[81-2 USTC ¶9589]San Miguel Investment Company, Plaintiff v. United States of America , Defendant

U. S. District Court, Dist. Colo., Civil Action No. 80-M-427, 5/18/81

[Code Sec. 7425(d)]

Lien for taxes: Discharge of liens: Time for redemption: Date of sale: Payment of cash v. Delivery of deed.--Although a public trustee did not deliver a deed until some time later, the date of sale of property occurred under Colorado law, as of the time the purchaser paid for the property and received a certificate of purchase and the IRS 's junior lien was extinguished by a lack of a timely redemption.

John A. Brooks, Harold W. Koonce, Jr., Brooks, Miller & Brooks, 516 Main Street, Montrose, Colo. 81401, for plaintiff. Nancy E. Rice, Assistant United States Attorney, Denver, Colo. 80294, William A. Bower, Department of Justice, Washington, D. C. 20530, for defendant.

Memorandum Opinion and Order

MATSCH, District Judge:

This is an action brought within the jurisdiction provided by 28 U. S. C. §2409a and 28 U. S. C. §1346(f) to quiet title to real property located in Nucla, Colorado by the removal of federal tax liens. The case has been submitted upon stipulated facts contained in a pre-trial order entered on September 12, 1980, which are incorporated by this reference.

The issue to be decided is the legal question of how to measure the time for redemption after a non-judicial public trustee's sale in Colorado . The resolution of that issue requires an interpretation of §7425(d) of the Internal Revenue Code of 1954 (26 U. S. C. §7425(d)), Treas. Reg. §301.7425-2, 1973 C. R. S. §38-39-102, 103, and 105.

The Internal Revenue Service filed federal tax liens on the subject property in 1977 and 1978, the last of which was a notice of tax lien filed April 14, 1978. The property had previously been encumbered by two deeds of trust to the public trustee as security for loans made by the Farmer's Home Administration. Those loans went into default, and following all of the required legal procedures, including a proper notice to the Internal Revenue Service, the public trustee conducted a foreclosure sale on May 22, 1979. The plaintiff purchased the property at that sale for $18,500.00, receiving a certificate of purchase. On August 23, 1979, the public trustee signed and recorded a deed of the property to the plaintiff. That deed was mailed to San Miguel Investment Company on August 28, 1979.

On October 24, 1979, a revenue officer wrote a letter to the plaintiff to advise that the Internal Revenue Service was claiming a right to redeem until December 26, 1979 and requesting information relevant to the computation of the amount necessary for redemption. On December 24, 1979 , revenue officers from the Internal Revenue Service tendered a check for $18,862.64 to the president of San Miguel Investment Company as the payment for the exercise of the claimed right of redemption. That tender was refused, and later on that same day the District Director of the Internal Revenue Service filed a certificate of redemption in the county real estate records. The Internal Revenue Service then published a notice of a sealed bid sale of the property, which sale was stayed by agreement, pending the decision of this case.

Section 7425(d)(1) provides that upon a non-judicial sale of real property to satisfy a lien prior to that of the United States , the Secretary may redeem within 120 days from the date of such sale "or the period allowable for redemption under local law, whichever is longer."

Treas. Reg. §301.7425-2(b) prescribes rules to determine the date of such a sale as being the date on which the public sale is held if there is divestment of junior liens resulting directly from the sale. In the case of divestment of junior liens not resulting directly from the sale, the regulations deemed the date of sale to be the date on which junior liens are divested under local law. The defendant's position is that under Colorado law, junior liens are not divested until delivery of the deed and since that occurred on August 28, 1979, the attempted redemption on December 24, 1979 was within the 120 days under the federal statute.

1973 C. R. S. §38-39-102 gives the owner of non-agricultural real estate 75 days from the date of the public trustee's sale to redeem by payment of the sum for which the property was sold, with interest and taxes. Section 38-39-103 provides that if no redemption is made by the owner within that 75 day period, the holder of the senior lien on the property may redeem within 10 days after expiration of the 75 day period and each subsequent lienor in succession is given an additional 5 day period to redeem, according to the priority of his lien. Subparagraph (2) of that section provides that no lienor or encumbrancer is entitled to redeem unless he files notice of his intention to redeem with the public trustee within the 75 day period for redemption by the owner.

In this case, no notice of redemption was given by anyone during the 75 day period which expired on August 5, 1979. Accordingly, no junior lien or encumbrance could be used to claim a right of redemption after that date. Therefore, under Colorado law, divestment of all junior liens on the property occurred on August 5, 1979. The 120 day period provided for under the Internal Revenue Code expired on December 3, 1979. The letter of October 24, 1979 has no legal significance to this case. The defendant did not take action to exercise its claimed right of redemption until December 24, 1979 and that was too late. Accordingly, my conclusion is that the tax liens filed by the Internal Revenue Service on the subject property are null and void; that the certificate of redemption filed on December 24, 1979 is null and void; that the notice of sale, issued on March 11, 1980 is null and void; and the plaintiff is entitled to the entry of a decree from this court quieting title in San Miguel Investment Co. as the owner in fee simple with right of possession. It is

SO ORDERED.

Decree

Pursuant to the findings of fact and conclusions of law contained in the memorandum opinion and order entered in this proceeding on May 18, 1981, it is

ADJUDGED AND DECREED that San Miguel Investment Co., a Colorado corporation, plaintiff at the time of the commencement of this proceeding, was, and it now is, the owner in fee simple, with right to possession, of the following described real property situated in Montrose County , Colorado :

Lots Twelve (12), Fourteen (14), and Sixteen (16), Block Thirty (30), Town of Nucla, Colorado, according to the official plat thereof.

That fee simple title in and to said real property be and the same hereby is quieted in the plaintiff, and that the defendant has no right, title, or interest in or to the said real property or any part thereof, and that it is forever enjoined from asserting any claim, right, title, or interest in or to the said real property or any part thereof.

