The case is: United States v. Tolin, No. 15-2550 (8th Cir. July 5 2016). Read the Eighth Circuit’s decision [PDF 108 KB] that includes a dissenting opinion.
The taxpayers (husband and wife) financed their home purchase in March 2004 with a loan, and a deed of trust securing the loan was recorded in March 2004. Two years later, the taxpayers refinanced the loan on March 24, 2006.
The government eventually initiated a judicial action to foreclose on the federal tax liens in 2013. The bank asserted priority for its interest in the property. The government, however, asserted that its 2004 federal tax lien had priority over the bank’s lien because the federal tax lien was recorded on March 30, 2006—more than three months before the bank’s deed of trust was recorded in July 2006. The bank countered that the 2006 loan “merely financed the 2004 loan” and that the 2006 deed of trust retained the priority of the 2004 deed of trust for the amount of the 2004 loan.
The district court granted summary judgment for the government, finding that the 2006 deed of trust did not retain 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. As the district court concluded, the 2006 deed of trust did not replace the 2004 deed of trust as part of the transaction that released the earlier deed of trust.
The bank appealed. Today, the Eighth Circuit affirmed. The appeals court did not find that the release of the 2004 deed of trust and the recordation of the 2006 deed of trust occurred “contemporaneously” and that allowing the bank “…to stretch the notion of ‘same transaction’ to include a more-than-two-month gap between release of an old deed of trust and recordation of a new one would undermine the integrity of the recording statute…. We decline to overlook such careless practice.”
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.