U.S. Bank Nat'l Ass'n v. Bickford
| Decision Date | 31 March 2015 |
| Docket Number | Civil No. 13-cv-294-PB |
| Parties | U.S. Bank National Association v. Harry John Bickford, et al. |
| Court | U.S. District Court — District of New Hampshire |
This case concerns a mortgage that ambiguously describes the mortgaged property by including a street address and tax map number for one parcel but a deed reference for a different parcel held by the same owner. After the mortgagor defaulted, U.S. Bank foreclosed the mortgage and then purchased the property that the mortgage identified by street address and tax map number at the foreclosure sale. The issue I must resolve is whether the ambiguous description of the property in the mortgage leaves U.S. Bank's title subject to federal tax liens that accrued after the mortgage was recorded.
Harry Bickford owned property located at 9 Elm Street in Winchester, New Hampshire. He acquired title through twoseparate deeds, the first in 1982 and the second in 1987. The first deed is recorded with the Cheshire County Registry of Deeds at Book 1025, Page 605, and the second is recorded at Book 1180, Page 107. Both deeds provide a detailed metes-and-bounds description of the property. In 2003, Bickford also acquired title to 19 Elm Street, a separate property that is located across the street from 9 Elm Street. The deed for 19 Elm Street is recorded at Book 2005, Page 704.
Bickford granted a mortgage (the "Bickford mortgage") to Aegis Funding Corporation in 2003, which then recorded the mortgage in the same year. As recorded, the mortgage provides the following information regarding the "described property": "SEE LEGAL DESCRIPTION ATTACHED HERETO AND MADE A PART HEREOF." Doc. No. 29-3 at 10. Immediately thereafter, the mortgage identifies the location of the property as "9 ELM STREET, WINCHESTER, NEW HAMPSHIRE 03470." Id. The attached legal description lists the address of the mortgaged property as 9 Elm Street and provides the correct tax map number for that parcel. In what appears to be a mistake, however, the legal description also provides a book and page reference for the deed to 19 Elm Street.
Aegis assigned its mortgage to U.S. Bank in 2011. After Bickford defaulted, U.S. Bank conducted a foreclosure sale on 9 Elm Street, at which it purchased the property itself. U.S. Bank recorded its foreclosure deed to 9 Elm Street in January 2012.
In the meantime, the Internal Revenue Service ("IRS") made the following assessments against Bickford for unpaid taxes:
Taxable Year Amount Date Assessed Date Recorded 2000 $9,184.49 (plus $34.00 in collection fees) 10/24/2005 ($34.00 in collection fees assessed on 2/13/2006) 1/24/2006 2002 $22,483.50 (plus $336.24 failure to pay penalty) 6/14/2004 ($336.24 failure to pay penalty assessed on 10/29/2007) 3/18/2014; refiled on 5/7/2014 2003 $44,295.28 (plus $2,327.65 in interest) 7/9/2007 ($2,327.65 in interest assessed on 7/29/2013) 10/14/2008
U.S. Bank filed a complaint against Bickford and the IRS in state court seeking to reform the mortgage and foreclosure deed. It also sought a declaratory judgment that the tax liens are subordinate to the mortgage and foreclosure deed. The IRSremoved the complaint to this Court, and the parties subsequently filed cross motions for summary judgment. Neither side argues that material facts remain in genuine dispute.
Summary judgment is appropriate when the record reveals "no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The evidence submitted in support of the motion must be considered in the light most favorable to the nonmoving party, drawing all reasonable inferences in its favor. See Navarro v. Pfizer Corp., 261 F.3d 90, 94 (1st Cir. 2001).
A party seeking summary judgment must first identify the absence of any genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A material fact "is one 'that might affect the outcome of the suit under the governing law.'" United States v. One Parcel of Real Prop. with Bldgs., 960 F.2d 200, 204 (1st Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). If the moving party satisfies this burden, the nonmoving party must then "produce evidence on which a reasonable finder of fact, under theappropriate proof burden, could base a verdict for it; if that party cannot produce such evidence, the motion must be granted." Ayala-Gerena v. Bristol Myers-Squibb Co., 95 F.3d 86, 94 (1st Cir. 1996); see Celotex, 477 U.S. at 323.
