Tax lien primes bank’s deed of trust | KPMG | GLOBAL

Tax lien primes bank’s deed of trust on taxpayer’s property

Tax lien primes bank’s deed of trust

The U.S. Court of Appeals for the Eighth Circuit today affirmed the federal district court’s grant of summary judgment for the government in a tax lien dispute case.


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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 bank executed a release for the 2004 deed of trust on April 10, 2006.
  • The bank recorded the release of the 2004 deed of trust on May 2, 2006. 
  • The bank did not record the deed of trust for the new loan until July 11, 2006. 
  • In the meantime, the IRS recorded a notice of federal tax lien against the taxpayer husband on March 30, 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.”

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