Donald J. Miravalle and Lillian Joy Miravalle v. Commissioner

Docket Nos. 9870-91, 7251-93, 10686-94., 105 TC --, No. 5, 105 TC 65, Filed July 31, 1995

[Appealable, barring stipulation to the contrary, to CA-11.-- CCH .]

[Code Secs. 6863 and 7425 ]

[Jeopardy assessment: Stay of collection: Discharge of liens: Jurisdiction: Tax Court.]R, believing collection of any tax that may be due from Ps to be in jeopardy, made a jeopardy assessment and seized Ps' realty. R thereafter issued a notice of deficiency, and Ps filed a petition contesting R's determination. After the jeopardy assessment, seizure, and our acquisition of jurisdiction, a local taxing authority enforced its real estate tax claim against the property. Thereafter, an unrelated third party purchased the realty through a local government sale to satisfy unpaid real estate tax. R, under sec. 7425 , I.R.C., redeemed the property, resulting in R's securing title to the realty. After the redemption, R advertised the realty for sale, and Ps seek a stay of the sale under sec. 6863 , I.R.C.Held: This Court is without jurisdiction or authority to stay the sale of the property.

Donald J. Miravalle and Lillian Joy Miravalle, pro se. Howard P. Levine, for the respondent.

OPINION

GERBER, Judge:

Petitioners moved to stay respondent's sale of property. We consider whether the provisions of section 6863 ¹ would grant us jurisdiction to stay the sale.

Background--Respondent made jeopardy assessments of and issued a notice of deficiency for, deficiencies in petitioners' income tax for 1984, 1985, and 1986 tax years. Shortly after making the jeopardy assessments in December 1990, respondent seized petitioners' real property, commonly known as Pinellas Center , lots 11 and 12 (Pinellas realty). Petitioners filed a petition with this Court, and we acquired jurisdiction of the 1984, 1985, and 1986 income tax years. Thereafter, respondent filed an answer.

Subsequently, respondent moved for summary judgment, petitioners failed to respond to respondent's motion, and a decision was entered against petitioners based, in great part, on facts we deemed admitted. See Miravalle v. Commissioner [Dec. 49,658(M) ], T.C. Memo. 1994-49. Petitioners filed a motion seeking to vacate our decision. Petitioners' motion was taken under advisement subject to the outcome of a related case for subsequent years. If petitioners were successful with respect to issues in the subsequent years, we would look favorably on petitioners' motion. ²

After the seizure and before petitioners' motion, Hillsborough County , Florida , sold a tax certificate on the Pinellas realty (due to unpaid real estate taxes) to BankAtlantic on May 29, 1992. On October 19, 1994, BankAtlantic sold the property to a group of investors (the investors) for $135,000. From the date of the jeopardy assessment until the time of the tax sale, a Federal tax lien attached to the Pinellas realty. ³

Of the $135,000 received from the investors, the $102,287.82 surplus after payment of local liens or claims with priority over the Federal tax lien was paid to respondent. On February 14, 1995, and pursuant to section 7425 , respondent redeemed the property from the investors. Respondent then executed and caused to be filed a "certificate of redemption" under the provisions of section 7425(d)(3)(C) . ⁴ Respondent advertised the Pinellas realty for sale, and petitioners moved to stay the sale.

Discussion--Section 6861 permits the Commissioner to assess a tax deficiency and to pursue collection (e.g., seize the taxpayer's property) where it is believed that collection is in jeopardy, without mailing a deficiency notice to the taxpayer before assessment. The taxpayer's right to contest the deficiency in this Court is preserved by section 6861(b) which provides that: "If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under section 6212(a) , then the Secretary shall mail a notice under such subsection within 60 days after the making of the assessment." (Emphasis added.)

