Uniform Commercial Code (UCC)

Secured Transactions in a Nutshell-excellent book by Henry J. Bailey, III.  West Publishing

Internal Revenue Manual, Section 5.17.2.3.2

5.17.2.3.2  (10-31-2000)
Place of Filing

1.       The filing of the notice of federal tax lien is governed by both federal and state law. It is important to determine the place of the filing of the NFTL in order to preserve the Service’s lien status with respect to certain types of property and with respect to certain types of taxpayers.

2.       Generally speaking, different filing rules apply for real property and personal property. IRC 6323(f) provides that states may designate the place for filing the NFTL. As against real property, the NFTL is filed in the one office designated by the State where the property is physically located. As against personal property, the situs of both tangible or intangible property is the residence of the taxpayer at the time the notice of lien is filed. A notice of federal tax lien is therefore to be filed in the one office designated by the State where the taxpayer resides at the time the notice of lien is filed. Most states require the NFTL be filed where other encumbrances on property are filed, e.g., in the real and/or personal property records in the office of the county recorder or the clerk of the county where the real property is located or where the taxpayer resides.

Internal Revenue Manual, Section 5.12: Federal Tax Liens

Treatise on the Law of Liens-book by Leonard Jones, 1894.  Google books.

Treatise on Mechanic's Liens-book by William M. Rockwell, 1909.  Google books

Treatise on Secret Liens and Reputed Ownership-book by Abram I. Elkus, 1910.  Google books

Concise Treatise on Mortgages, Pledges, and Liens-book by Walter Ashburner, 1897.  Google books.

Contract and Statutory Liens in California and Their Enforcement-book by Charles M. Bufford, 1903.  Google Books.

Livingston's Lessee v. Moore  32 U.S. 469, *481-482, 1833 WL 4194,**9 (U.S.Pa. (U.S.JanuaryTerm 1833)

It may be said, that the language of the act of 1785, giving a lien like a judgment in the supreme *482  court, means nothing more than an incumbrance co-extensive with every county in the state. But this interpretation was rejected in the circuit court, for the obvious reason, that a prior paragraph of the same section of the act provides in terms for that purpose, which, therefore, would not be repeated. Both the fiscal and judicial lines are but executory, jus ad rem, not in re, requiring other process to execute them. There is a right to lien, but not to execution. The obnoxious acts give execution; not such as follows judgment in due course of law, but extraordinary, arbitrary, executive, extra-judicial, and therefore, unconstitutional, execution of the lien.

[Livingston's Lessee v. Moore  32 U.S. 469, *481-482, 1833 WL 4194,**9 (U.S.Pa. (U.S.JanuaryTerm 1833) ]

REMOVING LIENS:

You can file lawsuits to remove all IRS liens from both real estate and personal property by invoking 28 U.S.C. Section 2409 or 2410.  Removing liens from your personal property will prevent the IRS from issuing and/or enforcing notices of levy.

Example Lawsuit to Quiet Title-John Jennings

IRS Liens and Levies-article

IRS Notice of Lien Pertains to Estate Tax-Eddie Kahn

Village of Dimondale v. Grable, Michigan Court of Appeals, Case No. 213277-quiet title action

Removing Federal Tax Liens-Dr. Eduardo Rivera

Relation Back Doctrine Condemns Administrative Tax Lien and Levy-Dan Meador

Black's Law Dictionary, Sixth Edition, p. 922:

lien:  A claim, encumbrance, or charge on property for payment of some debt, obligation or duty.  Sullins v. Sullins, 6 Wash.2d 283, 396 P.2d 886, 888.  Qualified right of property which a creditor has in or over specific property of his debtor, as security for the debt or charge or for performance of some act.  Right or claim against some interest in property created by law as an incident of contract.  Right to enforce charge upon property of another for payment or satisfaction of debt or claim.  Vaughan v. John Hancock Mut. Life Ins. Co., Tex.Civ.App., 61 S.W.2d 189, 190.  Right to retain property for payment of debt or demand.  Bell v. Dennis, 43 N.M. 350, 93 P.2d 1003, 1006.  Security for a debt, duty or other obligation.  Hurley v. Boston R. Holding Co., 315 Mass. 591, 54 N.E.2d 183, 193.  Tie that binds property to a debt or claim for its satisfaction.  United States v. 1364.76875 Wine Gallons, More or Less, of Spirituous Liquors, D.C.Mo., 60 F.Supp. 389, 392.  Liens are “property rights”.  In re Pennsylvania Central Brewing Co., C.C.A.Pa., 114 F.2d 1010, 1013.  The word “lien” is a generic term and, standing alone, includes liens acquired by contract or by operation of law.  Egyptian Supply Co. v. Boyd, C.C.A.Ky., 117 F.2d 608, 612.

   A charge against or interest in property to secure payment of a debt or performance of an obligation.  Bankruptcy Code §101.

