U.S. v. Baran
| Decision Date | 14 June 1993 |
| Docket Number | D,No. 1228,1228 |
| Citation | 996 F.2d 25 |
| Parties | -5400 UNITED STATES of America, Plaintiff-Appellee, v. Zenowia BARAN, Ostap Baran, and Self Reliant (NY) Federal Credit Union, Defendants-Appellants, Joseph F. Farano, Maria Farano, Joseph M. Farano, Phyllis Marie Farano, and Hartford Accident & Indemnity Co., Defendants. ocket 92-6279. |
| Court | U.S. Court of Appeals — Second Circuit |
Burton Aronson, Garden City, NY (Samuel Kirschenbaum, Kirschenbaum & Kirschenbaum, on the brief), for defendants-appellants.
Gabriel W. Gorenstein, Asst. U.S. Atty., New York City (Roger S. Hayes, U.S. Atty. and Ping C. Moy, Asst. U.S. Atty., on the brief), for plaintiff-appellee.
Before: NEWMAN and MAHONEY, Circuit Judges, and EGINTON, * District Judge.
This appeal primarily concerns whether a United States tax lien should be subordinated to the junior lien of a mortgagee through the doctrine of equitable subrogation. The issue arises on the appeal of Zenowia Baran, Ostap Baran, and Self Reliant (NY) Federal Credit Union ("Self Reliant") from the October 26, 1992, judgment of the District Court for the Southern District of New York (Miriam Goldman Cedarbaum, Judge) foreclosing a United States tax lien on property owned by the Barans. The judgment requires the Barans or Self Reliant to pay the United States $259,601.48 within 30 days or suffer an immediate sale of the property. The judgment also awards the Barans and Self Reliant $259,601.48 against the former owners of the property, Joseph F. Farano, Maria Farano, Joseph M. Farano, and Phyllis Marie Farano. On appeal, the Barans and Self Reliant argue (1) that the interest on which the Government foreclosed, a life estate in favor of Maria Farano, was never created or had terminated, (2) that the District Court improperly valued the life estate, and (3) that Self Reliant is equitably subrogated to a prior mortgagee's interest. We reject each of the first two arguments, but we conclude that the case must be remanded for further consideration of equitable subrogation.
In 1980, Maria Farano, 1 the owner of a house located at 52 Stoneleigh Road, Yonkers, New York (the "property"), deeded the property to her children, Joseph M. Farano and Phyllis Marie Farano (the "Farano children"), "subject to a life estate in the lives of" herself and her husband Joseph F. Farano (the "Farano parents"). In 1982, the IRS filed a federal tax lien against the Farano parents for an unpaid assessed balance of $82,221.86. Pursuant to 26 U.S.C. § 6321 (1988), the tax lien attached to all property owned by the Farano parents, and has continued to accrue interest. There appears to be agreement that Maria Farano's deed was ineffective to create a life estate for her husband. The tax lien therefore applied, at most, to Maria's life estate. In 1986, the Farano children and the Farano parents together conveyed the property to Zenowia and Ostap Baran for $440,000. The purchase was financed by Self Reliant. Apparently unaware of the federal tax lien, Self Reliant, in addition to loaning the Barans money to pay the Faranos, provided a check at the closing for $68,293.90 to discharge a prior mortgage held by Chase Manhattan Bank. The Chase Manhattan mortgage was senior to the federal tax lien.
In 1987, the Government instituted proceedings to obtain judgments against the Farano parents on the tax assessments and to foreclose on the tax lien. After the District Court entered judgment in January 1992 against all four Faranos for $316,714.76, the then current amount of the IRS claim, the Government moved to foreclose the tax lien. The District Court held that the Government was entitled to the value of Maria Farano's life estate, that the life estate should be valued according to an actuarial table, and that Self Reliant was not entitled to be subrogated to the Chase Manhattan mortgage. The actuarial table provided that the value of a life estate of a 56-year old woman was 73.531 percent of the total value of the property. After the parties agreed that the total value of the property was $353,050, the District Court entered judgment in favor of the Government in the amount of $259,601.84.
