U.S. v. Home Federal Sav. & Loan Ass'n of Tulsa

• Decision Date: 12 July 1966
• Docket Number: Nos. 41347,41349,s. 41347
• Parties: , 66-2 USTC P 9642, 1966 OK 135 UNITED STATES of America, Plaintiff in Error, v. HOME FEDERAL SAVINGS & LOAN ASSOCIATION OF TULSA, a corporation, Alphonzo Williams, State of Oklahoma ex rel. Oklahoma Employment Security Commission, Evert Smith, d/b/a Asphalt Associates, D. E. Rigney and Estate of Eugene W. Reynolds, Defendants in Error.
• Court: Oklahoma Supreme Court

Page 319

418 P.2d 319

18 A.F.T.R.2d 5507, 66-2 USTC P 9642,

1966 OK 135

UNITED STATES of America, Plaintiff in Error, v. HOME FEDERAL SAVINGS & LOAN ASSOCIATION OF TULSA, a corporation, Alphonzo Williams, State of Oklahoma ex rel Oklahoma Employment Security Commission, Evert Smith, d/b/a Asphalt Associates, D. E. Rigney and Estate of Eugene W Reynolds, Defendants in Error.

Nos. 41347, 41349.

Supreme Court of Oklahoma.

July 12, 1966.

As Corrected on Denial of Rehearing Sept. 20, 1966.

Syllabus by the Court

1. On questions of Federal Law the decision of the United States Supreme Court is binding upon this Court, and requires that this Court promulgate rules of law in conformity therewith.

2. A state court may give its own interpretation of the nature and effect of a state tax proceeding for purpose of its own internal administration, but the meaning of a federal statute is for the United States Supreme Court to decide, and its interpretation of federal statutes will be followed by this Court.

3. In determining priority between a federal tax lien and the lien for ad valorem taxes imposed by state law the principle 'first in time is the first in right' applies.

4. In ordering distribution of proceeds of foreclosure sale of mortgaged real property, federal tax lien prior in time should be given priority over state lien for ad valorem taxes accrued or owing when property is sold under foreclosure.

5. Federal tax liens recorded subsequent to mortgages containing provision for attorneys' fees in event of foreclosure, but prior to default and filing of foreclosure actions, were entitled to priority over mortgagee's claim for allowance of attorneys' fees as part of costs of action.

Appeal from District Court of Tulsa County; W. Lee Johnson, Judge.

Mortgage foreclosure suits wherein the trial court adjudicated priority of tax liens in ordering distribution of proceeds of foreclosure sales. Affirmed with directions.

Richard M. Roberts, Acting Asst. Atty. Gen., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Meyer Rothwacks, Alec A. Pandaleon, J. Edward Shillingburg, Atty., Department of Justice, Washington, D.C., John M. Imel, U.S. Atty., Sam E. Taylor, Asst. U.S. Atty., of counsel, for plaintiff in error.

Houston, Klein & Davidson, James R. Jessup, Edward L. Jacoby, Tulsa, for Home Federal Savings & Loan Ass'n of Tulsa, defendant in error.

BERRY, Justice.

The terminal issue raised by the Federal Government's appeal from the trial court's judgment involves the priority between federal tax liens and the state lien for ad valorem taxes against real property sold at mortgage foreclosure sale.

By two separate transactions in 1958 Alphonozo Williams executed promissory notes to Home Federal Savings & Loan Association, secured by mortgages on described parcels of real property. By warranty deed (January, 1959), the debtor acquired other real property already mortgaged to Home Federal, and assumed and agreed to pay the existing indebtedness. March 1, 1959, the mortgagor defaulted upon all the mortgage payments. Between August 25, 1961, and September 17, 1962, United States tax liens totaling $910,778.93, were filed against the mortgagor. On April 16, 1963, Home Federal filed three foreclosure suits against the defaulted mortgagor for recovery of the balance due (in excess of $12,000.00), and asked judgment for attorneys' fees, abstract charges, insurance premiums, interest and costs, and for judgment of foreclosure and sale of the properties to satisfy the judgment in each action.

Numerous lien claimants were made defendants, as well as the State of Oklahoma and the Oklahoma Employment Security Commission, which claimed a lien based upon tax warrants filed subsequent to the first lien ($53,081.47) filed by the Federal Government, but prior to the remainder of the Government's liens which made up the total tax liability mentioned above. The State and certain lien claimant defendants disclaimed any interest. Other lien claimants either filed disclaimers, or were found to have no interest affected by the judgment and need not be mentioned hereafter. Also made defendants were D. E. Rigney, assignee of a judgment entered prior to filing of the federal tax warrants, and the Federal Government whose rights arose under the tax warrants mentioned.