When a taxpayer timely petitions this Court after a jeopardy assessment, with limited exceptions, section 6863 restricts the sale of any property that has been seized for the collection of tax. The restriction remains in effect during the period in which the assessment of the deficiency would be prohibited if section 6861(a) did not apply. ⁵ Section 6863(b)(3)(B)(i) , (ii) , and (iii) provides for three exceptions to the stay: If the taxpayer consents to the sale; if it is determined by the Government that the expenses of conserving and maintaining the property will greatly reduce the sale proceeds expected from the property; or if the property is perishable. See Galusha v. Commissioner [Dec. 46,851 ], 95 T.C. 218 (1990); Williams v. Commissioner [Dec. 45,678 ], 92 T.C. 920 (1989). This Court has jurisdiction to review motions to stay the sale of seized property, as provided in sec. 6863(b)(3)(C) . ⁶

Respondent does not contend that any of the statutory exceptions of section 6863(b)(3)(B) apply. Additionally, she does not question the general rule under section 6863(b)(3)(A)(iii) that the sale of property seized in connection with a jeopardy assessment is restricted prior to resolution of the underlying tax controversy in this Court. Instead, respondent argues that the Pinellas realty is no longer "seized" within the meaning of section 6863 because respondent, under section 7425 , acquired title to and/or ownership in the Pinellas realty. Respondent's argument focuses on the Government's loss of lien status and acquisition of title to the realty. Respondent contends that in consequence of the local tax sale and the redemption, the realty is no longer held by the Government, pursuant to the lien, as "seized property". As a result, respondent contends that this Court has no jurisdiction, under section 6863(b)(3)(C) , to stay the sale of the Pinellas realty because that section is limited to seized property that respondent proposes to sell under section 6335 .

Accordingly, our inquiry is whether our jurisdiction or authority to stay sales under section 6863(b)(3)(C) extends to the property involved here. This presents a question of first impression.

Because our jurisdiction is statutorily derived, whether we have jurisdiction to stay the sale of the realty can only be resolved by an analysis of the statutory language. ⁷ Section 6863(b)(3)(A) contains the general rule that, after a jeopardy assessment has been made under section 6861 , "the property seized for the collection of the tax shall not be sold" while a timely petition for redetermination of the tax is pending with the Tax Court. If respondent determines to sell seized property under one of the statutory exceptions to the stay of sale, section 6863(b)(3)(C) grants jurisdiction to this Court to review respondent's determination in that respect.

There is no question that we have jurisdiction over the merits of petitioners' 1984, 1985, and 1986 tax liabilities. There is also no question that the restriction of section 6863(b)(3)(A) came into play after the jeopardy assessment, seizure of the Pinellas realty, and petition to this court. There is also no question that, ordinarily, we would lack authority to stay the sale of property that had been redeemed by the United States Government. If, however, property is first seized, then released from the seizure, and then redeemed by respondent under circumstances presented here, do we have jurisdiction under section 6863 to stay respondent from selling the property?

Prior to 1989, taxpayers were limited to actions in the United States District Courts if they sought to enjoin the sale of seized property. See Williams v. Commissioner [Dec. 45,678 ], 92 T.C. 920 (1989). This was so even if the underlying tax liability was subject to review in this Court. Section 6863(b)(3)(C) was added to the Code in 1988 to grant this Court jurisdiction to stay sales of property in circumstances described therein. See Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, 102 Stat. 3750.

Section 6861 enables the Commissioner to safeguard the revenue by assessing a tax and seizing property for the collection of the tax where it is determined that collection is in jeopardy. ⁸ Under section 6863(b)(3)(B) , however, as explained above, the sale of such property is restricted after a timely petition has been filed and during the pendency of a case before this Court, unless the circumstances fall within one of three exceptions set forth in section 6863(b)(3)(B) (i.e., the asset is perishable, costs of maintaining the asset will greatly reduce the proceeds of sale, or the taxpayer consents to sale).

Reviewing the progression of events in this case is helpful to an understanding of why section 6863 would not apply to situations where the Government redeems real property. After the jeopardy assessment, the Federal tax lien came into existence and attached to all of petitioners' property and rights to the property. Secs. 6861 , 6321 . Due to the Federal tax lien, respondent was able to, and did, seize petitioners' Pinellas realty. Sec. 6331 . After the seizure, petitioners continued to have an interest in the property, subject to the Federal tax lien, seizure, and the Government's authority to sell the property. See sec. 6335 . It should be noted that petitioners were entitled to redeem the property from respondent, both before and after (for a limited time) any sale of the property pursuant to the seizure. See sec. 6337 . Subsequent to the seizure, however, the State of Florida sold a tax certificate to satisfy local real estate tax in arrears. Because the Federal Government was given proper notice, the local tax sale caused the elimination of all junior liens, including that of the Federal Government. Southern Bank of Lauderdale County v. Internal Revenue Service [85-2 USTC ¶9670 ], 770 F.2d 1001, 1005-1008 (11th Cir. 1985), cert. denied sub nom. Mid-State Homes, Inc. v. United States, 476 U.S. 1169 (1986).

