United States v. Dansby, Civ. A. No. C80-683A.

• Decision Date: 03 March 1981
• Docket Number: Civ. A. No. C80-683A.
• Citation: 509 F. Supp. 188
• Parties: UNITED STATES of America, Plaintiff, v. Osie DANSBY et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

509 F. Supp. 188

UNITED STATES of America, Plaintiff, v.Osie DANSBY et al., Defendants.

Civ. A. No. C80-683A.

United States District Court, N. D. Ohio, E. D.

March 3, 1981.

John J. Horrigan, Asst. U. S. Atty., Cleveland, Ohio, for plaintiff.

Frank J. Rose, Jr., Scott J. Mastin, New Philadelphia, Ohio, for defendants.

MEMORANDUM OPINION AND ORDER

CONTIE, District Judge.

This matter is before the Court upon a foreclosure action brought by the United States of America.The government seeks judgment on a promissory note secured by a mortgage deed, declaration of a valid senior lien, foreclosure on the mortgage deed and judicial sale of the property, and a marshalling of all other liens after sale in the event the proceeds exceed the United States Marshal's costs, county real estate taxes, and the sum due the government.DefendantCredithrift of America, Inc. # 5 (Credithrift) counterclaims for a declaration that the government's interest has been extinguished as a junior lien by operation of a state judicial foreclosure action enforcing a county real estate tax lien.

The jurisdiction of this Court having been properly invoked pursuant to 28 U.S.C. § 1345, this cause came on for hearing on September 22, 1980.The following shall constitute the Court's findings of fact and conclusions of law as required under Rule 52(a),Federal Rules of Civil Procedure.

I.

The material facts relevant to this dispute over a parcel of land located in Tuscarawas County, Ohio, and designated as parcel # 1484, are essentially uncontested.On March 26, 1971, defendants Osie and Lillian Dansby executed a promissory note evidencing their joint indebtedness to the United States Farmers Home Administration (FmHA), an agency of the federal government, in the amount of $16,750.00.The funds were made available in the form of a rural housing loan under Title V, section 502, of the Housing Act of 1949, 42 U.S.C. § 1472, and implementing regulations, see7 C.F.R. § 1822.1 to .18 (1980).The Dansbys delivered to the FmHA a mortgage deed, which secured payment for the indebtedness and was duly filed with the Tuscarawas County Recorder.Since January, 1972, the Dansbys have been in default under the terms and conditions of both the promissory note and mortgage deed.

County real estate taxes began to accrue on the mortgaged parcel of land.The real estate taxes were certified as delinquent and created a lien in favor of the State of Ohio.SeeOhio Rev.Code § 5721.01 to .13. Under Ohio law a state tax lien is senior to all other encumbrances on the property.SeeOhio Rev.Code § 5721.10.¹

In May, 1978, the Tuscarawas County Treasurer commenced an in rem action, pursuant to Ohio Rev.Code § 5721.18(B),² to foreclose the state tax lien.Notice by publication was made as required by Ohio Rev. Code § 5721.18(B).This provision does not require that any other form of notice be given to lienholders.A common pleas court entered a default judgment, finding that the county had a valid senior tax lien in the amount prayed in the complaint and ordering a judicial sale of parcel # 1484 with the proceeds to be applied toward the delinquent tax lien.SeeOhio Rev.Code §§ 5721(B)(2)and5721.19.Although any person claiming an interest in the subject parcel may file an answer in the foreclosure proceeding, id., the government did not appear in the action.

The sale was conducted by the Tuscarawas County Sheriff.The parcel was purchased by and a sheriff's deed was delivered to defendantLuther Cato, Jr.In November, 1978, the common pleas court confirmed the sale, ordered a distribution of the proceeds, and decreed that that title to the land shall be incontestable in the purchaser.SeeOhio Rev.Code § 5721.19.³

In December, 1979, defendants Luther and Beatrice Cato executed a promissory note evidencing their joint indebtedness in the amount of $13,800 to defendant Credithrift.As security for payment of the debt the Catos delivered to Credithrift an openend mortgage, which was duly filed with the Tuscarawas County Recorder.The mortgage encumbers parcel # 1484, the property purchased by Cato at the sale conducted by the sheriff.

II.

The narrow issue presented in the instant case is whether a state foreclosure proceeding to enforce a state tax lien may be utilized to extinguish a choate federal consensual lien that is prior in time.The ultimate resolution of this issue turns upon an analysis of the desirability of adopting as federal law the state law governing both the priority and divestiture of federal consensual liens.