[2000-2 USTC ¶50,618] United States of America , Plaintiff v. William L. Comer, et al., Defendants

U.S. District Court, East. Dist. Mich. , So. Div., 95-CV-76358-DT, 7/5/2000

[Code Secs. 6323 and 7402 ]

Jurisdiction: District court: Lien for taxes.--A notice of forfeiture and a civil action that were filed in state (Michigan) court by a third-party successor in interest to vendors of realty subject to a federal tax lien were dismissed. The property had been purchased by delinquent taxpayers, and the successor in interest was attempting to oust the government's claim against the property for unpaid taxes. The government's prior claim provided the federal district court with exclusive jurisdiction to determine the parties' interests in the realty.

[Code Sec. 7425 ]

Lien for taxes: Right of redemption: Timeliness: Limitations period.--The government timely redeemed property subject to a federal tax lien within the 120-day redemption period following a nonjudicial sale. The "sale" of the property occurred on the date when the delinquent taxpayers forfeited their interest in the property; the expiration of their right to redeem under a land contract triggered the running of the government's 120-day redemption period. Constitutional arguments raised by the third-party successor in interest to the vendors of the encumbered realty, which had been purchased by the delinquent taxpayers, to rebut the timeliness of the government's exercise of its redemption rights were rejected.

ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS OR FOR SUMMARY JUDGMENT AGAINST SCHULTZ COUNTER-CLAIM & DENYING COUNTER-CLAIMANT SCHULTZ'S MOTION FOR SUMMARY JUDGMENT

CLELAND, District Judge:

Before the court are cross motions for summary judgment filed by plaintiff United States and by the defendant/counter-claimant Wayne D. Schultz. Each party has responded to the other's motion and the matters are fully presented.

I. Background

This case arises in the context of a larger dispute between the government and the Comer defendants in which the government seeks to enforce certain tax liabilities. Mr. Schultz is an ancillary party who was the successor in interest to the vendors of certain real estate purchased on land contracts by certain of the Comer defendants. Here, the government moves to have the counter-complaint dismissed because it does not state a cause of action, as the subject of the counter-complaint has been subject to the prior exclusive jurisdiction of the court under the complaint filed by the United States in 1995. Since 1996, the complaint has named Mr. Schultz as a defendant in view of his succession to the Comer's interest. In the alternative, the United States seeks to have summary judgment entered in view of its exercise of its right of redemption under 26 U.S.C. §7403. The salient facts are gathered in the brief of the United States at pages 3 through 11.

None of these facts are contested by the defendants/counter-complainants, with minor and immaterial exceptions. See Schultz Rep. at 3. Accordingly, the facts will not be exhaustively set forth herein, but referred to as may be required.

II. Discussion

The United States asserts a "lien in favor of the United States upon [certain] property and rights to property," pursuant to 26 U.S.C. §6321. The lien arises from the failure of the Comer defendants to pay certain income tax liabilities. It is not disputed that the United States assessed the taxes and filed a notice of tax lien. See I.R.C. §7425(b)(1). The forfeiture of an interest in a land contract is a "sale." See I.R.C. §7425(c)(4). The United States is permitted to "redeem such property within 120 days from the date of such sale or the period allowable for redemption under local law, whichever is longer." I.R.C. §7425(d). The undisputed evidence demonstrates that all of the factual predicates for a redemption by the United States in this case have been met. The only remaining questions are questions of law: What was the "date of such sale," and what was the last day of "the period allowable for redemption under local law"?

The United States casts the question in this manner: On what date did the forfeiture of the land contract in this case "become sufficiently complete?" There is no dispute about the date on which the United States was notified of the impending forfeiture. The "date of [non-judicial] sale can be identified as the date on which the taxpayer's interest in the property is divested by operation of law, public or private sale, or forfeiture (among other means). See 26 C.F.R. §301.7425-2.

A. Prior Exclusive Jurisdiction of the Court

The government asserts, and the court agrees, that this court has prior exclusive jurisdiction over the res in this case. Once property is brought under the jurisdiction of a federal court, state courts cannot properly exercise control over it, and any such attempt is viewed as "nugatory and void." Heidritter v. Elizabeth Oil-Cloth Co., 112 U.S. 294 (1884). The prior jurisdiction of the court is effective also in cases involving attempts to enforce liens against specific property; one court cannot exercise jurisdiction over a res already within the jurisdiction of another court. See Farmers' Loan & Trust Co. v. Lake St. Elevated R.R., 177 U.S. 51 (1900); United States v. Certain Real Property 566 Hendrickson Blvd., 986 F.2d. 990 (6th Cir. 1993).

Here, the jurisdiction of the court has been invoked since June 1, 1995 , the date on which the United States filed the complaint to foreclose its tax liens. The United States sought to sell the entire property pursuant to U.S.C. §7403, and defendant Schultz was added to the complaint by amendment on October 28, 1996 . More than a year later, Mr. Schultz filed a notice of forfeiture and a civil action in state court against the Comer defendants, acts that Schultz now offers in an effort intended to oust the claim of the United States.

The court is persuaded that the prior claim of the United States against the res has provided this court with exclusive jurisdiction to determine the fate of the United States' interest in that res. Those with claims against the United States under a later-filed state court action proceed under a "vain, nugatory and void" determination that is "without effect," see Heidritter, 112 U.S. at 302, and the United States is entitled to avoid the effect of any such determination. The motion of the United States to dismiss the Schultz counter-complaint on this basis will be granted.

B. The Date of Sale

In the alternative, the argument of the United States that it has effectively redeemed all interest in the res will be considered and ruled upon to promote efficiency of adjudication. This argument is brought under the standard of Fed.R.Civ.P. 56, with matters outside the pleadings considered by the court.

It is not disputed between these parties that the United States is entitled to a lien in its favor on the amount due on the Comer defendants' unpaid taxes. The United States argues that it has timely redeemed under 26 U.S.C. §7425. It is undisputed that under this section of the Code, a forfeiture of a land contract interest is a "sale," see 26 U.S.C. §7425(c)(4), and it is clear that §7425(d)(1) provides the United States with 120 days from the date of the "sale," or the period allowed under local law, whichever is longer, in which to redeem such property.

