United States v. Bond
| Decision Date | 20 March 1959 |
| Docket Number | Civ. No. 1598. |
| Citation | 172 F. Supp. 759 |
| Parties | UNITED STATES of America, Plaintiff v. V. F. BOND et al., Defendants. |
| Court | U.S. District Court — Eastern District of Virginia |
John J. McCarthy, Frank W. Rogers, Jr., Dept. of Justice, Washington, D C., and Henry S FitzGerald, Asst. U. S. Atty., Alexandria, Va. (Charles K. Rice, Asst. Atty. Gen., and Richard M. Roberts, Dept. of Justice, Washington, D. C., on brief), for plaintiff.
Caldwell C. Kendrick, and Dillard C. Laughlin, Jesse, Phillips, Klinge & Kendrick, Arlington, Va., for Perpetual Bldg. Assn.
The mortgage of Perpetual Building Association upon the real estate of one Bond and his wife, situate in Arlington County, Virginia, is concededly superior to the lien of the United States for income taxes against the Bonds, the mortgage having been recorded (in form a deed of trust) on July 15, the tax lien December 20, 1955. I.R.C. of 1954, sections 6321 and 6323(a), 26 U.S.C.A. §§ 6321, 6323(a).1 Now the question is whether the mortgagee also has the same primacy for 1957 and 1958 County real estate taxes (admittedly of higher rank than the mortgage) paid by Perpetual after the inception of the Federal lien, the 1957 taxes before, and the 1958 after, suit begun by the Government. Moneys from the sale of the property are not enough to pay all three liens. The question presented was advertently not resolved in United States v. City of New Britain, 1954, 347 U.S. 81, 87, note 12, 74 S.Ct. 367, 98 L.Ed. 520. Nor was it reached in United States v. City of Greenville, 4 Cir., 1941, 118 F.2d 963.
Perpetual prevails here. Anticipated and authorized by the mortgage, the real estate taxes were paid by Perpetual, upon failure of the mortgagor so to do, solely to maintain the integrity of its lien. Such outlays thereupon became secured under the mortgage, evenly with the loan and by a lien of equal dignity, and hence outranked the Government's taxes. Cf.: United States v. American National Bank of Jacksonville, 5 Cir., 1958, 255 F.2d 504, 505, 507, 509, certiorari denied 358 U.S. 835, 79 S.Ct. 58, 3 L.Ed.2d 72, and United States v. Seaboard Citizens Nat. Bank, 4 Cir., 1953, 206 F.2d 62.
I. To defeat Perpetual as the primal lienor for the recapture of the land taxes, the Government's argument is doubly grounded. First: that in seeking refund of the taxes the mortgagee stands as the subrogee of the County, and, as the income taxes attached earlier, they are paramount to the property taxes, and so the subrogee is subordinated to the United States. Second: that payment of the property levies constituted future, optional advances, and these can never be added to a mortgage debt to the prejudice of an intervening junior lienor, as is now the United States.
The frailty of this argument is, initially, that the claim for reimbursement does not invoke subrogation; it relies exclusively on the terms of the mortgage. Next, the subject of the recoupment was not an advance, but rather a maintenance expenditure. 1 Glenn on Mortgages (1943) sec. 43, p. 273. Nor was the payment volitive—the taxes were fixed in amount, and ineradicably impressed upon the property, by law. Nor was the payment post-contractual—it was an explicit undertaking of the mortgage abovo.
Future advancements, in relation to mortgages, do not include moneys spent to preserve the encumbered property, such as premiums for insurance, custodial costs, restoration expenditures, attorney's fees, taxes assessed and assessable, and similar items rooted in the res. Authoritative discussions of the subject never give these the character of future advances. 3 Glenn on Mortgages, supra, sec. 392, p. 1592, ff.; Osborne on Mortgages (1951) sec. 113, p. 276, ff.; United States v. American Nat. Bank of Jacksonville, supra, 255 F.2d 504.
II. But if the instant tax payments be classed as future advancements, they at once qualify for validity. As noted, neither the amounts, nor the foreseeability, nor the inevitability of the taxes rested on the agreement of the mortgagee. Moreover, the promise of the mortgagor to pay them is written as plainly within the mortgage as is the principal debt. It was not a supervening obligation of the mortgagor, nor an additive disbursement to or for the mortgagor—it was always immanent in the mortgage.
Again, what is required of a mortgagee is determinable by what objectively is demanded to sustain the position of the mortgage—not what personally the mortgagee may elect to do. In default of the owner, a mortgagee pays taxes not merely permissively or optionally, but dutifully. It is necessary to maintain the security. Elsewise, the security would be jeopardized by the incurrence of interest and penalties, by a sale for taxes and by attendant expenses, possibly suit costs and fees. All these sums would have priority over the mortgage lien.
Of course, the mortgagee may foreclose at once for non-payment of taxes. So, too, he may for default in interest or principal. But, surely, his indulgence of the mortgagor in further time, would not prefer an otherwise inferior lienor to the mortgagee. Similarly, the mortgagee's forbearance or payment of the taxes could not possibly impair his precedence over a junior lienor.
III. With the covenant to pay real estate taxes a real attribute of the mortgage—as essential as the promise to pay the debt secured—the statute, sec. 6323(a), supra, subordinating Federal taxes to the mortgage must at the same time place them behind the covenant. It is immaterial, therefore, whether the mortgagee paid the taxes, or left them to be paid out of the proceeds of the foreclosure sale in the same manner as the debt. In the latter event the property taxes would be satisfied, according to the mortgage terms, before the Federal lien could touch the proceeds—and the present suit and sale are the equivalent of foreclosure. For the same reasons, no significance is to be found in the 1958 payment having been made by the...
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United States v. Bond
...by virtue of the provisions of the mortgage, and that such lien is prior to the federal tax liens. The District Court (United States v. Bond, 172 F.Supp. 759) held that Perpetual was entitled to be reimbursed for the real estate taxes paid by it, prior to the lien for federal taxes. In a se......
- First Nat. Bank of Brownsville, Texas v. United States, Civ. A. No. 1262.