The government argues that the state foreclosure proceeding, purportedly extinguishing the federal lien on parcel # 1484, is invalid because it violated the Supremacy Clause of the federal constitution.SeeU.S. Const. art. VI, cl.2.Relying upon the uniform federal first in time and choateness doctrines for tax liens, it is the government's position that the seniority of the federal lien could not be diminished by the subsequent accrual of delinquent taxes.In essence the government protests the enforcement of the state tax lien without preserving the federal interest.

The government also maintains that the nature of the notice that must be given whenever a state foreclosure action affects a federal lien is governed by federal statute.See28 U.S.C. § 2410(b).The foreclosure action constituted an unconstitutional exercise of state power over a federal interest, the government concludes, because the state procedures⁴ deployed did not include the type of notice set forth in the federal statute.Thus, the Court is requested, inter alia, to declare the state foreclosure proceeding void.

For the reasons stated below, the Court rejects both the government's arguments in support of its prayer to declare the state foreclosure proceeding void.The application of nondiscriminatory state law governing the priority and foreclosure of real estate tax liens may be relied upon to extinguish federal consensual liens.Within the context of this case, the state seniority rule for real estate tax liens was appropriately applied.Also, the notice provision specified in 28 U.S.C. § 2410(b) is discretionary and does not mandate any particular form of notice beyond that which is required under state law.

A.

Whenever the United States disburses its funds it is exercising a constitutional power.This function is in no way dependent upon the States, as it arises from the constitution and statutes of the United States."In absence of an applicable Act of Congress it is for the federal courts to fashion the governing rule of law according to their own standards."Clearfield Trust Co. v. United States,318 U.S. 363, 367, 63 S.Ct. 573, 575, 87 L.Ed. 838(1943).

Congress has established a number of nationwide federal loan programs.The agencies that administer these programs derive authority to engage in loan transactions from congressional statute.See e. g.,42 U.S.C. §§ 1471and1480.Thus the FmHA "unquestionably performs federal functions within the meaning of Clearfield" and it is "clear that the priority of liens stemming from federal lending programs must be determined by reference to federal law."United States v. Kimbell Foods, Inc.,440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711(1979) (hereinafter referred to as Kimbell Foods.

The FmHA lien at issue here is a product of federal law and its priority status is a federal question.See42 U.S.C. § 1472;7 C.F.R. § 1822.10(1980).To resolve the priority conflict between the FmHA consensual lien and the county tax lien, the government urges this Court to apply the uniform federal rules commonly referred to as the first in time and choateness doctrines.⁵While the disposition of the controversy involving the FmHA lien will ultimately turn on federal law, a uniform federal rule is not always warranted nor justified.Whether the federal court should fashion a uniform federal rule for deciding cases involving the operation of a nationwide program touches upon a number of considerations.

The choice between "adopting state law or ... fashioning a nationwide federal rule" requires an analysis of several considerations recently articulated by the Supreme Court in Kimbell Foods.440 U.S. at 728, 99 S.Ct. at 1458.The primary and often competing considerations are the need for a uniform rule to effectuate the objectives of the federal program and the intrusion into established state commercial practices and relationships:

Undoubtedly, federal programs that "by their nature are and must be uniform in character throughout the Nation" necessitate formulation of controlling federal rules.United States v. Yazell,382 U.S. 341, 354, 86 S.Ct. 500, 507, 15 L.Ed.2d 404(1966);seeClearfield Trust Co. v. United Statessupra,318 U.S. at 36763 S.Ct. at 575;United States v. Standard Oil Co., supra,332 U.S. 301 at 311, 67 S.Ct. 1604 at 1609, 91 L.Ed. 2067;Illinois v. Milwaukee,406 U.S. 91, 105 n.6, 92 S.Ct. 1385, 1393 n.6, 31 L.Ed.2d 712(1972).Conversely, when there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision.Apart from considerations of uniformity, we must also determine whether application of state law would frustrate specific objectives of the federal programs.If so, we must fashion special rules solicitous of those federal interests.Finally, our choice of law inquiry must consider the extent to which application of a federal rule would disrupt commercial relationships predicated on state law.

440 U.S. at 728-29, 99 S.Ct. at 1458-59.(footnotes omitted).

In Kimbell Foodsthe Supreme Court decided two cases presenting the issue "whether contractual liens arising from certain federal loan programs take precedence over private liens, in the absence of a federal statute setting priorities."440 U.S. at 718, 99 S.Ct. at 1453.One of the two cases involved a priority conflict between a FmHA contractual security interest in...