The United States argues that the "date of sale" specified in the law occurred, at the earliest, on September 30, 1998 . On that date, the Comer defendants' right to redeem expired, and their interest in the land was "divest[ed] . . . by forfeiture;" accordingly, thus began the 120 days within which the redemption period is to be calculated. See Treas. Reg. §301.7425-2(a), (b)(3). The last date to redeem was January 28, 1999 , and the United States did, in fact, redeem within that period. The brief of the United States on this point is exhaustively thorough. Defendant Schultz agrees that the "redemption [sic-redemption period] commences only when the vendee's interest is completely divested," see Schultz Rep. at 6, and he also agrees that the Comer defendants retained a right to redeem their vendee's interest in the res until September 30, 1998 . Mr. Schultz does make a sketchy argument that the United States' position effectively "tack[s] an additional 120 days redemption period," and that such is "unsupported by any reasonable interpretation of the code and regulations." The court does not agree. The argument of the United States is persuasively analyzed, and adopted herein. It is undisputed that the United States tendered to Mr. Schultz's attorney, Michael Reynolds, the redemption amounts on January 26, 1999 . The sufficiency of the tendered amount was clearly described in the brief of the United States and not contested in the Mr. Schultz's reply. The matter is therefore conceded. The motion of the United States to dismiss on this basis as well will be granted.

C. Unconstitutional Differentiation

Schultz maintains in his reply ¹ that an unconstitutional application of law results from the government's timing argument. This supposition is not found within Schultz's complaint; moreover, such a position is properly raised only in an affirmative dispositive motion, and it is therefore beyond the proper scope of a response to a motion to dismiss. The belatedly-raised argument has not been fully addressed by the United States, and it will not be considered by the court. See Scioto C'nty Reg. Water Dist. No. 1 v. Scioto Water, Inc. 916 F.Supp. 692, 696 (S.D. Ohio 1995) (reply exceeds proper scope and violates federal rules when it raises new issues and cites additional case law). To the extent that Schultz's argument might be considered, it assumes that the government asserts a differential treatment of the interests of land contract vendors, of which Schultz is one, and the interests of foreclosing mortagees [sic]; Schultz seeks a "rational basis" for distinguishing between the identified classes. If the differential treatment assumption is correct (and the court is not sure that it is, Schultz's own statement of the problem contains a rational basis for a distinction: the "only identifiable difference between the groups appear to be that the mortgage sale is recognized as a traditional sale, while, [sic] the forfeiting vendor's sale is a legal fiction arising from statutory definition." See Schultz Rep. at 9. A statutory distinction between traditional sales and statutorily-defined "sales" sufficiently identifies a basis to allow the United States additional time to recognize a statutorily-defined, non-traditional "sale," and to take appropriate action to protect its financial interests. Mr. Schultz's argument would thus be unavailing in any event.

III . Conclusion

The Motion of the United States to Dismiss, or in the Alternative for Summary Judgment, is GRANTED. For the same reasons, the Motion for Summary Judgment filed by counter-claimant Wayne D. Schultz is DENIED. The counter-claim filed by Wayne D. Schultz is DISMISSED.

¹ Schultz's "reply" is actually a response to the government's motion to dismiss.

[95-2 USTC ¶50,345] Elizabeth D. Edmundson v. United States of America

U.S. District Court, West. Dist. La., Lafayette Div., Civ. 93-2036, 6/5/95 , 886 FSupp 1314

[Code Sec. 7425 ]

Liens: Mortgage holder: Foreclosure: Notice: Adequate: Good faith.--An IRS junior tax lien was extinguished at a property's foreclosure sale because the mortgage holder, who purchased the property at the sale, provided adequate notice of the foreclosure sale to the IRS and acted in good faith. After learning of the notification requirements, the mortgage holder canceled the original foreclosure sale and sent the IRS a "Notice of Sheriff's Sale" more than 25 days prior to the sale. Although the notice omitted the amount of outstanding principal plus expenses, the mortgage holder's attorney called the IRS with these amounts. Upon receipt of the IRS 's notice of inadequacy with respect to the omission of the outstanding principal, only days before the sale, the creditor immediately sent a revised notice of the foreclosure sale. Moreover, such an omission required only a correction of the omission and did not require the mortgage holder to give the IRS a new 25-day period. In addition, the redemption period following the foreclosure sale had run. Further, the notification requirements in Reg. §301.7425-3(d)(2) were unduly burdensome and ambiguous, and contrary to congressional intent.

James R. Leonard, McBride, Foret, Rozas & Leonard, 1019 Lafayette St., Lafayette, La. 70502, for plaintiff. Neal I. Fowler, Department of Justice, Washington, D.C. 20530, for defendant.

OPINION

SCOTT, District Judge:

Trial of this matter was held on January 4, 1995 in Lafayette, Louisiana. Technically speaking, the central issue in this case is whether Elizabeth D. Edmundson's failure to give the I.R.S. proper notice of a foreclosure sale results in the survival of the I.R.S.' lien on her property. If we hold that the I.R.S.' lien survives, the I.R.S. has the power to levy on Mrs. Edmundson's property. However, for the common mortgagee and taxpayer, the real issue is whether the I.R.S. can use a burdensome, ambiguous and highly technical notice provision to trip unwary mortgage holders who buy back the property at the foreclosure sale. And trip you will. Indeed, beware those who own a mortgage encumbered by a junior federal lien because when you pull yourselves from the ground you may find that the I.R.S. now owns your property.

