is not limited to value at death).

Furthermore, the premises of defendant's argument, that the annuity was purchased with appreciated assets and that the appreciation is attributable to Michael Morrell's skillful and prudent management of his Dean Witter account, are unfounded under the undisputed facts recited earlier. Almost all of the appreciated value in the Dean Witter account was taken out of it by Michael between 1992 and the account's liquidation in late 1995; and, with the inclusion of approximately 380,000 from the New York Tax Free Inc. Fund that defendant omitted in advancing his contention, the remaining minimal appreciation is attributable to passive reinvestment of interest and dividends which there is no persuasive reason to exempt from the government lien.

Conclusion

The motion of plaintiff United States of America for summary judgment is granted. The government should submit a proposed judgment on fourteen days' notice to the defendants.

SO ORDERED.

¹ Dolores Morrell died after this action was commenced and is no longer a party.

² The parties agree that the fact that certain transfers were made after the attachment of the liens but preceded their filing, is not determinative in this case.

³ Harold and Dolores Morrell in fact continued to retain ownership of a condominium, but the government is not seeking to foreclose on that property in this proceeding.

⁴ N.Y. Debtor & Creditor Law §273 declares that any conveyance made by a person who is thereby rendered insolvent is constructively fraudulent as to creditors regardless of the transferor's "actual intent if the conveyance is made or the obligation is incurred without a fair consideration." Section 272 provides that "fair consideration" is given for property when, as a fair equivalent for it and in good faith, property is conveyed or an antecedent debt is satisfied, or when the property is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared with the value of the property. Schmitt v. Morgan, 98 A.D.2d 934, 935 (3d Dep't 1983 ), appeal dismissed, 62 N.Y.2d 914 (1984).

⁵ In McCombs [94-2 USTC ¶50,363], 30 F.3d at 333, the court in dictum apparently applied the equitable subrogation doctrine of §6323(i)(2) without citing the statute.

 

 

[2000-2 USTC ¶50,696] The Sum of $66,839.59 Filed in the Registry of this Court, Plaintiff v. United States of America , Internal Revenue Service, and the Sunshine House, Inc., Defendants

U.S. District Court, No. Dist. Ga., Atlanta Div., Civ. 1:99-cv-0776-CC, 5/17/2000

[Code Sec. 6323 ]

Priority of liens: Tax lien: Recorded: Equitable subrogation: State law: Negligence: Failure to discover.--A day care corporation became equitably subrogated to a bank's position as senior lienholder when it paid off the bank's loan to a corporation as part of an asset purchase agreement without knowledge of the IRS's recorded tax lien. The IRS conceded that the bank's interest in the assets was superior to its tax lien, but argued that the corporation was not entitled to equitable subrogation under state ( Georgia ) law because it was negligent in failing to discover the tax lien. However, the IRS did not identify any duty or standard of care that was breached by the corporation's agent.

ORDER

COOPER, District Judge:

Pending before the Court are cross-motions for summary judgment filed by The Sunshine House, Inc. ("Sunshine House") [15-1] and the United States Internal Revenue Service (the "IRS") [24-1], and the IRS' Motion to Strike Paragraphs 5 and 7 of the Affidavit of George C. Calloway ("Calloway") [23-1]. ¹

I. BACKGROUND

This action arises from an interpleader action originally filed the Georgia Building Authority ("GBA") in the Superior Court of DeKalb County on February 24, 1999 . On April 1, 1999, the Superior Court of DeKalb County ordered the sum of $66,839.59, representing the amount due by GBA under a Rental Agreement it had with Americare Development, Inc., ² to be paid into the registry of that Court. On April 9, 1999 , GBA paid said amount into the registry of the DeKalb County Superior Court. After a Notice of Removal pursuant to 28 U.S.C. §1444 was filed by the IRS, the action was removed to this Court. This Court then ordered that the interpleaded funds held in the DeKalb County Superior Court registry be transferred to the Clerk of this Court. Both the Sunshine House and the IRS have now moved for summary judgment with respect to their purported entitlement to the funds being held in this Court. ³

Defendant Sunshine House operates several child care centers in Georgia , South Carolina , and North Carolina . On September 30, 1998 , Carolina Child Care and Sunshine House (collectively referred to herein as the "Purchasers") purchased the assets of Americare Child Enrichment Centers, Inc. and the Americare Trust (collectively referred to herein as "Americare") for the total sum of $2,365,166.00. As part of this asset purchase, Purchasers purchased and received an assignment of the $66,839.59 at issue in this case.

