654 F.Supp. 108 (N.D.Ill. 1987), 86 C 8752, Old Orchard Bank and Trust Co. v. Rodriguez

Docket Nº:86 C 8752.
Citation:654 F.Supp. 108
Party Name:OLD ORCHARD BANK AND TRUST COMPANY, Plaintiff, v. Alfred RODRIGUEZ, et al., Defendants.
Case Date:February 12, 1987
Court:United States District Courts, 7th Circuit, Northern District of Illinois

Page 108

654 F.Supp. 108 (N.D.Ill. 1987)



Alfred RODRIGUEZ, et al., Defendants.

No. 86 C 8752.

United States District Court, N.D. Illinois, Eastern Division.

Feb. 12, 1987

Page 109

Jeffrey B. Wood, Mitchell Edelson, Chicago, for plaintiff.

William F. Murphy, Asst. U.S. Atty., Chicago, for defendants.


SHADUR, District Judge.

This mortgage foreclosure action was removed to this Court from the Circuit Court of Cook County under 28 U.S.C. § 1444 2 by the United States, named as a defendant on the basis of this allegation in Complaint ¶ 5:

5. United States of America claims some right, title, or interest in the Premises pursuant to a Notice of Tax Levy dated September 22, 1981 against William F. Horsting and Eleanor W. Horsting, not of record, which interest, if any, is subject, subordinate, and inferior to the Trust Deed of Plaintiff described herein.

That allegation, if accurate, made the United States suable under Section 2410(a):

Under the conditions prescribed in this section and section 1444 of this title for the protection of the United States, the United States may be named a party in any civil action or suit ... in any State court having jurisdiction of the subject matter-- ...

(2) to foreclose a mortgage or other lien upon, ...

real or personal property on which the United States has or claims a mortgage or other lien.

As the facts developed, however, title to the real estate being foreclosed (a residence) has continuously been held in an Illinois land trust of which Old Orchard Bank & Trust Company ("Trustee") is trustee under its Trust No. 6824 dated November 14, 1968. Horstings' only asserted property interest has been as owners of the beneficial interest in the land trust, not of the real estate as such. As the United States' tax lien arises out of Horstings' personal tax liability, and not out of any tax liability of Trustee, that situation brings two propositions into play.

First, under 26 U.S.C. § 6321 ("IRC § 6321") the United States' tax lien attaches to "property" or "rights to property":

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

"Property" is a concept that draws its content from state law, not federal. Though the United States seeks to invoke Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1367 (1960) to limit that notion, Aquilino in fact reaffirms the definitive impact of state law (id. at 512-14, 80 S.Ct. at 1279-80) (citations and footnotes omitted):

The threshold question in this case, as in all cases where the Federal Government asserts its tax lien, is whether and to what extent the taxpayer had "property" or "rights to property" to which the tax lien could attach. In answering that question, both federal and state courts must look to state law, for it has long been the rule that "in the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property ... sought to be reached by the statute." ... Thus, as we held only two Terms ago, Section 3670 [now IRC § 6321]

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"creates no property rights but merely attaches consequences, federally defined, to rights created under state law...." ... However, once the tax lien has attached to the taxpayer's state-created interests, we enter the province of federal law, which we have consistently held determines the priority of competing liens asserted against the taxpayer's "property" or "rights to property." ... The application of state law in ascertaining the taxpayer's property rights and of federal law in reconciling the claims of competing lienors is based both upon logic and sound legal principles. This approach strikes a proper balance between the legitimate and traditional interest which the State has in creating and defining the property interest of its citizens, and the necessity for a uniform administration of the federal revenue statutes.

Thus state law not only creates but also defines the nature of the...

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