After the local tax sale, petitioners no longer had any interest or rights in the Pinellas realty. Additionally, the local tax sale extinguished respondent's lien upon the Pinellas realty. Accordingly, the Pinellas realty could no longer be subject to seizure by the Federal Government under section 6331 . After the local tax sale, the lien (section 6321 ) and seizure (section 6331 ) statutes no longer applied to the Pinellas realty. Respondent, however, had the option, through section 7425 , to redeem the realty and acquire legal title to the same. The Federal Government acquired legal title after the section 7425 redemption. Petitioners acquired no interest or rights in the Pinellas property, although the Government is obliged to apply against a taxpayer's delinquent liability the net proceeds from the sale of redeemed property. See sec. 6342 . ⁹ Respondent's proposed sale of the Pinellas realty, as authorized by section 7425 , would be used to realize any remaining equity in the property to be applied against petitioners' tax liability, as provided in section 6342 . See Southwest Products Co. v. United States [89-2 USTC ¶9482 ], 882 F.2d 113, 118 (4th Cir. 1989)

We conclude that the restrictions of section 6863(b)(3) do not apply to the proposed sale of the property here, which was released from seizure by reason of the local tax sale extinguishing the Federal Government's lien, and was later redeemed by the Government under section 7425 . These restrictions do not apply unless the Government proceeds to sell seized property pursuant to section 6335 , which brings into play the restrictions of section 6863(b)(3) . ¹⁰ Here, the Government is not proceeding under section 6335 . Instead, the Government is attempting to sell redeemed property under section 7425 , and Congress has not given this Court authority to review such a sale.

The section 6863(b)(3) stay provisions are designed to maintain a balance between the Commissioner's collection concerns and taxpayers' right to deficiency (prepayment) procedures. We recognize that one of the major purposes for restricting the sale of seized property after a jeopardy assessment is that the amount assessed under the jeopardy procedures remains subject to redetermination where a timely petition is filed with this Court. Nevertheless, we are not empowered to stay the sale of the redeemed property here. We do not read section 6863(b)(3)(C) as extending to this situation.

We hold that section 6863(b)(3)(C) does not afford this Court jurisdiction to stay the sale of the Pinellas realty.

An appropriate order will be issued.

¹ Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the periods under consideration.

² Petitioners were generally unsuccessful in the companion case. See Miravalle v. Commissioner [Dec. 50,790(M) ], T.C. Memo. 1995-349.

³ Under Florida law, a tax certificate may be sold at a public sale with open bidding. The certificate is sold, at a minimum, for the amount of unpaid local tax and costs, but may be sold, ultimately, to the highest bidder. Two years after April 1 of the year of acquiring a tax certificate, the purchaser may apply for a tax deed. The tax certificate process has the effect of eliminating all junior liens or claims against the realty. During the 2-year waiting period for issuance of a tax deed, however, a junior lienor or claimant, whose interest was eliminated, may redeem the property from the purchaser. See Fla. Stat. Ann. sec. 197 , subsecs. 122, 402(3), 472(a), 502(1), 502(4)(c) (West 1989 & Supp. 1995); United States v. Marion County , 826 F. Supp. 1400, 1402 (M.D. Fla. 1993).

⁴ Sec. 7425 enabled respondent to redeem the real property and to acquire title. Sec. 7425(d)(3)(A) and (B) contains the procedures by which respondent may execute and file a certificate of redemption. Sec. 7425(d)(3)(C) provides that the filed certificate constitutes "prima facie evidence of the regularity of such redemption and shall *** transfer to the United States all the rights, title, and interest in and to such property acquired by the person from whom the United States redeems such property".

⁵ In pertinent part, sec. 6863(b)(3)(A) states the general rule that Where, notwithstanding the provisions of section 6213(a) , an assessment has been made under section 6851 , 6852 , or 6861 , the property seized for the collection of the tax shall not be sold *** if a petition is filed with the Tax Court (whether before or after the making of such assessment), before the expiration of the period during which the assessment of the deficiency would be prohibited if neither sections 6851(a) , 6852(a) , nor 6861(a) were applicable.