After considering the trial testimony and the record as a whole, we find that Mrs. Edmundson made every effort to provide the I.R.S. with proper notice. Her actions wreak of good faith. We also find that certain aspects of the notice provision drafted by the Secretary of the Treasury are unduly burdensome and confoundedly ambiguous. Because of the latitude that is built into this notice provision, the I.R.S. was able to sit back and wait for Mrs. Edmundson to fall into its trap. In short, if we accept the government's position, Mrs. Edmundson would lose her property and be forced to pay someone else's taxes. Such a result is more than unfair, it borders on naked illegal confiscation. Accordingly, we hold that the notice was sufficient and that the I.R.S.' lien was extinguished at the foreclosure sale.

To the extent any of the following findings of fact constitute conclusions of law, they are adopted as conclusions of law. To the extent any of the conclusions of law are findings of fact, they are adopted as findings of fact.

FINDINGS OF FACT

Prior to trial, the parties stipulated to the relevant facts. Therefore, instead of reciting the entire stipulation in this opinion, we briefly summarize the important facts set forth in the stipulation. In addition, when necessary, we will make additional factual findings.

In February of 1991, Mrs. Edmundson sold the real property at issue to the Adlers by credit sale. The Adlers made a down-payment of $7,500.00 and gave Mrs. Edmundson a promissory note secured by a mortgage in the amount of $35,000.00. Unbeknownst to Mrs. Edmundson, in April of that same year, the Adlers sold the property to Total Piping Corporation (Total Piping). Later, in February of 1992, the United States properly filed a Notice of Federal Tax Lien against the property in the amount of $51,188.58 for the tax liabilities of Total Piping.

After the Adlers became delinquent on their mortgage payments, Mrs. Edmundson filed a petition for executory process seeking the seizure and sale of the property. She obtained an order authorizing the sale but prior to the sale she became aware of the transfer to Total Piping and the federal tax lien. ¹ In order to give proper notice to the I.R.S., she rescheduled the sale.

On May 14, 1992 , Mrs. Edmundson's counsel, James Leonard, mailed a letter styled "Notice of Sheriff's Sale" by certified mail both to the Chief of the Special Procedures Function of the I.R.S. and to Nicholas Brady, Secretary of the Treasury. The "Notice" stated the name of the taxpayer, a description of the property, the taxpayer's address, the taxpayer's employment identification number, the amount $51,188.58, and the name of the revenue officer who signed the filed Federal Notice of Tax Lien. The letter also stated the place of the sale and that the sale was set for July 8, 1992 at 10:00 a.m.

On June 24, 1992 , the I.R.S. mailed an acknowledgement to James Leonard stating that the "Notice of Sheriff's Sale" was inadequate. The letter stated that "[t]he approximate amount of the principal obligation, including interest, due the person selling the property, and a description of any expenses that will be chargeable against the sale proceeds were omitted." Mr. Leonard received the letter on June 29, 1992 , only eight days prior to the scheduled sale.

That very same day Mr. Leonard responded with a letter sent by regular mail stating that "the approximate amount of the principal obligation, including interest, is $18,023.92, and the estimated expenses chargeable against the proceeds are $1,250.00." On July 6, 1992 , after realizing that the principal obligation stated in the prior letter was incorrect, Mr. Leonard mailed a second letter by regular mail stating the correct principal obligation amount as $19,732.40. Neither of these letters was sent by registered mail. The parties had no further communication prior to the August 8 sale. While the I.R.S. whines that neither of these letters stated whether the sale was still set for July, 8, 1992, the I.R.S. admits in the stipulation that it had actual notice of the July 8 sale date prior to the sale.

On the ill-fated date of July 8, 1992 , Mrs. Edmundson purchased the property at the Sheriff's sale for $15,000.00, plus costs of sale. As a result of the sale, she was awarded the deed to the property and the junior mortgage interests were extinguished by operation of law. Although the I.R.S. had 120 days to redeem the property, it did not do so.

On October 18, 1993 , the I.R.S. served a Notice of Levy against Total Piping to collect the company's outstanding tax liabilities. Shortly thereafter, the I.R.S. served a Notice of Seizure on Mrs. Edmundson for the property at issue in the amount of $75,403.00, which represented the tax liability of Total Piping, including interest. The total unpaid assessed tax liabilities of Total Piping up to September 12, 1994 is $104,762.78.

CONCLUSIONS OF LAW

Under facts of this case, the notice provision promulgated by the Secretary of the Treasury is unreasonable, ambiguous and unduly burdensome. Several factors convince us that the I.R.S. has too much latitude under the notice provision and that the notice Mrs. Edmundson provided to the I.R.S. was sufficient in this case. First, she made every effort to give the I.R.S. proper notice. Second, the I.R.S. has admitted to having actual notice of the July 8 sale. Finally, the I.R.S.' failure to redeem the property, which would have been an equitable solution in this case, convinces us that the notice provision is slanted too heavily in favor of the government. Accordingly, we hold that Mrs. Edmundson provided sufficient notice to the I.R.S. and, therefore, that the I.R.S. tax lien was extinguished by the foreclosure sale and the running of the redemption period.

I. The Applicable Law Governing Notice

A. When the I.R.S. Properly Files its Lien, the Foreclosing Mortgagee must give Proper Notice to Extinguish the Lien.

Title 26, section 7425(b) sets out the law concerning the discharge and survival of federal liens after a sale of the encumbered property:

. . . a sale of property on which the United States has or claims a lien, or a title derived from the enforcement of a lien, under the provisions of this title, made pursuant to an instrument creating a lien on such property, pursuant to a confession of judgement on the obligation secured by such an instrument, or pursuant to a nonjudicial sale under a statutory lien on such property--

(1) shall . . . be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded in the place provided by law for such filing or recording more than 30 days before such sale ² and the United States is not given notice of such sale in the manner prescribed in subsection (c)(1); or

(2) shall have the same effect with respect to the discharge or divestment of such lien or such title of the Unites States, as may be provided with respect to such matters by the local law of the place where such property is situated, if--

(A) notice of such lien or such tile was not filed or recorded in the place provided by law for such filing more than 30 days before such sale, ³

(B) the law makes no provision for such filing, or

(C) notice of such sale is given in the manner prescribed in subsection (c)(1). 26 U.S.C.S. §7425(b) (1994).