   Lien by operation of law.  Where the law itself, without the stipulation of the parties, raises a lien, as an implication or legal consequence from the relation of the parties or the circumstances of their dealings.  Liens of this species may arise either under the rules of common law or of equity or under a statute.  In the first case they are called “common –law liens;” in the second, “equitable liens;” in the third, “statutory liens.”

[Black's Law Dictionary, Sixth Edition, p. 922]

Fair Debt Collection Practices Act (FDCPA)

U.S. Attorney Manual, Title 4, Civil Resource Manual: 95 Priority of Liens

Until the Supreme Court decided United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), there was a conflict of authority as to:

A. Whether a lien of the United States should be subordinated to a later rival lien solely because state law affords priority to the rival lien; and

B. Whether a rival lien, prior in time to a lien of the United States and entitled to priority under state law, should be denied priority if inchoate.

Kimbell Foods applied state priority law to consensual liens securing claims of the Farmers Home Administration and the Small Business Administration. In determining whether state law applies to liens arising from other federal programs, particular attention should be paid to the Court's three inquiries in Section III of the Kimbell Foods opinion:

A. Whether the federal program at issue necessarily requires uniform federal rules.

B. Whether adopting state substantive law would frustrate specific objectives of the federal programs at issue.

C. The extent of disruption in normal commercial relationships caused by a uniform federal rule. If not persuaded that a special federal rule is required, the court may adopt the relevant state rule as the relevant federal law.

In the case of loans made by HUD, the court in Chicago Title Insurance Co. v. Sherred Village Assoc., 708 F.2d 804 (1st Cir. 1983), held that mechanic's liens recorded under state law have priority over a prior recorded federal mortgage. Thus, HUD mortgages would appear to be in the same situation vis-a-vis priority of liens as SBA and FmHA.

Courts have also applied the Kimbell Foods criteria in several cases involving local tax liens that have priority under state law and existing federal mortgages. In United States v. Dansby, 509 F. Supp. 188 (N.D. Ohio 1981) the court held that, although the tax lien was senior under Florida law, it could not operate "so as to destroy the pre-existing federal lien." See also United States v. David Friedland, et al., 502 F. Supp. 611 (D.N.J. 1980), aff'd, 672 F.2d 905 (3d Cir. 1981).

Where the consensual lien arises pursuant to a federal statute that prescribes a particular priority, that priority will be honored.

The Kimbell Foods court also suggested limits on its decision:

Adopting state law as an appropriate federal rule does not preclude federal courts from excepting local law that prejudice federal interests (citing cases). The issue here, however, involves commercial rules of general applicability, based on codes that are remarkably uniform throughout the Nation.

(440 U.S. at 736, n.37)

This discussion does not undertake to cover the subject of tax liens. Guidance as to them should be sought from the Tax Division. Questions pertaining to non-tax, non-consensual liens (e.g., those based upon judgments, criminal fines, and statutory civil penalties) remain unresolved. For a further discussion, see Commercial Litigation Branch Monograph, Choice of Laws Decision in Federal Courts After Kimbell Foods.

The federal departments and agencies which make loans secured by liens on real and personal property will often pay state and local ad valorem taxes on the mortgaged property, if the borrower fails to pay them. Such payments by the government are sometimes required by statute and at other times are made as a matter of policy.

In light of Kimbell Foods, it is not clear whether or not taxes which are not ad valorem have this priority. Prior to Kimbell Foods, cases such as In re Lehigh Valley Mills, Inc., 341 F.2d 398 (3d Cir. 1965); United States v. Clover Spinning Mills Co., 373 F.2d 274 (4th Cir. 1966); Director of Revenue, State of Colo. v. United States, 392 F.2d 307 (10th Cir. 1968), held that taxes which are not ad valorem do not have this priority.

On occasion, owners or lienors of property on which the United States holds a lien may ask for release of the lien or of the government's right of post-sale redemption. No release should be executed without the receipt of some consideration. The agency's view should be requested in each case. The dollar amount of the authority delegated to the USA to compromise lien claims in actions under 28 U.S.C. § 2410 is equally applicable to the compromise of post-sale redemption rights of the United States under 28 U.S.C. § 2410(c). Cases involving tax liens, liens on a vessel or other maritime property, and liens arising from a criminal fine judgment or a judgment on an appearance bond, are expressly excluded from the Civil Division delegation of authority to USAs. If a release of a lien or right of redemption should be expressly limited to the precise property, lien or right of redemption which is the subject of the plaintiff's suit.

[U.S. Attorney Manual, Title 4, Civil Resource Manual: 95 Priority of Liens]

In re Charco, Inc., 432 F.3d. 300 (C.A.4 (W.Va.),2005)

The priority of federal tax liens as against competing liens asserted against a taxpayer's property is governed by federal law. Aquilino v. United States, 363 U.S. 509, 514, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960).