⁶ Sec. 6863(b)(3)(C) provides:

(C) Review by tax court.--If, but for the application of subparagraph (B), a sale would be prohibited by subparagraph (A)(iii), then the Tax Court shall have jurisdiction to review the Secretary's determination under subparagraph (B) that the property may be sold. Such review may be commenced upon motion by either the Secretary or the taxpayer. An order of the Tax Court disposing of a motion under this paragraph shall be reviewable in the same manner as a decision of the Tax Court.

⁷ Even if we were to decide that it would be unfair or inequitable for respondent to sell the property in question, we cannot provide relief unless we have jurisdiction to stay the sale.

⁸ Once the tax is assessed, the Government's statutory lien arises on all property and rights to property, and the said property may be seized. One prominent reason for making a jeopardy assessment is to permit the seizure of property that the Commissioner believes the taxpayer is attempting to place outside of the Commissioner's reach.

⁹ After the local tax sale, $102,287.82 of the $135,000 sale proceeds was paid to respondent and applied to petitioners' assessed tax liability.

¹⁰ Sec. 6335, which authorizes the Government to sell seized property, contains a cross-reference to sec. 6863(b)(3) . However, no similar cross-reference appears in sec. 7425 or sec. 7506 . Sec. 6335(g) provides: "For restrictions on sale of seized property pending Tax Court decision, see section 6863(b)(3) ."

[78-2 USTC ¶9706]Claron D. Bailey, Plaintiff v. United States of America , Defendant

U. S. District Court, Dist. of Utah Cent. Div., C77-0388, 8/14/78

[Code Sec. 7425--result unchanged by '76 Tax Reform Act]

Lien for taxes: Discharge of lien: Redemption of real property by U. S.: Amount payable.--The federal government failed to properly redeem real estate sold at a "non-judicial" sale where it paid the purchaser of the property less than the amount he paid at the sale, and the government's allegation that the amount paid at the sale was not the actual amount paid by the purchaser is irrelevant. The government may not make an arbitrary determination that the actual amount paid at the sale should be discounted in an amount representing allegedly bad faith expenses.

W. Durrell Nielson, McMurray, McIntosh, Butler & Nielson, 36 South State Street, Salt Lake City, Utah 84111, James R. Ivins, 2188 Highland Drive, Salt Lake City, Utah 84106, for plaintiff. Wallace Boyack, Assistant United States Attorney, 200 Post Office & Courthouse Bldg., Salt Lake City, Utah 84101, for defendant.

Order Granting Plaintiff's Motion for Summary Judgment

ANDERSON, District Judge:

This action is before the court on plaintiff's motion for summary judgment. Plaintiff's motion is supported by a memorandum and defendant has filed a memorandum in opposition to the motion. The court heard oral argument on the motion on May 15, 1978.

Plaintiff was a beneficiary of a trust deed to certain real property in Salt Lake County , Utah . Defendant had filed a tax lien against the property. Upon default by the property holders, the trustee sold the property in a "non-judicial" sale after giving notice to defendant pursuant to 26 U. S. C. §7425(c). Plaintiff purchased the property at the sale for $18,535. Defendant attempted to redeem the property at the sale within the 120-day period allowed by 26 U. S. C. §7425(d) by tendering $17,314.19 to plaintiff and filing a certificate of redemption with the Salt Lake County Recorder. Plaintiff rejected the tender claiming that the amount tendered was less than the amount required by statute. Plaintiff then brought this quiet title action.

Defendant contends that the amount paid at the sale was illusory and did not reflect the true purchase price in that the attorney's and trustee's fees included in the price were unreasonable to the extent of $1,830. Defendant claims the price paid at the sale did not constitute the "actual amount paid" within the meaning of 28 U. S. C. §2410(d)(1), and therefore it is not required to tender the full amount plaintiff paid at the sale. Rather, defendant argues that it need only tender an amount that does not include the allegedly unreasonable fees and that the certificate of redemption it recorded with the Salt Lake County Recorder is, therefore, valid. Defendant also argues that the question of whether the attorney's fees paid at the sale were unreasonable is a question of fact which precludes the granting of summary judgment.

