299 F. Supp. 3d 862
E.D. Mich.2017Background
- Pamela Norwood purchased a condominium unit subject to a recorded Restated Master Deed and bylaws that authorize the association to impose assessments and foreclose a lien to collect unpaid assessments.
- Yarmouth Commons Association assessed $1,490 in unpaid association fees (Sept. 1, 2015) and recorded a notice of lien on Jan. 28, 2016 listing $1,490 (exclusive of interest, costs, attorney fees, future assessments).
- The IRS assessed Norwood’s 2009 federal income tax liability earlier (Apr. 6, 2015) but did not record a Notice of Federal Tax Lien until Feb. 8, 2016, claiming $67,340.88.
- The association sued in state court to enforce its lien; the United States removed, obtained default judgment against Norwood on its cross-claim, and the parties cross‑moved for summary judgment on lien priority.
- The central legal question: whether the association’s recorded condominium assessment lien qualifies as a “security interest” under 26 U.S.C. § 6323(h)(1) and thus takes priority over a subsequently recorded federal tax lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether condo assessment lien is a "security interest" under 26 U.S.C. § 6323(h)(1) | The lien arises from the recorded master deed/bylaws (a contract) securing payment of assessments, so it is a security interest. | The lien is a statutory lien created by operation of state law, not a contractual security interest; §6323(a) does not apply. | The lien qualifies as a security interest: it was acquired by contract (master deed/bylaws), the unit existed, and association parted with money. |
| Whether the association’s lien was "choate" before the IRS recorded its tax lien | The recorded notice of lien fixed the identity, property, and amount ($1,490), making the lien choate and entitled to priority. | The lien was not choate until fully fixed (including fees/costs) and thus cannot preempt the earlier-assessed federal tax lien. | The recorded lien was choate as to the $1,490 stated and thus has priority over the later-recorded federal tax lien only for that amount. |
| Whether association can claim priority for post-notice attorney’s fees, interest, and future assessments | The association says state law allows recovery of fees and costs and they should share priority. | The government insists such amounts were not a sum certain when IRS filed and so are not protected. | Attorney’s fees, interest, and future assessments are not entitled to priority because they were not fixed as a sum certain when the IRS filed. |
| Whether state-law priority language (Michigan Condominium Act) controls over federal tax lien priority | Association argues state law and the contract support its lien rights; federal law governs relative priority but accords protection to qualifying security interests. | Government points to Michigan statute that excepts tax liens from condo-priority and contends federal tax lien should prevail. | Federal law controls priority disputes involving tax liens; §6323 protects qualifying security interests despite state provisions, but only for amounts fixed and recorded. |
Key Cases Cited
- Blachy v. Butcher, 221 F.3d 896 (6th Cir. 2000) (federal law governs priority of federal tax liens against competing claims)
- United States v. Irvine, 511 U.S. 224 (1994) (federal law determines extent to which state-created property interests are subject to federal tax lien)
- United States v. City of New Britain, 347 U.S. 81 (1954) (priority principle: first in time, first in right)
- In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168 (6th Cir. 1990) (discussion of choateness and timing of lien perfection)
- United States v. Equitable Life Assur. Soc. of U.S., 384 U.S. 323 (1966) (attorney’s fees not entitled to priority over federal tax lien)
- United States v. Dishman Indep. Oil, Inc., 46 F.3d 523 (6th Cir. 1995) (state-created lien is choate when identity, property, and amount are established)