Also as part of the asset purchase price, Purchasers paid off a loan from The First National Bank of Griffin ("First National") to Americare in the amount of $1,421,307.00. The loan that had been given by First National to Americare was secured by, among other things, two UCC-1 Financing Statements that encompassed the assets and equipment from which the funds in this case arose.

Purchasers also purchased certain real property located on Montreal Circle in DeKalb County as part of the asset purchase. In connection with the purchase of the Montreal Circle property, Specialized Title Services, Inc. ("Specialized Title") performed an examination of the DeKalb County title records on August 12, 1998 . In a letter to Specialized Title requesting the title search, Brooks Baker ("Baker"), the closing attorney involved in the asset purchase, wrote that there was a possibility of numerous liens outstanding on the Montreal Circle property (as well as on certain property located in Henry County that was part of the purchase), including IRS liens. While other encumbrances upon the property were discovered, however, no federal tax lien encumbering the Montreal Circle property or against Americare was discovered by Specialized Title. On September 30, 1998 , the day of the closing of the transaction between Purchasers and Americare, Specialized Title again examined the DeKalb County records to determine whether any encumbrances existed upon the property or against Americare, but no lien was discovered.

Although no federal tax lien had been discovered either on or prior to the date of the closing, on August 24, 1998 , the IRS had filed a Notice of Tax lien against Americare with the Superior Court of DeKalb County . The tax lien against Americare involved Form 941 taxes for the period ending March 31, 1997 , in the amount of $202,839.20. According to Jeannette Rozier ("Rozier"), the DeKalb County Clerk of Superior Courts, ⁴ at the time the IRS' tax lien was filed and entered into the court computer system on August 24, 1998, a sticker and bar code were placed on the lien specifically indicating the date and time it was entered into the computer system as well as the book and page number it would later appear on in the deed books. Even though the lien had been entered into the court's computers, however, it was not immediately available in the public indices. ⁵ As an alternative to only searching the public indices, Rozier testifies that once a lien has been entered into the computer system the public can search for the lien with the assistance of clerk personnel at workstation computers at the information desk. The workstation computer provides up-to-the-minute alphabetized indices of deeds entered into the computer system even before they are made publicly available. Rozier also testifies that if an individual seeks a recently recorded or filed lien that does not appear in the public indices or on the workstation computer index, upon request the clerk of court personnel will search incoming mail and the records awaiting entry into the computers to assist the individual.

As discussed above, while the IRS' tax lien was filed on August 24, 1998 , it had not yet been indexed in the DeKalb County public indices by the date of the closing, and it was not discovered by Specialized Title when it performed the title examination on the day of the closing. It was not until after the September 30^th closing date that the Purchasers received notice of the IRS' tax lien.

II. DISCUSSION

The outcome of this action rests upon whether the Sunshine House or the IRS has priority to the $66,839.59 being held in the registry of this Court. It is well-settled that the question of the priority of a federal tax lien is a question of federal, rather than state, law. Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 513-14, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960). The rule providing for the priority of federal tax liens is codified in §6321 of the Internal Revenue Code, which states: "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor the United States upon all property and rights to property, whether real or personal, belonging to such person." 26 U.S.C. §6321. The lien imposed by §6321 arises at the time of the assessment and continues until the liability is satisfied or becomes unenforceable. 26 U.S.C. §6322. However, "the lien imposed by section 6321, is not valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice of the federal tax lien is recorded as provided for in §6323(f). 26 U.S.C. §6323(a). In addition, Section 6323 also provides that "[w]here, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by section 6321 or 6324." 26 U.S.C. §6323(i)(2).

Under Georgia law, equitable subrogation arises when one having a liability, right or fiduciary relationship pays a debt due by another under such circumstances that he is, in equity, entitled to the securities held by the creditor who has been paid. " 'Subrogation . . . is of equitable origin and benevolence. It is founded upon the dictates of refined justice. Its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice. . . The courts incline rather to extend than restrict the principle.' " Davis v. Johnson, 241 Ga.436, 439, 246 S.E.2d 297(1978) (quoting Cornelia Bank v. First Nat. Bank of Quitman, 170 Ga. 747, 750, 154 S.E. 234, 236 (1930)).

In the present case, Sunshine House contends that it is entitled to summary judgment because it became equitably subrogated to the rights of First National when it paid off the existing loan between First National and Americare, and because said loan was prior in time to the IRS' federal tax lien, its security interest has priority over the tax lien. The IRS asserts, on the other hand, that Sunshine House is not entitled to equitable subrogation because it was negligent in failing to discover the IRS' properly recorded tax lien. The IRS argues that Sunshine House, through Specialized Title, could have used the workstation computers at the information desk of the clerk's office and asked clerk personnel to search incoming mails and records to discover the lien prior to the asset purchase closing at issue here. The government also argues that Sunshine House had at least constructive, if not actual, notice of the lien against Americare due to Baker's mention of the possibility of a lien in his letter to Specialized Title. The IRS contends that because Sunshine House's predicament was caused by its own negligence in conducting the title examination, it is not entitled to invoke the doctrine of equitable subrogation. This Court disagrees.