Plaintiff argues that defendant's certificate of redemption is invalid as a matter of law on the ground that defendant tendered to him an amount less than the amount required by 26 U. S. C. §7425 and that there are no issues of fact which would preclude the granting of summary judgment.

In order to exercise its right of redemption the government must pay "the amount . . . for such property . . . prescribed by subsection (d) of section 2410 of title 28 of the United States Code." 26 U. S. C. §7425(d)(2). Subsection (d) of §2410 provides, among other things, that:

In any case in which the United States redeems real property under this section or section 7425 of the Internal Revenue Code of 1954, the amount to be paid for such property shall be the sum of--

(1) the actual amount paid by the purchaser at such sale . . .

(2) interest on the amount paid (as determined under paragraph (1) at 6 percent from the date of such sale. . . .

It does not appear to the court that the language at issue in this case is ambiguous in any respect. In order to redeem the property the government must pay "the actual amount paid by the purchaser at [the] sale." The court can find no case, and none has been brought to its attention, that allows the government to make an arbitrary determination that the actual amount paid at the sale can be discounted in an amount representing allegedly bad faith expenses.

The Fourth Circuit Court of Appeals has held that "§2410(d)(1) require[s] the government to tender [plaintiff] only the amount paid by [plaintiff] at the foreclosure sale in order for the government to exercise its right of redemption." Equity Mortgage Corp. v. Loftus [74-2 USTC ¶9757], 504 F. 2d 1071, 1076 (4th Cir. 1974). In Equity Mortgage, the government tendered the amount paid at the foreclosure sale even though that amount was substantially less than the full amount of the purchaser's lien. In finding that the government's tender of the actual amount paid at the sale was all that was required of it, the Fourth Circuit reversed the district court which had held that the government was required to pay the full amount of the purchaser's lien. In so holding, the court noted that "the legislative intent [is] clear, concise and specific" and the statute "is self-explanatory and self-executing." Id. at 1076 and 1079.

The court finds the reasoning of the Fourth Circuit persuasive and concludes that in the instant case, where the government failed to tender the full amount paid at the sale of the property, plaintiff is not required to accept tender of a lesser amount.

Accordingly.

IT IS HEREBY ORDERED that plaintiff's motion for summary judgment is granted.

[83-1 USTC ¶9294]Charlotte Mikulec, Plaintiff-Appellee v. United States of America , Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 82-6192, 705 F2d 599, 4/5/83 , Rev'g and rem'g DC, 82-1 USTC ¶9330

[Code Sec. 7425]

Tax liens: Discharge: Redemption by United States: Amount payable.--A judgment creditor's purchase for $50 at a public auction of her judgment debtor's real property subject to a judgment lien in the amount of $121,008.44 satisfied her judgment only to the amount of her $50 bid under New York law. Thus, the lower court should have permitted the government, as tax lienor, to redeem the real property from the judgment creditor-purchaser for the $50 bid plus interest.

John F. Papsidero, 36 N. Niagara St. , Tonawanda , New York , for plaintiff-appellee. Roger P. Williams, United States Attorney, Glenn L. Archer, Jr., Assistant Attorney General, James F. Miller, Michael L. Paup, William S. Estabrook, Department of Justice, Washington, D. C. 02530, for defendant-appellant.

Before LUMBARD, MANSFIELD and KEARSE, Circuit Judges.

LUMBARD, Circuit Judge:

This appeal requires us to decide the extent to which, under New York law, a judgment creditor's judgment is satisfied if, at an execution sale held upon her lien, she purchases the judgment debtor's property herself. The question arises in connection with an attempt by the United States , as tax lienor, to redeem from a judgment creditor-purchaser a part interest in a factory in Buffalo , New York . In a decision filed on March 8, 1982 , Judge Elfvin of the Western District of New York held that under New York law Charlotte Mikulec's purchase, as a judgment creditor, of property belonging to her debtor, her son (Conrad Mikulec), for less than value satisfied her judgment to the extent of the property's fair market value. [82-1 USTC ¶9330] 533 F. Supp. 1142 (W. D. N. Y. 1982). He therefore held that the United States, to redeem the interest in the factory, had to pay Charlotte the interest's fair market value or the amount of her outstanding judgment $121,008.44), which ever was less. The United States declined to make such payment and on May 25, 1982 the district court entered judgment quieting title in Charlotte . The United States now appeals from that judgment, and contends that Judge Elfvin should have set as the redemption price the $50 Charlotte bid at the execution sale. The government argues that under New York law Charlotte 's judgment was satisfied not to the extent of the purchased interest's value, but only by the $50 actually bid. We agree with the government's interpretation of New York law and accordingly, we reverse.