Subsection (c)(1), "Notice of sale," states that "[n]otice of sale to which subsection (b) applies shall be given (in accordance with the regulations provided by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary." (Emphasis added). Id. at §7425(c)(1) . Finally, subsection (d) provides that the United States may redeem the property within 120 days from the date of sale, or within the period allowable under local law, whichever is longer. Id. at §7425(d) .

B. What is Proper Notice?

Under the authority granted by Congress in 26 U.S.C. section 7425(c)(1) , the Secretary of the Treasury has spelled out the specific notice requirements necessary to discharge a federal lien. Regulation Section 301.7425-3 reads as follows:

(d) Content of notice of sale--(1) in general. With respect to a notice of sale described in paragraph (a) or (c) of this section, the notice will be considered adequate if it contains the information in paragraph (d)(1)(i), (ii), (iii), and (iv) of this section.

(i) The name and address of the person submitting the notice of sale;

(ii) A copy of each notice of Federal Tax lien (Form 668) affecting the property to be sold, or the following information as shown on each such Notice of Federal Tax lien--

(A) The internal revenue district named thereon,

(B) The name and address of the taxpayer, and

(C) The date and place of filing of the notice;

(iii) With respect to the property to be sold, the following information--

(A) A detailed description, including location, of the property affected by the notice (in the case of real property, the street address, city, and State and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title),

(B) The date, time place, and terms of the proposed sale of the property, and

(C) (perishable property--not applicable)

(iv) The approximate amount of the principal obligation, including interest, secured by the lien sought to be enforced and a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds. (Emphasis added.) Treas. Reg. §301.7425-3 .

The I.R.S. complained in its letter dated June 24, 1992 that Mrs. Edmundson had not complied with section (d)(1)(iv) of the Secretary's notice provision. ⁴

C. What is Inadequate Notice and how must the I.R.S. Respond?

In regulation 301.7425-3(d)(2) , titled "Inadequate Notice," the Secretary attempts to define insufficient notice, the effects of various insufficiencies and the minimal steps the I.R.S. must take in response. While this provision is as technical as it is vague, we include it in toto because the provision is at the heart of this controversy. It reads as follows:

[e]xcept as otherwise provided in this subparagraph, a notice as described in paragraph (a) which does not contain the information described in paragraph (d)(1) of this section shall be considered inadequate by a district director. If a district director determines that the notice is inadequate, he will give written information of the items of information which are inadequate to the person who submitted the notice. A notice of sale which does not contain the name and address of the person submitting such notice shall be considered to be inadequate for all purposes without notification of any specific inadequacy. In any case where a notice of sale, given after December 31, 1976 , does not contain the information required under paragraph (d)(1)(ii) of this section with respect to a Notice of Federal Tax Lien, the district director may give written notification of such omission without specification of any other inadequacy and such notice of sale shall be considered inadequate for all purposes. In the event the district director gives notification that the notice of sale is inadequate, a notice complying with the provisions of this section (including the requirement that the notice be given not less than 25 days prior to the sale in the case of a notice described in paragraph (a) of this section) must be given. However, in accordance with paragraph (b)(1) of this section, in such a case the district director may, in his discretion, consent to the sale of the property free of the lien or title of the United States even though notice of sale is given less than 25 days prior to the sale. In any case where the person who submitted a timely notice which indicates his name and address does not receive, more than 5 days prior to the date of sale, written notification from the district director that the notice is inadequate, the notice shall be considered adequate for purposes of this section. Id.

For the reader who has made it this far, rejoice, for we include no more U.S. Code sections or Treasury regulations.

II. Regulation 301.7425-3(d)(2) , "Inadequate Notice," is Unreasonable

When we consider Mrs. Edmundson's actions together with the I.R.S.' response, we find that this regulation is ambiguous and overly burdensome. See Rowan Cos. v. United States [81-1 USTC ¶9479 ], 452 U.S. 247, 252-253 (1981); Commissioner v. South Texas Lumber Co. [48-1 USTC ¶5922 ], 333 U.S. 496, 501 (1948); Brown v. U.S. [90-1 USTC ¶50,026 ], 890 F.2d 1329, 1336 (5th Cir. 1989). We could focus our attack on the I.R.S.' actions by finding that, in this particular case, it acted unreasonably under the regulation, but such a finding would do little to eradicate the real cancer, the regulation itself. While we do take issue with the I.R.S.' actions, we find that the great ambiguity and latitude of the regulation allowed the I.R.S. to sit back and lay in wait for Mrs. Edmundson to stumble and fall into its trap. "In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin and its purpose." Rowan Cos. [81-1 USTC ¶9479 ], 452 U.S. at 253 (citations omitted). According to the House Report, the purpose of the notice regulations is to give the I.R.S. an opportunity to review its position "without placing an undue burden on the foreclosing creditor." H.Rep. No. 1884, 89th Cong., 2d Sess., U.S. Code Cong. & Admin. News p. 3722 (1966), reprinted in 1966-2 C.B. 815, 832-33. We find that the effect of regulation 301.7425-3(d)(2) runs contrary to Congress' intent because it places an undue burden on the foreclosing creditor.

A. Mrs. Edmundson made Several Good Faith Efforts to Comply with the Notice Regulation

The facts plainly show that Mrs. Edmundson, through her attorney, Mr. Leonard, made several good faith attempts to give the I.R.S. proper notice of the sale. We are satisfied that in this case the notice she gave was sufficient for the I.R.S. to protect its interests. First, she cancelled the original sale when she learned of the transfer to Total Piping and the federal tax lien in order to provide the government with proper notice. Second, on May 14 1992 , she sent the I.R.S. a notice, styled "Notice of Sheriff's Sale," informing the I.R.S. that the sale would be held on July 8, 1992 . While it is true that this notice omitted the amount outstanding on the principal obligation, plus expenses, there is some evidence suggesting that the I.R.S. had actual notice of these figures. Mrs. Edmundson's attorney claims that he called and informed an I.R.S. agent of these figures. In his deposition, Eugene Nepveaux, the agent assigned to this I.R.S. file admitted to having a phone conversation concerning Mrs. Edmundson's property. Deposition, p. 12-13, 30-31. Unfortunately, Mr. Nepveaux's memory is extremely poor and he can only recall that the conversation concerned "a discharge." Id. at 12, 30. Nonetheless, the court is convinced that this is but another example of Mrs. Edmundson's good faith effort to provide the I.R.S. with sufficient information. Finally, Mrs. Edmundson responded to the I.R.S.' notice of inadequacy on the same day she received it; also, she promptly sent a follow-up letter in an attempt to provide the accurate figures.

