Wednesday, May 11, 2011
Ind. Decisions - 7th Circuit issues one Indiana opinion today, a reversal
In Bloomfield State Bank v. U.S. (SD Ind., McKinney), a 9-page opinion, Judge Posner writes:
The question presented is whether a mortgage that assigns future rental income to the mortgagee creates a security interest that takes priority over a federal tax lien. The answer depends on whether such an assignment constitutes an “interest in property acquired by contract for the purpose of securing payment or performance of an obligation” and whether when the interest is acquired “the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation.” 26 U.S.C. § 6323(h)(1). Only the application of the clause that we have italicized is at issue. * * *
[B]ecause the bank had a lien on the real estate, the rentals were proceeds. By virtue of the rental-income provision in the mortgage, the bank had a separate lien on the rents, but that is not the lien on which it is relying to trump the tax lien. The lien on which it is relying is the lien on the real estate. If an asset that secures a loan is sold and a receivable generated, the receivable becomes the security, substituting for the original asset. The sort of receivable to which the statute denies priority over a federal tax lien is one that does not match an existing asset; a month’s rent is a receivable that matches the value of the real property for that month.
The judgment is reversed and the case remanded with directions to enter judgment for the bank.
Posted by Marcia Oddi on May 11, 2011 10:56 AM
Posted to Ind. (7th Cir.) Decisions