Simply because Sunshine House's agent could have asked for help from court personnel does not mean that it was negligent in not doing so. The IRS's bare allegation that Specialized Title should have done more in performing the search is insufficient for this Court to find that it was so negligent in not discovering the lien such that Sunshine House would not be entitled to equitable subrogation. The IRS has not pointed this Court to the duty or standard of care that was purportedly breached by Specialized Title. ⁶ In addition, Baker's mention of the possibility of IRS liens in his letter to Specialized Title is insufficient to put Sunshine House on actual notice of a lien when no such lien was found in the public indices. Accordingly, the Court concludes that Sunshine House became equitably subrogated to First National's position as senior lienholder when it paid off the First National loan to Americare as part of the asset purchase agreement without knowledge of the IRS' filed but not yet publicly available tax lien. ⁷ Where the IRS does not dispute that First National's interest was prior in time and therefore superior to the federal tax lien, the Court finds that Sunshine House's security interest has priority over the IRS' lien, and summary judgment is GRANTED in favor of Sunshine House. See, e.g., Dietrich Industries, Inc. v. U.S., 988 F.2d 568 (5th Cir. 1993) (applying Texas law of equitable subrogation and finding purchaser's interest superior to federal tax lien).

III. CONCLUSION

Sunshine House's Motion for Summary Judgment [15-1] is GRANTED. The IRS' cross Motion for Summary Judgment [24-1] is DENIED. The IRS' Motion to Strike Paragraphs 5 and 7 of the Affidavit of George C. Calloway [23-1] is DENIED. Sunshine House' Motion for Additional Time to Respond to the IRS' Motion for Summary Judgment [29-1] is DENIED as moot.

The Clerk of Court is DIRECTED to release the total sum of $66,839.59 being held in the registry of this Court to the Sunshine House.

¹ With respect to the IRS' motion to strike, because a motion, to strike is only appropriate with regard to a pleading and an affidavit is not a pleading (see Fed. R. Civ. P. 7), the motion to strike Calloway's affidavit is procedurally improper. Rather than filing a motion to strike as under Rule 12, the proper method for challenging the admissibility of evidence in an affidavit is to file a notice of objection to the challenged testimony. On a motion for summary judgment, the Court will evaluate the evidence presented in the affidavit and consider any objections raised to the testimony. Further, having reviewed Calloway's deposition and affidavit testimony, the Court finds that the arguments raised by the IRS go to the weight to be given to his testimony rather than its admissibility. Accordingly, the IRS' motion to strike paragraphs 5 and 7 of Calloway's affidavit [23-1] is DENIED.

² Pursuant to the Rental Agreement between GBA and Americare Development, Inc., upon termination of the Agreement, monies were to be paid by GBA to Americare Development, Inc. for the purchase of certain assets and equipment that had been placed in a child care center owned by GBA. The Rental Agreement was terminated on July 20, 1998 .

Thereafter, on September 30, 1998 , Americare Child Enrichment Centers, Inc., which was formerly known as Americare Development, Inc., entered into a Limited Warranty Assignment & Bill of Sale with Sunshine House, pursuant to which Americare Child Enrichment Centers, Inc. conveyed all of its rights, title and interest under the Rental Agreement to Sunshine House.

³ Pursuant to GBA's unopposed motion to be discharged from these proceedings, GBA was dismissed as a party to this action by this Court on February 11, 2000 . GBA has filed responses indicating that it takes no position with respect to either of the motions for summary judgment filed by the Sunshine House or the IRS.

⁴ The IRS did not identify Rozier at any time during discovery in this matter, and her testimony was not offered until after the IRS had filed its response to Sunshine House's motion for summary judgment.

⁵ Public indices include a computer index and the general execution index for notices of federal tax liens and deeds. The time between the filing of a lien or document and the effective date of the record is identified as the "gap period." Documents filed and recorded in the gap period are not immediately available on the public indices.

⁶ Matthew Deberadinis, a title examiner with Specialized Title who has 15 years of experience in performing title searches, testified that his customary method of conducting the most updated search for a lien in the DeKalb County records is to look in a blue book in the general execution index, which is a computer printout that is updated daily. If there is no lien showing in the index, he will indicate that no lien on the property has been found. There is nothing to indicate that an examiner is then required to ask the clerk personnel to assist him if no lien is shown in the index.