Yarmouth Commons Association, a Michigan Non-Profit Corporation, on behalf of the owners of units at Yarmouth Commons Condominium, designated as Macomb County Condominium Subdivision Plat No. 48 v. Norwood, 2:16-cv-12342

Background

Pamela Norwood owned a condominium unit in Yarmouth Commons; the recorded Restated Master Deed and bylaws authorize the association to impose assessments and foreclose a lien to collect unpaid assessments.
Yarmouth Commons assessed $1,490 for unpaid association fees (Sept 1, 2015 through Jan 10, 2016) and recorded a notice of lien on Jan 28, 2016 stating $1,490 (exclusive of interest, costs, attorney fees, and future assessments).
The IRS assessed Norwood’s 2009 federal income tax liability on Apr 6, 2015, but the Notice of Federal Tax Lien was not recorded in Macomb County until Feb 8, 2016 (claiming $67,340.88).
Parties disputed lien priority; state court suit was removed to federal court; IRS obtained a default judgment against Norwood; Macomb County tax lien was stipulated to have priority over the condo association and IRS and was dismissed.
Cross motions for summary judgment turned on whether Yarmouth Commons’ recorded condo assessment lien qualifies as a “security interest” under 26 U.S.C. § 6323(h) so that its recorded lien (Jan 28, 2016) has priority over the later-filed federal tax lien (Feb 8, 2016), and whether the association’s claim includes post-filing costs and attorney’s fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether condo association lien is a “security interest” under 26 U.S.C. § 6323(h)	Lien arises from contractual master deed/bylaws — thus acquired by contract and qualifies as a security interest	Lien is a statutory lien created by state law, not a consensual security interest; §6323(h) does not cover it	Held: Lien qualifies as a “security interest” under §6323(h); master deed/bylaws create contractual obligation accepted on purchase
Whether the association’s lien was choate (sufficiently fixed) before the IRS filed notice	Association’s recorded notice (Jan 28, 2016) fixed identity, property, and amount ($1,490) so it was choate before IRS notice	Government argued assessment not choate until recording and that tax lien assessed earlier has priority	Held: Association’s lien was choate as to the $1,490 recorded and thus has priority over the later IRS notice for that amount
Whether priority extends to interest, costs, and attorney’s fees not quantified in the recorded lien	Association argued state law entitles it to recover fees/costs; lien notice reserved such amounts and association can recover them	Government argued unliquidated fees/costs were not fixed before IRS filing and therefore are junior	Held: Priority limited to the fixed amount ($1,490) stated in the recorded notice; unquantified fees/costs are not prior to IRS lien
Applicable law governing competing liens	Plaintiff: federal law governs priority; §6323 protects qualifying state-created security interests that were perfected before IRS notice	Government: federal tax lien perfected on assessment; generally first in time prevails; §6323(a) exception inapplicable here	Held: Federal law governs; §6323(a) exception applies because the association’s lien met §6323(h) elements and was perfected by recording before IRS notice (but only to recorded amount)

Key Cases Cited

Parks v. LaFace Records, 329 F.3d 437 (6th Cir. 2003) (cross-motions for summary judgment do not eliminate disputes of fact)
Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (summary judgment standard and when trial required)
Blachy v. Butcher, 221 F.3d 896 (6th Cir. 2000) (federal law governs priority of federal tax liens)
United States v. City of New Britain, 347 U.S. 81 (U.S. 1954) (first in time, first in right principle for lien priority)
In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168 (6th Cir. 1990) (choateness and enforcement rights relevant to lien priority)
Litton Indus. Automation Sys., Inc. v. Nationwide Power Corp., 106 F.3d 366 (11th Cir. 1997) (elements for qualifying security interest under §6323(h))
United States v. Equitable Life Assur. Soc. of U.S., 384 U.S. 323 (U.S. 1966) (attorney’s fees not entitled to priority over federal tax lien)
Dishman Indep. Oil, Inc., 46 F.3d 523 (6th Cir. 1995) (a state-created lien is choate when identity, property, and amount are established)