B. The Regulation is Ambiguous and Unduly Burdensome

The first example of ambiguity inheres in the phrase "inadequate for all purposes." To the layman, this phrase implies that some notice is sufficient for some purposes but insufficient for others; it implies degrees of notice. However, the use of this language appears to relate to the response which the I.R.S. must take to different forms of notice. We say "appears to relate" because the relationship is by no means clear to us. The phrase is first used where the regulation states that if the name and address of the person submitting the notice is omitted, then the notice is "inadequate for all purposes without notification of any specific inadequacy." We assume that what is meant is that no notice of inadequacy must be sent by the I.R.S., apparently because it would not know to whom to send the notice of inadequacy. ⁵ However, the phrase might also be construed as meaning, especially in light of the sentence preceding it, that the I.R.S. must send a general notice of inadequacy, if it can find an address to send it to, ⁶ but need not specify particular inadequacies.

The phrase "inadequate for all purposes" next appears where the regulation states that if the notice does not include the required information on the federal tax lien ⁷, "the district director may give written notification of such omission without specification of any other inadequacy and such notice of sale shall be considered inadequate for all purposes." There are at least two problems with the quoted language. First, the use of "may" can be construed to mean either that the district director has total discretion in deciding whether to give a notice of inadequacy or that when the district director does give a notice of inadequacy, he or she may specify only that the inadequacy concerns the tax lien information without citing additional inadequacies in the notice. Second, the use of "shall be considered inadequate for all purposes" implies that some types of notice are sufficient for some purposes and not others, or that some forms of notice can be "cured."

While these ambiguities are troublesome, the most onerous part of the statute is the requirement that a perfect notice, one that complies with regulation in every way, be received by the I.R.S. not less than 25 days prior to the sale. ⁸ The application of this requirement, combined with the latitude the I.R.S. has in responding to inadequate notices, demonstrates that the I.R.S. has too much room to maneuver and delay.

In the present case, Mrs. Edmundson sent her notice of sale on May 14, 1992 , giving the I.R.S. fifty four days to receive the notice and reply concerning inadequacies. In what seems like typical fashion, the I.R.S. waited until June 24, 1992 , fourteen days before the scheduled sale, to send a notice of inadequacy. As outlined above, Mrs. Edmundson's responses to the I.R.S. letter were prompt and in good faith. Obviously, she did not know that her attempts at "curing" her original notice were insufficient because she did not allow the I.R.S. another 25 days upon receipt of the corrections. Had the I.R.S. taken five minutes to draft a letter or make a phone call advising Mrs. Edmundson of this problem, she certainly would not have proceeded with the sale knowing that she would lose her property. Needless to say, the benevolent I.R.S., which has admitted having actual notice that the sale would be held on July 8 and which requires the taxpayer to give it every bit of information about its own liens, chose to sit on its hands. Either intentionally or unintentionally, and we lean towards the former, the I.R.S. waited for Mrs.Edmundson to trip over the regulation with the result that she loses her property to the I.R.S. because an unrelated company failed to pay its taxes. The I.R.S. easily could have and should have notified Mrs. Edmundson that she needed to delay the sale for at least 25 days after her corrections were received. Considering her prior efforts to comply, she certainly would have rescheduled the sale.

Mrs. Edmundson argues that some inadequacies in a notice of sale, namely those whose omission do not make the notice inadequate for all purposes, are not subject to the 25 day rule. In other words, the omission of the outstanding principal amount does not require the foreclosing mortgagee to give the I.R.S. a new 25 day period; the foreclosing mortgagee need only correct the omission prior to the sale. Given the ambiguities in the regulation, this is a reasonable argument. We find it particularly appealing because, to some extent, it equalizes the burden of procuring information and does away with the disproportionate punishment for technical noncompliance. Currently, the regulation requires the foreclosing mortgagee to provide the I.R.S. with all sorts of information, most of which the I.R.S. has access to, and within a certain lengthy period of time so the I.R.S. can digest it. If you fail to comply in any manner, and you purchase the property at the sale, you lose because your mortgage is extinguished and the I.R.S.' lien survives. As the tapestry of regulations purportedly reads now, the punishment, loss of the mortgagee's lien with the survival of the I.R.S.', does not fit the crime, a good faith omission of technical information.

Furthermore, under the Treasury's regulation, the I.R.S. can give a foreclosing mortgagee a notice of inadequacy up until five days prior to sale and then the I.R.S. is entitled to a new 25 day period beginning when a perfect notice is received. Armed with this provision, even when the I.R.S. spots an inadequacy on a notice which is submitted six months in advance, it can wait until there are less than 25 days until the sale and then send a notice of inadequacy. Essentially, the I.R.S. can postpone a sale because its agents are behind in their work or because there is a better chance of attracting more bidders to a later sale or for any other imaginable reason; and under some case law, this proposition holds true even when the I.R.S. has actual notice of the technical omissions. Also, there appears to be no limit to the number of times the I.R.S. can delay a sale if the notice regulations are not strictly complied with. There must be a better way. The I.R.S. must share some responsibility in procuring this information and informing the foreclosing mortgagee in a timely fashion.