Under federal law, a foreclosure sale of property encumbered by a federal tax lien "shall have the same effect" on a federal tax lien "as may be provided with respect to such matters by the local law of the place where such property is situated."1 26 U.S.C. § 7425(b)(2). New Hampshire law, in turn, provides that the recording of a valid foreclosure deed extinguishes junior interests but leaves senior interests intact. See N.H. Rev. Stat. Ann. § 479:26, III. Whether U.S. Bank's title to 9 Elm Street is now subject to the tax liens,therefore, turns on whether the ambiguous property description in the Bickford mortgage prevented the mortgage from holding priority over the tax liens when U.S. Bank recorded its foreclosure deed in January 2012.
"[I]t is well-settled that federal law determines the priority of competing federal and state created liens." Progressive Consumers Fed. Credit Union v. United States, 79 F.3d 1228, 1234 (1st Cir. 1996). Ordinarily, the federal common law rule of "first in time, first in right" governs priority contests between federal tax liens and state liens like the Bickford mortgage. United States v. McDermott, 507 U.S. 447, 449 (1993). Under this rule, a state lien primes a federal tax lien only if the state lien becomes choate in the federal sense before the tax lien accrues.2 Id. To determine whether theBickford mortgage held priority over the tax liens when U.S. Bank recorded its foreclosure deed in January 2012, therefore, I must determine whether the mortgage became choate before the tax lien accrued.
The choateness of a state lien is a question of federal law. United States v. Pioneer Am. Ins. Co., 374 U.S. 84, 88-89 (1963). As articulated by the Supreme Court, the test of choateness is whether the state lien is "perfected in the sensethat there is nothing more to be done to have a choate lien — when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, 347 U.S. 81, 84 (1954); see also McDermott, 507 U.S. at 449. In some cases, state law can provide a useful starting point in determining whether a state-created property interest is choate for purposes of federal law. United States v. Sec. Trust & Sav. Bank, 340 U.S. 47, 49-50 (1950). Although state law will not always necessarily resolve the question, a state lien that remains unperfected under state law will virtually never qualify as choate under the federal standard. See id. at 50 () (internal quotation omitted).
U.S. Bank offers two arguments to support its contention that the Bickford mortgage was already choate in the federal sense when the IRS assessed the tax liens. First, it argues that the mortgage became choate as soon as it was recorded in 2003 because it provided a sufficiently clear description of the mortgaged property to place subsequent lienholders on constructive notice, which is all that New Hampshire lawrequires to perfect a mortgage. Alternatively, it argues that New Hampshire law allows this Court to equitably reform the mortgage and retroactively render it choate as of the original 2003 recording date. For the reasons I explain below, neither argument is persuasive.
"For purposes of perfecting liens and interests in real estate, New Hampshire is a race-notice jurisdiction." In re Chase, 388 B.R. 462, 467 (Bankr. D.N.H. 2008) (internal quotation omitted). Therefore, as in other race-notice jurisdictions, "a purchaser or creditor has the senior claim if he or she records without notice of a prior unrecorded interest." Amoskeag Bank v. Chagnon, 133 N.H. 11, 14 (1990). The type of notice that a recording must provide to prime a subsequent property interest, however, varies depending on the subsequent interest's type. A prior interest need only provide inquiry notice to prime a subsequent purchaser or mortgagee. C F Invs., Inc. v. Option One Mortg. Corp., 163 N.H. 313, 317 (2012). Thus, "subsequent purchasers and mortgagees are obligated to fully investigate any apparent discrepancies [in the recording] to determine whether title to the desired parcelis encumbered in any way." Id. In contrast, a recording must provide constructive notice to all other attaching creditors. Amoskeag Bank, 133 N.H. at 15. That is, attaching creditors "may simply rely on the record" to determine whether other interests already encumber the property in question. Id. Unlike purchasers and mortgagees, the race-notice rule does not require them to investigate discrepancies in a recording beyond the record itself. See id. Acknowledging this distinction, U.S. Bank argues that the 2003 recording of the Bickford mortgage provided a sufficiently clear description of the property to satisfy the constructive notice standard and thereby perfect the mortgage under New Hampshire law.
Constructive notice simply means record notice. See General Motors Acceptance Corp. v. Brackett & Shaw Co., 84 N.H. 348, 150 A. 739, 741 (1930). A recording of a property interest provides constructive notice "of no other facts than those that appear upon the record." Id. (internal quotation omitted). A properly recorded mortgage automatically places all future creditors and purchasers on...
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