In each action the trial court found the allegations of Home Federal, the employment Security Commission, Rigney and the Federal Government were true; that the mortgagor (Williams) was indebted for the balance due on each note, and the attorneys' fees, insurance premiums advanced, interest and costs; that Home Federal's mortgage liens were prior to the rights of every other claimant; that Williams' indebtedness to Rigney, the Employment Security Commission and the Federal Government was as claimed by each party. Judgments were entered October 16, 1964, in accord with such findings, the journal entry in each action containing the following:

'The court further finds that a dispute has arisen between the plaintiff and the United States of America as to whether or not plaintiff may sell the above described real estate at sheriff's sale, subject to taxes and tax sales. The court finds that plaintiff may sell the subject property, subject to taxes and tax sales, to which ruling and order the United States of America duly excepts and said exception is allowed.

'IT IS FURTHER ORDERED, ADJUDGED AND DECREED by the court that plaintiff may sell the above described real estate, subject to taxes and tax sales, to which ruling and order the United States of America duly excepts and said exception is allowed.'

The judgment further provided that upon the mortgagor's failure to satisfy the judgments, including interest, attorneys' fees and costs, the sheriff should sell the property after appraisement and the proceeds of each sale should be distributed by the court clerk according to law, as follows:

'In payment of cost of said sale and of this action and (the principal sum of each judgment), the amount as aforesaid found to be due to the said plaintiff, together with interest thereon and costs.

'The residue, if any, shall be held by the clerk of this court to await the further order of the court.'

Motion for new trial, based upon alleged errors of law occurring at the trial, was filed and overruled. Order for sale with appraisement issued October 16, 1964, pursuant to which sale was had December 2, 1964. Home Federal was the purchaser in each case, bidding in excess of two-thirds of the appraised value, equivalent to the portion of the judgment comprised of principal and interest. In one case (No. 31348) Home Federal was required to pay an additional $823.10 of principal and interest in order to make the required two-thirds statutory bid.

After confirmation of the sales the Government perfected separate appeals upon the original record. By appropriate order these appeals were consolidated for briefing and consideration. The fundamental issue involves the claim of reversible error inhering in the trial court's judgment directing sale of the mortgaged property subject to state ad valorem taxes. The mortgagee paid taxes ($2,051.44) apparently due for the years 1963--1964. The Government concedes the superiority of both the mortgage liens and the Rigney judgment lien. However, the Government contends the rule of relative priorities announced in United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 347, 98 L.Ed. 520, must be applied.

Review of cases dealing with this priority problem discloses that prior to 1950 some lower Federal courts denied superiority of federal tax liens (under 26 U.S.C.A. § 3670) over prior rival liens for county taxes, local tax liens, attachment liens, landlord's liens, etc. In some instances mechanics' and materialmen's liens recorded pursuant to state statute were extended priority over federal liens under section 3670, which grants the Federal Government a lien against real and personal property of any person who refuses to pay any tax upon demand. The lien granted under this section is limited under 26 U.S.C.A. § 3672:

'Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector. * * *'

In re Taylorcraft Aviation Corp., (CC6) 168 F.2d 808; In re Caswell Const. Co., Inc., D.C.N.D.N.Y., 13 F.2d 667; The River Queen, D.C.E.D.Va., 8 F.2d 426. In Taylorcraft, supra, the federal lien was subordinated upon the ground that value of the security had been enhanced by labor and material for which the lien was asserted, and to permit defeat of the lien by the federal lien would work unjust enrichment.

Beginning with United States v. Security Trust & Savings Bank, (1950) 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53, a change became apparent. This case dealt with California law under which a creditor's attachment fixed a lien upon realty effective when recorded. That court had held that a subsequent judgment merged with the attachment lien and related back to recordation of the attachment. Lien. The Supreme Court reversed, observing that under California law an attaching creditor had only a contingent lien, since possible contingencies might prevent the attachment lien from being perfected by judgment and recordation. The attachment lien was declared to be nothing more than lis pendens notice of the creditor's right to perfect a lien. Further the doctrine of relation back did not operate to destroy the realities of the situation, since at the time federal liens were filed the attaching creditor did not have a judgment lien.

Following Security Trust, supra, lower courts were inclined to hold that various types of liens formerly held to be prior to federal tax liens, were perfected and choate liens under statute (of the states involved) and entitled to priority over the federal tax lien. See Petition of Gilbert Associates, Inc., (1952) 97 N.H. 411, 90 A.2d...