CONCLUSION

We find that Mrs. Edmundson provided the I.R.S. with sufficient notice to protect its interests. We also find that regulation 301.7425 -3(d)(ii) in unreasonable. Finally, we would be dissatisfied with our efforts herein if we concluded without a few final remarks about the I.R.S.' actions in this case. Irresponsible. Reprehensible.

Accordingly, we hold that the I.R.S.' lien was extinguished by the foreclosure sale and the running of the redemption period.

Plaintiff is instructed to prepare a judgment in conformity with this Opinion and submit it to this court for execution after it has been approved as to form and content evidenced by the signatures of the attorneys of record.

¹ She likely was made aware of the transfer and the lien because they were listed on the mortgage certificate customarily issued by the Clerk of Court in connection with a foreclosure sale.

² The I.R.S., properly and timely filed its lien.

³ See footnote 1.

⁴ The I.R.S. asserts that Mrs. Edmundson's notice of sale was also inadequate because she did not set out the date on which the Notice of Federal Tax Lien was filed and because she did not provide an adequate description of the property. The I.R.S. also complains that Mrs. Edmundson's did not send her letters by registered mail. We find that since the I.R.S. failed to raise these problems in its notice of inadequacy, they are waived. Whiteside v. United States [87-2 USTC ¶9644 ], 833 F.2d 820 (9th Cir. 1987).

⁵ Interestingly, in Estate of Oskey v. U.S. [88-2 USTC ¶9427 ], 695 F. Supp. 422 (D. Minn. 1988), the district court for the District of Minnesota held that the failure to include the name and address of the person submitting the notice did not make the notice "inadequate for all purposes."

⁶ Most of the time, the I.R.S. will have the address of the foreclosing creditor because regulation 301.7425 -3(d)(ii) requires it.

⁷ Regulation 301.7425 -3(d)(ii) requires the foreclosing mortgagee to either provide a copy of the Notice of Federal Tax Lien or all the detailed information that appears thereon, including the internal revenue district where it was filed and the date and place of filing of the notice. How nice it must be for the I.R.S. agents who sit back and let the foreclosing mortgagees do all of their work for them. The liens are I.R.S. liens: the I.R.S. should be responsible for collecting such information. At most, the taxpayer should have to make the I.R.S. aware that there is an I.R.S. lien on the property.

⁸ While 26 U.S.C. §7425(c)(1) states that the foreclosing creditor must submit a notice 25 days prior to sale, Congress likely did not foresee that the Secretary would write such an onerous an detailed notice provision which requires strict compliance and provides little opportunity to cure inadequacies.

[90-1 USTC ¶50,073] United States of America, Plaintiff v. Jesus Espinoza, Ruth Espinoza, Century Mortgage Company, Inc., d/b/a Century United Mortgage Company, Inc., Standard Federal Savings & Loan Association, The Richard Gill Company, and Intrawest Bank of Aurora f/k/a Buckingham Square Bank, Defendants

U.S. District Court, Dist. Colo., Civ. 87-C-773, 11/15/89

[Code Sec. 7425 ]

Federal tax lien: Public trustee sale: Extinguishment of lien: Notice to IRS .--The IRS waived deficiencies contained in a notice of public trustee sale of property when it failed to notify the public trustee of the deficiencies. The notice failed to identify the IRS district where the property was located and it was sent by regular mail, not by registered or certified mail or personal service prior to the sale. A year after the sale, a letter was sent by the IRS to a bank advising it that the notice of sale was inadequate and that the sale was made subject to the government's lien. The bank requested that the court set aside the first sale, and the public trustee executed a second notice of sale. Notice of this sale was sent to the IRS via certified mail, but again the IRS did not attempt to redeem the property during the appropriate period. The court rejected the IRS 's contention that it had never received notice of the first sale; moreover, the second sale was proper and disposed of any interest the IRS might have claimed. Because the IRS did not attempt to redeem the property within the alloted times, a tax lien filed against the property was extinguished by the foreclosure sale. Motion for summary judgment filed by the purchaser of the property was granted.

ORDER

CARRIGAN, District Judge:

Plaintiff United States initiated this suit to reduce to judgment tax assessments against Jesus and Ruth Espinoza, to foreclose federal tax liens against certain real property, and to establish that the United States' liens are entitled to priority over all other claims to the real property. ¹ Defendant, The Richard Gill Company (hereinafter "Gill Co."), has moved for summary judgment on the plaintiff's claim to the property in question. Plaintiff United States has filed a cross motion for summary judgment.

The parties have fully briefed the issues and oral argument would not materially assist the decision process. Jurisdiction is alleged to exist pursuant to 28 U.S.C. §§1340 and 1345.

I. Background.

On December 3, 1979, Jesus and Ruth Espinoza, husband and wife, purchased the house that is the subject of this action. The real property is described as Lot 15, Smokey Hill 400, Filing No. 8-A, Arapahoe County, Colorado commonly known as 5414 South Quintero Way, Aurora, Colorado (hereinafter "the property").

To finance the purchase, the Espinozas executed a deed of trust for $71,000 in favor of the Century Mortgage Company (hereinafter "Century"). The deed of trust was recorded on December 6, 1979, in Book 3131, pp.493-496 in the office of the Clerk and Recorder, Arapahoe County, Colorado.

Subsequently, the IRS filed tax liens arising under 26 U.S.C. §6672 in the amount of $8,995.33 with Arapahoe County's Clerk and Recorder. The Espinozas later defaulted on the deed of trust to Century. On January 16, 1985, the Public Trustee executed a Notice of Election and Demand for Sale, and on January 28, 1985, this document was filed with the Arapahoe County Clerk and Recorder.

The Public Trustee sold the property for $85,508.98, to Gill Co., the highest bidder, at a foreclosure sale on May 1, 1985. A Public Trustee's deed was issued to Gill Co. on August 12, 1985 and was recorded on August 15, 1985.