The Internal Revenue Code provides that the amount of assessed tax, interest, and penalty not paid by a person after demand becomes a lien in favor of the United States “upon all property and rights to property” belonging to the person. 26 U.S.C. § 6321. The lien “arise[s] at the time the assessment is made.” Id. § 6322. But it is not “valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor ” until it is recorded locally. Id. § 6323 (emphasis added). The priority between a recorded tax lien and a judgment lien is governed by the rule of “first in time, first in right.” United States v. Pioneer Am. Ins. Co., 374 U.S. 84, 87, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); see also United States v. Equitable Life Assurance Soc'y of the United States, 384 U.S. 323, 327-28, 86 S.Ct. 1561, 16 L.Ed.2d 593 (1966); Air Power, Inc. v. United States, 741 F.2d 53, 55 (4th Cir.1984). But before a judgment lienholder can have priority over tax lien, she must be a “judgment lien creditor” as that term is used in 26 U.S.C. § 6323.

As used in § 6323, “judgment lien creditor” is defined by Treasury Regulation 301.6323(h)-1(g) as “a person who has obtained a valid judgment, in a court of record and of competent jurisdiction, for the recovery of specifically designated property or for a certain sum of money,” and who “has perfected a lien under the judgment on the property involved.” 26 C.F.R. § 301.6323(h)-1(g) (emphasis added).

In this case, Collier contends that she perfected her lien on Charco's property on October 21, 1996, when she domesticated her Virginia judgment by filing it in Mercer County, West Virginia. She argues therefore that her lien was valid against the IRS' subsequently filed tax lien. Even though Collier did not record her judgment until January 1997-after the IRS had recorded its tax lien-she argues that recordation was not required under West Virginia law to perfect her lien. She relies on West Virginia Code § 38-3-6, which provides in part that “every judgment for money rendered in this State ... shall be a lien on all the real estate of [the defendant].”

It is federal law, however, not state law, that defines when a judgment lien is “perfected”:

A judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established.... If recording *305 or docketing is necessary under local law before a judgment becomes effective against third parties acquiring liens on real property, a judgment lien under such local law is not perfected with respect to real property until the time of such recordation or docketing. ...

26 C.F.R. § 301.6323(h)-1(g) (emphasis added). Thus, before a judgment lien is perfected, a judgment lienor must (1) identify the lienor, (2) identify the property subject to the lien, (3) identify the amount of the lien, and (4) record the lien “[i]f recording or docketing is necessary under local law before a judgment becomes effective against third parties acquiring liens on real property.” Id. The determinative question in this case is whether Collier had to record her judgment lien in order to perfect it, which depends on whether recording is required by local law “before a judgment becomes effective against third parties acquiring liens on real property.” Id. (emphasis added).

[In re Charco, Inc., 432 F.3d 300 (C.A.4 (W.Va.),2005)]

Rich v. Braxton, 158 U.S. 375 (1895): (forbids judges from invoking equity jurisdiction to remove Common Law Liens or similar "clouds of title")

Mr. Pomeroy, in his treatise on Equity Jurisprudence, while recognizing it to be the general rule, established by the weight of authority, that equity will not interfere to remove a cloud from title 'where the instrument or proceeding constituting the alleged cloud is absolutely void on its face, so that no extrinsic evidence is necessary to show its invalidiy ,' or 'where the instrument or proceeding is not thus void on its face, but the party claiming, in order to enforce it, must necessarily offer evidence which will inevitably show its invalidity and destroy its efficacy,'-which doctrine, he says, often operates to produce a denial of justice,-correctly says that equity will interfere where deeds, certificates, and other instruments given on sales for taxes are made by statute prima facie evidence of the regularity of proceedings connected with the assessments and sales. 3 Pom. Eq. Jur. 1399, and note 1, page 437, and authorities there cited. And this view is sustained by numerous adjudged cases. Huntington v. Railroad Co., 2 Sawy. 503, 514, Fed. Cas. No. 6,911; Allen v. City of Buffalo, 39 N. Y. 386, 390; Palmer v. Rich, 12 Mich. 414, 419; Marquette H. & O. R. Co. v. City of Marquette, 35 Mich. 504; Milwaukee Iron Co. v. Town of Hubbard, 29 Wis. 51, 58; Weller v. City of St. Paul, 5 Minn. 95 (Gil. 70, 81); Pixley v. Huggins, 15 Cal. 133, 134; Tilton v. Railroad Co., 3 Sawy. 22, Fed. Cas. No. 14,055. See, also, 2 Blackw. Tax Titles, 1066, and authorities cited. In the present case there are no defects of a controlling character that distinctly appear on the face of the tax deeds under which the defendants claim title. And as those deeds are made by statute prima facie evidence of title in the grantees named in them; and as, therefore, the plaintiffs, if sued in ejectment by the defendants, would be compelled, in order to defeat a recovery against them, to resort to extrinsic evidence in support of their title, the deeds in question constitute a cloud upon that title, to remove which the plaintiffs may rightfully invoke the aid of a court of equity.

[Rich v. Braxton, 158 U.S. 375 (1895)]