Servicing v. U.S., Civil No. 09–cv–191–JL.

• Decision Date: 04 August 2011
• Docket Number: Civil No. 09–cv–191–JL.
• Citation: 2011 USTC P 50330,107 A.F.T.R.2d 2011,783 F.Supp.2d 243,2011 DNH 056
• Parties: GREEN TREE SERVICING, LLCv.UNITED STATES of America et al.
• Court: U.S. District Court — District of New Hampshire

783 F.Supp.2d 243

107 A.F.T.R.2d 2011-1618

2011-1 USTC P 50,330

2011 DNH 056

GREEN TREE SERVICING, LLC

v.UNITED STATES of America et al.

Civil No. 09–cv–191–JL.

United States District Court, D. New Hampshire.

April 1, 2011.Order Denying Motion for Reconsideration Aug. 4, 2011.

Jeffrey J. Hardiman, Bendett & McHugh PC, Farmington, CT, for Green Tree Servicing, LLC.Austin L. Furman, U.S. Dept. of Justice, Washington, DC, for United States of America.Albert E. Souther, Law Office of Albert E. Souther, Dover, NH, for Dana E. Ricker, Kristi L. Ricker.

OPINION AND ORDER

JOSEPH N. LaPLANTE, District Judge.

This case raises several questions about the availability of equitable relief to restore a mistakenly discharged mortgage to a position of priority over subsequent federal tax liens. The plaintiff, Green Tree Servicing, LLC, claims that its predecessor erroneously recorded a discharge of its mortgage on a parcel owned by defendants Dana E. and Kristi L. Ricker, and seeks to restore that mortgage to its original priority over intervening liens filed by the Internal Revenue Service.

Green Tree originally brought this action in Rockingham County Superior Court against the Rickers and the IRS. Acting on behalf of the IRS, the government removed the case to this court under 28 U.S.C. § 1444. That statute authorizes the removal of actions brought against the United States under 28 U.S.C. § 2410, which in turn authorizes suits to “quiet title” to real property in “which the United States has or claims a mortgage or other lien.” The court of appeals has held that the “meaning and scope” of § 2410 encompasses an action, like this one, seeking to establish the priority of the plaintiff's mortgage over the government's tax lien, and thus creating federal subject-matter jurisdiction here. Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228, 1231–33 (1st Cir.1996).

Green Tree has moved for summary judgment, see Fed.R.Civ.P. 56, arguing that it is entitled to equitable reinstatement of the mortgage to its seniority over the tax liens as a matter of law because the discharge was recorded in error, and the government did not rely on the discharge in recording the liens. The government objects on a number of grounds, including that federal law establishing the priority of tax liens bars the equitable reinstatement of Green Tree's mortgage to a superior position and, in any event, Green Tree is not entitled to that relief under New Hampshire law (or at least has not shown that entitlement as a matter of law).

Following oral argument, Green Tree's motion for summary judgment is denied. As explained fully infra, while the court of appeals has rejected the argument that federal law bars the equitable reinstatement of a mortgage to a position of seniority over federal tax liens, see, Progressive, 79 F.3d at 1234–35, Green Tree has not conclusively shown that it is entitled to that relief under New Hampshire law which—though not as circumscribed as the government argues—“view[s] claims to circumvent the established order of priority, through resort to equity, with trepidation,” Hilco, Inc. v. Lenentine, 142 N.H. 265, 267, 698 A.2d 1254 (1997).

I. Background

The following facts are stated in an affidavit by Green Tree's “foreclosure manager,” Ruth Hernandez, who purports to derive her knowledge of them either from Green Tree's regularly maintained business records or “from information transmitted by[ ] a person with knowledge of the facts set forth in said records.” On October 9, 2001, the Rickers executed a mortgage on a parcel located in Farmington, New Hampshire, in favor of Conseco Finance Servicing Corp., which Green Tree says was its former name.¹ The mortgage, which secured a $118,000 debt evinced by a promissory note, was recorded against the parcel in the Strafford County Registry of Deeds the next day.

Green Tree says that the proceeds of the loan were used to satisfy an “existing” debt from the Rickers to Conseco, which arose from a mortgage loan extended earlier that same day. This was necessary, Green Tree explains, because the attorney who handled the closing on its behalf “inadvertently misplaced” the documents executed as part of the earlier loan. Green Tree also states that “[a]s part of any routine closing, the funds used to payoff the existing loan [from Conseco] were transmitted with a request for a discharge of lien.”