The facts are not disputed. On October 4, 19 68 Charlotte Mikulec, her husband, Stanley, and their son, Conrad, acquired a factory in Buffalo , New York . Conrad took a 50 percent interest in the property, and Charlotte and Stanley each took a 25 percent interest. On November 8, 1972 the Mikulecs mortgaged the property to Manufacturers and Traders Trust Co. for $185,580.

On March 10, 1976 Jarl Extrusions, Inc. obtained a judgment in New York Supreme Court, Erie County , against Power-Pak Products, Inc. and Conrad in the amount of $144,933. On May 24, 1976 Jarl obtained a judgment in the same court against both Charlotte and Conrad in the amount of $3,161. ¹ Executions with respect to both judgments were issued to the Erie County Sheriff and on June 2, 1978 he seized Charlotte's and Conrad's interests in the factory. The United States received notice of the pending sheriff's sale because it had filed tax liens against Conrad's interest. ² On August 21, 1978 Jarl assigned its March 10, 1976 and May 24, 1976 judgments to Charlotte . That same day the sheriff's sale was held, and Charlotte purchased Conrad's interest for $50. A sheriff's deed transferred title to Charlotte in October, 1978. On or about December 19, 1978 the United States attempted to redeem the property under 26 U. S. C. §7425(d)(1) (1976), by sending Charlotte's attorney a check for $50.98 (representing Charlotte's purchase price plus six percent interest). Charlotte rejected the government's check, and on December 4, 1980 brought suit to quiet title or, alternatively, for an order setting as the redemption price the amount outstanding on the March 10, 1976 judgment against Conrad--$121,008.44.

Section 7425(d)(1) of the Internal Revenue Code, 26 U. S. C. §7425(d)(1) (1976), authorizes the United States to redeem from the purchaser at an execution sale real property subject to federal tax liens. Section 2410(d) of 28 U. S. C. states that the redemption price shall be:

(1) the actual amount paid by the purchaser at such sale (which, in the case of a purchaser who is the holder of the lien being foreclosed, shall include the amount of the obligation secured by such lien to the extent satisfied by reason of such sale).

(emphasis supplied). Where, as here, the lien holder purchases the liened property, "the amount legally satisfied by reason of the sale does not include the amount of such lien to the extent a deficiency judgment may be obtained therefore." 26 C. F. R. §301.7425-4(b)(2)ii(1982). The extent to which a deficiency judgment may be obtained is solely a matter of state law. See the examples in 26 C. F. R. §301.7425-4(b)(5); Equity Mortgage Corp. v. Loftus [74-2 USTC ¶9757], 504 F. 2d 1071, 1075-76 (4th Cir. 1974). Thus the only issue presented by this case is the extent to which Charlotte 's purchase of her debtor's property at an execution sale satisfied her judgment under New York law.

In ruling that Charlotte's purchase of Conrad's property satisfied her judgment by the lesser of the property's value and the amount of the judgment, the district court relied upon the decision of the New York Supreme Court, Westchester County, in Wandschneider v. Bekeny, 75 Misc. 2d 32, 346 N. Y. S. 2d 925 (1973). In Wandschneider, judgment creditors purchased their judgment debtor's house, in which the debtor had equity of at least $27,000, at a sheriff's sale for $500. On the day following the sale the judgment debtor commenced a special proceeding in Supreme Court to set the sale aside. Finding that it would be unconscionable to permit the judgment creditors to acquire equity of $27,000 in exchange for a $500 reduction in their outstanding judgment, Justice Gagliardi held that CPLR §5240, together with his general equity powers, authorized him to adjust the parties' rights. Section 5240 provides:

The court may at any time, on its own initiative or the motion of any interested person, and upon such notice as it may require, make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure. Section 3104 is applicable to procedures under this article.

To prevent the judgment creditors from reaping a windfall, Justice Gagliardi offset against the creditors' outstanding judgment the amount of equity they acquired through the purchase. The Justice supported his ruling by drawing an analogy to Real Property Actions and Proceedings Law §1371(2), which limits a foreclosing mortgagee's right to a deficiency judgment to the difference between the debt and the greater of the property's fair market value and the bid price.