1. Creation of a life estate. The Barans and Self Reliant make several related arguments concerning the 1980 deed that conveyed the property to the Farano children "subject to" a life estate in favor of Maria Farano. They contend that a deed cannot create a life estate, that the life estate did not include the entire premises, that the life estate terminated upon an attempt to attach Maria Farano's assets, and that summary judgment was inappropriate because the deed was ambiguous. None of these arguments is convincing. New York authorities recognize that a life estate can be created by reservation in a deed. No additional instrument is required. See, e.g., Winick v. Winick, 26 A.D.2d 663, 272 N.Y.S.2d 869 (2d Dep't 1966), app. denied, 19 N.Y.2d 581, 279 N.Y.S.2d 1026, 226 N.E.2d 707 (1967). The phrase "life estate" has a well-established meaning. It is an estate in land giving the life tenant full and exclusive possession of the property for the duration of the life tenant's life. See In re Hinman's Will, 22 Misc.2d 655, 657, 200 N.Y.S.2d 170, 172 (Surr.Ct.1960). Because there was no ambiguity in the deed, the District Court properly declined to consider extrinsic evidence, see Uihlein v. Matthews, 172 N.Y. 154, 158-60, 64 N.E. 792, 794 (1902), and properly resolved the matter without a trial, see Hurd v. Lis, 92 A.D.2d 653, 654, 460 N.Y.S.2d 173, 174 (3d Dep't 1983).
2. Value of the life estate. The Barans and Self Reliant next contend that it was "unconscionable" for the District Court to conclude that the life estate was worth 73.531 percent of the total value of the property and that the remainder interest was worth only 26.469 percent of the total value. The parties proposed competing methods of valuation to the District Court. The Barans and Self Reliant submitted an affidavit from an appraiser stating that the life estate was probably unmarketable and that its fair market value was at most $80,000. The Government did not submit an appraisal, but requested instead that the District Court use an IRS actuarial table intended for evaluating life estates for tax purposes.
The District Court acted within its discretion in accepting the Government's valuation method. 26 U.S.C. § 7403 (1988) allows the Government to seek the sale of the whole property in order to maximize the value of its interest. See United States v. Rodgers, 461 U.S. 677, 691, 103 S.Ct. 2132, 2142, 76 L.Ed.2d 236 (1983); United States v. Kocher, 468 F.2d 503, 506-07 (2d Cir.1972), cert. denied, 411 U.S. 931, 93 S.Ct. 1897, 36 L.Ed.2d 390 (1973). Often, as in this case, "interests in property, when sold separately, may be worth ... significantly less than the sum of their parts." Rodgers, 461 U.S. at 694, 103 S.Ct. at 2143. Apparently wishing to retain ownership of the property in the Barans, the defendants requested an opportunity to satisfy the Government's claim prior to a sale of the property. The District Court was free to grant that request while still valuing the life estate as a percentage of the value of the entire property through use of "a standard statutory or commercial table." See id. at 698-99, 103 S.Ct. at 2145. Defendants make no claim that the standard IRS table for valuing life estates erroneously overstates the economic value of a life estate relative to the remainder interest. See Harris v. United States, 764 F.2d 1126, 1130-31 (5th Cir.1985).
3. Equitable subrogation. Finally, Self Reliant contends that it should be equitably subrogated to the Chase Manhattan mortgage that was discharged when the Barans purchased the property. Because the Chase Manhattan mortgage was senior to the federal tax lien, subrogation would place Self Reliant in a position senior to the Government to the extent of $68,293.90. The Government responds that the District Court acted within its discretion in declining to apply the doctrine because there was no evidence that Self Reliant was defrauded or that Self Reliant had agreed with the Barans that the loan proceeds would be used, in part, to discharge the Chase Manhattan mortgage. The Government also appears to contend that subrogation is not required because...
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