As the government points out, Green Tree's foreclosure manager does not explain how she could have gleaned these facts from the company's business records, in light of the fact that the documents from the first loan were lost. Nevertheless, documents submitted by the government (including a settlement statement) tend to show that, on October 9, 2001, Conseco made a loan to the Rickers for $118,800, all of which was disbursed to Conseco, and that Conseco later sent a letter to itself enclosing the disbursement check and asking for a release of its mortgage.

Green Tree further explains that, because the mortgage securing Conseco's first loan was never recorded, Conseco “inadvertently executed and recorded a satisfaction of the new mortgage” when, presumably, it was intending to record a satisfaction of its first mortgage instead. Curiously, though, this did not happen until May 24, 2002—despite the fact that the first Conseco loan was satisfied as soon as the second Conseco loan was made, on October 9, 2001 (more than 7 months earlier).² Furthermore, as the government points out, Green Tree explains the filing of the satisfaction differently in its complaint, which alleges that, after the loan was assigned from Conseco to Green Tree (which would not seem to have been necessary if, as Green Tree says, Conseco simply changed its name to Green Tree) Conseco “executed, in error, a satisfaction of mortgage, rather than an assignment of mortgage and caused [it] to be recorded” (quotation marks and capitalization omitted).

Green Tree further explains that the proceeds from the first loan were used to pay off two mortgages on the parcel that had been recorded in favor of the United States Department of Agriculture. But Green Tree has not provided any documents to that effect, including either the mortgages or their discharges. ³

Beginning in 2000, the Secretary of the Treasury began making assessments, first against Dana Ricker, and then against both Rickers, for unpaid federal tax liabilities. After the Rickers failed to satisfy those liabilities despite demands that they do so, the Secretary began recording notices of federal tax liens against the property. The first of these notices was recorded in September 2004, but Green Tree says that it did not learn of them until September 2008, when it was notified of the government's claim that its liens were senior to Green Tree's mortgage. As of January 2011, the Rickers owe more than $169,000 between them in federal tax liabilities secured by the liens. They also owe more than $114,000 to Green Tree.

II. Applicable legal standard

Summary judgment is appropriate where the “pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c)(2). Under this rule, “[o]nce the moving party avers an absence of evidence to support the non-moving party's case, the non-moving party must offer ‘definite, competent evidence to rebut the motion.’ ” Meuser v. Fed. Express Corp., 564 F.3d 507, 515 (1st Cir.2009) (quoting Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir.1991)).

Where, however, “the party moving for summary judgment bears the burden of proof on an issue, he cannot prevail unless the evidence that he provides on that issue is conclusive.” EEOC v. Union Independiente de la Autoridad de Acueductos y Alcantarillados de P.R., 279 F.3d 49, 55 (1st Cir.2002) (quotation marks omitted). This standard applies to Green Tree's motion for summary judgment, since it bears the burden of proving “the existence and applicability of equitable principles” that entitle it to relief. Chase v. Ameriquest Mortg. Co., 155 N.H. 19, 26, 921 A.2d 369 (2007) (quotation formatting omitted).

III. Analysis

“Federal tax liens do not automatically have priority over all other liens.” United States ex rel. IRS v. McDermott, 507 U.S. 447, 450, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993). Instead, with some exceptions, “priority for purposes of federal law is governed by the common-law principle that the first lien in time is the first in right.” Id. (quotation marks omitted). Thus, “for a state created lien to take priority over a later assessed federal lien, it must be ‘choate’ or ‘perfected’ so that the identity of the lienor, the property subject to the lien, and the amount of the lien are established prior to the filing of the subsequent federal lien.” Progressive, 79 F.3d at 1234–35 (further internal quotation marks omitted). The perfection “of a state created lien is a matter of federal law and mirrors the standard applicable to liens asserted by the government,” id. at 1235, i.e., among other things, perfection requires the filing of proper notice of the lien in the place designated by the law of the state where the property is situated, see 26 U.S.C. § 6323(a), (f).

Here, Conseco filed notice of its lien against the Rickers' property on October 10, 2001, when it recorded its mortgage in the place designated by New Hampshire law, i.e., the Strafford County Registry of Deeds. This occurred prior to the recording of any notice of the federal tax liens and, as a result, would have given the mortgage priority over the liens as “first in time.” Green Tree's problem is that—also prior to the recording of the federal tax liens—Conseco recorded a discharge of its mortgage, which, at least under ordinary principles of priority, would make the liens senior to the mortgage. See, e.g., Progressive, 79 F.3d at 1230...