If Wandschneider established the rule of New York law applicable to this case, we would agree with the district court's ruling. We conclude, however, that for two reasons the district court's reliance upon Wandschneider was misplaced. First, the New York Court of Appeals has held that §5240 may not be used to adjust parties' rights after a sale has been validly completed and title transferred. Guardian Loan Co. v. Early, 47 N. Y. 2d 515, 419 N. Y. S. 2d 56 (1979). Second, we do not think that New York law entitles a judgment debtor to a setoff even though the debtor himself never requests relief.

In Guardian Loan, after the defendants failed to pay a judgment for $1,268, their residence was sold at a sheriff's sale to a stranger to the underlying judgment for $3,020. Two days after the sale the sheriff delivered a deed to the purchaser. The defendants thereafter commenced a special proceeding to set aside the sale. They contended that they had equity in their residence of at least $39,000. The Suffolk County Supreme Court, relying upon §5240, set the sale aside, and a divided Appellate Division affirmed. The Court of Appeals reversed, holding that although §5240 grants courts broad discretionary powers to alter the use of enforcement procedures, "it has no application after a Sheriff's sale has been carried out and the deed delivered to the purchaser, at which time the use of the enforcement procedure will have been completed." 47 N. Y. 2d at 520, 419 N. Y. S. 2d at 59 (citations omitted). The Court of Appeals stated that the use of §5240 to invalidate titles acquired at judicial sales would discourage third parties from participating in such sales. The court found no evidence that the Legislature intended §5240 to have such consequences.

The district court distinguished Guardian Loan from Wandschneider by noting that in Guardian Loan the sale was to a stranger to the judgment but in Wandschneider it was to the judgment creditor. The court stated that the specific issue addressed in Guardian Loan--whether §5240 authorizes a court to set aside a judicial sale to a third party simply because a representative price was not obtained--was "a far different question from whether a judgment creditor should be allowed to obtain the judgment debtor's property at an execution sale for a paltry sum and thereafter obtain a deficiency judgment without regard to the value actually wrested from the debtor's hands, which was the issue decided in Wandschneider." We do not agree with the district judge's attempt to distinguish Wandschneider from Guardian Loan with regard to §5240. Guardian Loan plainly holds that §5240 has no application after title is transferred pursuant to a judicial sale. See 47 N. Y. 2d at 520, 419 N. Y. S. 2d at 60: "However unfortunate the judgment debtor's plight may be, CPLR 5240 relates to the use of an enforcement device; it has no application after the threatened use of an enforcement procedure is a fait accompli." We conclude, therefore, that under Guardian Loan §5240 cannot be used to invalidate sales or to adjust rights following a transfer of title regardless of the identity of the purchaser. As title to Conrad's interest in the factory was transferred to Charlotte long before this case commenced, §5240 provides no basis for a setoff against Charlotte 's judgment. ³

In holding that §5240 is irrelevant to this case, we do not mean to suggest that Guardian Loan disapproved the result in Wandschneider. The injustice of permitting a judgment creditor to reap a double or multiple recovery from his debtor is obvious. Guardian Loan expressly stated that although §5240 affords no basis for posttransfer relief, a New York court may always "exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice." 47 N. Y. 2d at 520, 419 N. Y. S. 2d at 60 (emphasis supplied, citation omitted). The court stated that "[w]here the judgment debtor can show not merely disparity in price, but in addition . . . exploitive overreaching, a court of equity may grant relief." 47 N. Y. 2d at 521, 419 N. Y. S. 2d at 60 (citation omitted). In light of these comments in Guardian Loan, we agree with the suggestion in Survey of New York Practice, 54 St. John's L. Rev. 382, 420 n. 176 (1980) "that if the facts in Wanschneider were before the Court of Appeals today, the use of equity, but not CPLR 5240, would be consistent with the Guardian Loan decision."

