Priority of A Federal Tax Lien: A Defective Legal Description Unseats A Purchase Money Mortgage.

Congress has granted the IRS some very strong collection tools, including the federal tax lien under Section 6321 of the Internal Revenue Code. This lien attaches to any interest in property that they taxpayer may have. The breadth of this lien is altered, however, by Section 6323 of the Code, which recognizes that certain other property interests may take priority over a federal tax lien, including a perfected security interest. I.R.C. § 6323(a). “Security interest” is a defined term embracing an interest in property that was obtained by contract to secure performance, provided that the relevant property is in existence, the interest has become perfected under local law, and the holder of the security interest “has parted with money or money’s worth.” See I.R.C.… Read More

Priority of Federal Tax Liens: Don’t Wait To Perfect.

Mortgages and security interests are a routine part of the business of banking. Sometimes, however, the routine element of recording the relevant interest doesn’t get the requisite attention, a situation that can create problems once the IRS files a federal tax lien.

A recent case from the Fourth Circuit highlights the potential pitfalls for lenders who delay in perfecting their rights in collateral. In re Restivo Auto Body, Inc., 2014 U.S. App. LEXIS 20927 (4th Cir. Oct. 31, 2014). The debtor, Restivo Auto Body, had borrowed a million dollars from Susquehanna Bank, a loan which was to be secured by a deed of trust on two parcels of real estate.… Read More