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United States v. Tolin

United States Court of Appeals, Eighth Circuit

July 5, 2016

United States of America Plaintiff- Appellee
v.
Josh P. Tolin; Kimberly L. Tolin; Ocwen Loan Servicing, LLC; Enterprise Bank and Trust Defendants Missouri Department of Revenue Defendant-Appellee Citibank South Dakota N.A.; Village of Winding Trails; Winding Trails Subdivision Homeowners' Association Defendants
v.
U.S. Bank National Association as Trustee, under Pooling and Servicing Agreement dated as of September 1, 2006 MASTR Asset Backed Securities Trust 2006-NC2 Mortgage Pass Through Certificates Series 200 Intervenor Defendant-Appellant

          Submitted: January 13, 2016

         Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before LOKEN, GRUENDER, and KELLY, Circuit Judges.

          GRUENDER, Circuit Judge.

         The United States of America ("Government") brought suit to determine whether its 2004 tax lien on a foreclosed property had priority over several other competing interests in the property. These included an interest held by U.S. Bank National Association ("U.S. Bank") via a 2006 deed of trust. The district court[1]granted summary judgment in favor of the Government, and U.S. Bank appeals. We affirm.

         I.

         Josh and Kimberly Tolin purchased a parcel of real property in Ballwin, Missouri in March 2004. The Tolins financed the purchase with a $277, 000 loan from New Century Mortgage Corporation ("New Century"). They then executed a deed of trust to secure the loan, recording the deed of trust on March 29, 2004.

         Two years later, the Tolins began preparations to apply for a new loan. On March 24, 2006, they completed a uniform residential loan application, which indicated a loan request in the amount of $366, 350 for a refinance. On this application, the Tolins described the purpose of the refinance as "cash-out/debt consolidation." The application did not disclose any unpaid federal tax liabilities. That same day, the Tolins' loan closed, and a deed of trust to secure the loan was executed but not recorded. The loan was disbursed five days later. There is no evidence in the record that New Century or the closing agent performed a title search on the Ballwin property before closing on the new loan. Of the total funds disbursed, $274, 410 was used to pay New Century for the remainder of the 2004 loan for the Ballwin property purchase, $83, 005 went toward settling various other debts, and $8, 934 went to the Tolins. New Century executed a deed of release for the 2004 deed of trust on April 10 and recorded this deed of release in St. Louis County on May 2. The deed of trust for the 2006 loan was not recorded until July 11, 2006. New Century assigned the 2006 deed of trust to U.S. Bank on November 23, 2009, and U.S. Bank subsequently recorded the assignment.

         Starting in November 2005, the Internal Revenue Service ("IRS") began to assess unpaid income taxes against Josh Tolin from tax years 2001, 2002, 2004, and 2006, totaling more than $700, 000. The IRS assessed the 2004 taxes that are at issue in this case on November 21, 2005 and recorded a notice of federal tax lien in St. Louis County related to those taxes on March 30, 2006.

         The Government initiated the instant suit in 2013, seeking to reduce to judgment the unpaid federal tax liabilities assessed against Josh Tolin, to foreclose on federal tax liens encumbering the Ballwin property, and to have the proceeds from the foreclosure sale distributed in the amounts determined by the court. Josh Tolin conceded the tax liabilities, and Kimberly Tolin disclaimed any interest in the property. After all competing claims to the property except U.S. Bank's were resolved, the Government moved for summary judgment regarding the priority of its tax lien for unpaid 2004 taxes against U.S. Bank's 2006 deed of trust. The Government argued that, under Internal Revenue Code §§ 6323(a) and (h)(1), its 2004 tax lien had priority over U.S. Bank's lien because notice of the tax lien was recorded on March 30, 2006-more than three months before the 2006 deed of trust was recorded on July 11, 2006. U.S. Bank also moved for summary judgment, arguing that, because the 2006 loan merely refinanced the 2004 loan, the 2006 deed of trust retained the priority of the 2004 deed of trust for the $277, 000 amount of the 2004 loan.

         The district court granted summary judgment for the Government, finding that the 2006 deed of trust did not retain the priority of the 2004 deed of trust because the 2004 deed of trust had been released more than two months before the 2006 deed of trust was recorded. The 2006 deed of trust thus did not replace the 2004 deed of trust as part of the transaction that released the earlier deed of trust. The court reasoned that, when the 2004 deed of trust was released on May 2-after the Government had recorded the 2004 tax lien on March 30-there no longer existed a lien on the Ballwin property traceable to the 2004 loan, and the 2006 deed of trust could not revive the priority of the 2004 deed of trust after such a lengthy gap between the time the 2004 deed of trust was released and the time the 2006 deed of trust was recorded. Additionally, the court found that the significant, $89, 350 increase in principal over the 2004 loan, used in part to pay off other creditors of the Tolins, meant that the 2006 loan was not merely a refinance of the prior loan.[2] The court thus awarded priority to the Government's 2004 tax lien over U.S. Bank's interest arising from the 2006 deed of trust. U.S. Bank now appeals.

         II.

         We review de novo a district court's grant of summary judgment. Evance v. Trumann Health Servs., LLC, 719 F.3d 673, 677 (8th Cir. 2013). Summary judgment is appropriate only when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Raines v. Safeco Ins. Co. of Am., 637 F.3d 872, 874 (8th Cir. 2011).

         The dispute in this case turns on whether the 2006 deed of trust retained the priority of the released 2004 deed of trust. The district court determined that it did not. The "priority [of liens] for purposes of federal law is governed by the common-law principle that 'the first in time is the first in right.'" Minn. Dep't of Revenue v. United States, 184 F.3d 725, 728 (8th Cir. 1999) (quoting United States v. McDermott, 507 U.S. 447, 449 (1993)). The "time" for assessing priority "depends on the time the lien attached to the property in question and became choate." Id. (quoting Cannon Valley Woodwork, Inc. v. Malton Const. Co., 866 F.Supp. 1248, 1250 (D. Minn. 1994)). Although federal tax liens attach and become choate at assessment, 26 U.S.C. § 6322, a state-created lien, such as a deed of trust securing a mortgage loan, "is 'choate' for 'first in time' purposes only when it has been 'perfected' in the sense that there is nothing more to be done, i.e., when 'the identity of the lienor, the property subject to the lien, and the amount of the lien are established, '" Minn. Dep't of Revenue, 184 F.3d at 728 (quoting United States v. City of New Britain, 347 U.S. 81, 84 (1954)). Under Missouri law, perfection of a deed of trust occurs when it has been recorded in the office of the recorder in the county where the property is located. Mo. Rev. Stat. §§ 442.380, 442.390; see Reed v. Austin's Heirs, 9 Mo. 722, 730 (1846) ("As far back as the year 1835, this court determined that a title under a junior judgment would prevail over a prior unregistered deed.").

          In chronological order, the relevant dates for assessing the choateness of the competing interests consist of the date the 2004 deed of trust was recorded (March 29, 2004), the date the Government's tax lien for unpaid 2004 taxes was assessed (November 21, 2005), and the date the 2006 deed of trust was recorded (July 11, 2006). In this sequence, normally, the 2004 deed of trust would have priority over the tax lien for unpaid 2004 taxes, and the 2006 deed of trust would be last in priority. U.S. Bank argues, however, that the 2006 deed of trust has the priority of the released 2004 deed of trust because the 2006 loan merely refinanced the 2004 loan. ...


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