We believe that on the facts of this case, a New York court would not have used its equity powers to impose a setoff New York courts follow the rules that "equity aids the vigilant," see, e.g., Valentine Gardens Coop., Inc. v. Oberman, 237 N. Y. S.2d 535, 538 (Sup. Ct. 1963), and that "(e)quity requires that he who would invoke its aid must himself be diligent." In re Ageloff's Estate, 161 Misc. 388, 390, 292 N. Y. S. 287, 289 (Surrogate's Ct. 1936). Although these maxims generally are applied in connection with claims of equitable estoppel, they also, we think, fairly indicate that New York courts require that an equitable right be asserted by the one who possesses it. Cf. Guardian Loan, 47 N. Y. 2d at 521, 419 N. Y. S. 2d at 60 ("where the judgment debtor can show not merely disparity in price, but in addition [misconduct] . . . a court of equity may grant relief" (emphasis supplied, citation omitted)). Equitable relief was therefore properly granted in Wandschneider, where the judgment debtor, the very day after the sale, commenced proceedings to set the sale aside. In contrast, the judgment debtor in this case, Conrad, has never asserted a claim to a setoff. Nothing in New York law suggests that a non-mortgagee judgment creditor who purchases his debtor's property suffers an equitable setoff regardless of whether the debtor ever asserts his rights. Moreover, we believe that a New York court would be particularly reluctant to grant equitable relief in the present case, as Conrad's failure to claim a setoff may reflect an intent to retain in the family property otherwise subject to redemption for unpaid taxes.

We thus conclude that CPLR 5240 did not authorize a setoff against Charlotte 's judgment, and that a New York court would not have used its equity powers to grant a setoff. It follows that Charlotte 's purchase of Conrad's property satisfied her judgment only to the amount of her $50 bid. The district court should have permitted the government to redeem the property from Charlotte for $50 plus interest.

Our decision is fair to Charlotte . After the government redeems the property Charlotte may, if she chooses, enforce against Conrad her outstanding judgment less fifty dollars and levy against such other property as Conrad may own. Charlotte does not claim that she placed primary reliance upon Conrad's interest in the factory for the satisfaction of her judgment. But even if she did so rely, she could have protected herself against the effects of government redemption by bidding at the execution sale the lesser of the amount of her outstanding judgment and the fair market value of Conrad's interest. A purchasing lienor may be charged with knowledge that under the federal tax statute she risks being left with the right to become a judgment creditor of the debtor as her sole recourse on the outstanding obligation unless she bids the price at the execution sale up to the amount of the obligation. Cf. Equity Mortgage Corp. v. Loftus, supra, 504 F. 2d at 1079. Having chosen to bid a mere $50, Charlotte is bound by that figure.

Reversed and remanded.

¹ This judgment was later vacated nunc pro tunc.

² The United States filed tax liens totalling $100,363.66 against Conrad and his wife, Carol, between November 19, 1976 and May 31, 1977 .

³ In Hoffman v. Seniuk, 88 A. D. 2d 954, 451 N. Y. S. 2d 191 (A. D. 2d 1982), the appellate Division held that Guardian Loan does not prohibit a court from granting relief under §5240 during the interval between the striking off of the property to the highest bidder at the sheriff's sale, and the delivery of the deed. The court reasoned that relief could be granted during this interval because title is not transferred until the deed is delivered. Hoffman does not strengthen Charlotte 's case, since neither Charlotte nor any other person requested a setoff during the period between Charlotte 's purchase of Conrad's interest and the delivery to her of the deed.

[81-1 USTC ¶9379]Bank of Hemet , Plaintiff-Appellant v. United States of America , Defendant-Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 79-3188, 643 F2d 661, 4/24/81 , Reversing and remanding an unreported DC opinion

[Code Sec. 7425]

Suits by nontaxpayers: Lien for taxes: Redemption rights: Payment received under protest.--An unreported district court opinion was remanded for a determination of the additional amount, if any, that a bank was entitled to as a result of government redemption of property in which both the bank and the Government had junior liens. Although the bank accepted, under protest, a redemption payment equal to the purchase price paid for the property by the bank at a foreclosure sale brought about by the senior lienor, the amount due under Code Sec. 7425(d) is equal to the amount by which the fair market value of the property on the date of sale exceeded the sum of the original purchase price plus the price paid at the foreclosure sale.

Peter Collission, Cohen & Ziskin, Beverly Hills , Calif. , for plaintiff-appellant. Gilbert E. Andrews, Robert S. Pomerance, Department of Justice, Washington, D. C. 20530, for defendant-appellee.