Gill Co. and Standard Federal Savings & Loan Association (hereinafter "Standard") acknowledge that the IRS did not receive any notice of the foreclosure action by registered or certified mail, or personal service prior to the Public Trustee Sale held on May 1, 1985. The IRS , however, was sent via regular mail: (1) on January 22, 1985, notice of the Rule 120 hearing, (2) on January 28, 1985, Notice of Right to Cure or Redeem, and (3) on February 22, 1985, notice of the Public Trustee Sale. (Defendant's brief, exhibits B-C). The IRS did not attempt to redeem the property within the allotted times.

On March 25, 1986 , the IRS mailed a letter to Standard advising them: (1) that the IRS had not received adequate notice of the sale as required by 26 U.S.C. §7425(b) , (2) that the sale was made subject to and without disturbing the federal tax liens, and (3) that a stated amount was required to satisfy the tax lien. Consequently, Standard filed a motion in the state district court for the City and County of Denver to set aside the May 1, 1985 Public Trustee Sale. An order setting aside the sale was entered on March 27, 1986.

Thereafter, on April 7, 1986, the Public Trustee executed a new Notice of Election and Demand for Sale. On April 10, 1986, notice of this sale was sent by certified mail to the IRS . Even though the IRS admits having received timely notice of this sale, the IRS , again, did not attempt to redeem the property during the appropriate period. At the second foreclosure sale on July 2, 1986, the property was sold to the Gill Co., the highest bidder, for $94,988.61.

On July 2, 1986, the Public Trustee issued a certificate of purchase to Gill Co. that was later corrected to run to "Standard Federal Savings and Loan Association." On October 6, 1986, the Public Trustee issued a Public Trustee's Deed to Standard.

On May 27, 1987, the IRS instituted this quiet title action. Defendant Gill Co. has moved for summary judgment on the ground that pursuant to 26 U.S.C. §7425 , the IRS 's lien was extinguished under the original May 1, 1985 Public Trustee Sale because the IRS had adequate, actual notice of the sale and waived any technical deficiencies in the notice by failing to object. The IRS has filed a cross motion for summary judgment asserting that it did not receive proper notice of the May 1, 1985 sale and that §7425(b) mandates that the property remain subject to the asserted federal tax liens. Although both parties have addressed the issue of whether the notice deficiencies of the May 1, 1985, foreclosure sale altered the priority of the government's lien, I need not address this issue if I find that the May 1, 1985 foreclosure sale was not legally deficient.

II. Notice of the May 1, 1985 Public Trustee Sale.

While the defendant concedes that its notice to the I.R.S.was technically deficient because it was sent by regular mail and did not identify the property's Internal Revenue District, it contends that the United States waived these deficiencies under the waiver provision of 26 C.F.R. §301.7425-3(d)(2) . This regulation provides:

"[i]n any case where the person who submitted a timely notice which indicates his name and address does not receive, more than 5 days prior to the date of the sale, written notification from the district director that the notice is inadequate, the notice shall be considered adequate for purposes of this action." Id.

Recently, Chief Judge Sherman G. Finesilver interpreted the statutory waiver provision in Colorado Property Acquisitions, Inc. v. United States [87-2 USTC ¶9516 ], 665 F. Supp. 878 (D. Colo. 1987), appeal docketed, No. 87-2564 (10th Cir. Oct. 26, 1987). That opinion held that under 26 C.F.R. §301.7425-3(d)(2) , the IRS had waived the notice's deficiencies when it failed to notify the Public Trustee of these deficiencies. The notice given to the IRS in Colorado Property was identical to the notice in the instant case; each notice failed to identify the IRS district where the property was located and each was sent via regular mail. The Colorado Property opinion noted that the waiver provision of C.F.R. §301.7425-3(d)(2) guards against an unfairly strict application of the technical requirements of 26 U.S.C. §7425 . Accordingly, it was held that the IRS 's lien was extinguished once the property was sold because the IRS had failed to protect its interest. Id. at 880-81. Chief Judge Finesilver reasoned:

"[i]n essence, the IRS claims when it receives a technically deficient notice of sale it need not act, but may assert its lien rights and eradicate the effect of a Trustee's sale at any time. The IRS 's inaction would disrupt the orderly disposition of properties posted in security and would throw a wrench in the state's statutory foreclosure process. . . . To allow the IRS to rely on technical noncompliance with the notice requirement and thereby stymie the normal foreclosure process would itself thwart the public interest." Id. at 880.

Similarly, in Garrett v. Internal Revenue Service [88-2 USTC ¶9417 ], 696 F. Supp. 1395 (D. Colo. 1988), Chief Judge Finesilver reaffirmed the holding in Colorado Property. In Garrett, notice of the Public Trustee's Sale was sent by regular mail and the notice failed to adequately identify the taxpayer's name. The court found that the IRS had waived the notice's technical deficiencies by failing to inform anyone of its inadequacies. Thus, the Public Trustee's deed obtained by a senior mortgagor was held not subject to the IRS 's tax lien. Id. at 1387.

Here, the Public Trustee timely mailed the notice of the sale to the IRS via regular mail. The Public Trustee never received any indication from the IRS that the notice was inadequate. However, the IRS here contends that it did not receive any notice and therefore, pursuant to 26 U.S.C. §7425(b) , the property remains subject to the lien. Defendant has tendered evidence demonstrating that three separate notices were mailed to the IRS . For this reason, the IRS will not be heard to assert that it did not receive notice. See Garrett, supra at 1387 (rejecting the same argument made by the IRS ).

Plaintiff IRS asks that I reexamine Colorado Property and Garrett, arguing that unless notice is given to the district director by one of the specified modes, it does not rise to the level of notice requiring the director to respond pursuant to 26 C.F.R. §301.7425-3(d)(2) . Plaintiff contends that the situation must be treated as if no notice at all had been given, and argues that if no notice is given, it is impossible for a district director to waive the inadequacy of the notice. Plaintiff asserts, "to hold that a district director waives the defect in the mode of service by not affirmatively responding is unfounded based on the statute and Treasury Regulations." Plaintiff argues that if Congress had intended regular mail, it would not have explicitly stated the other modes of service. The IRS put forth this same argument to no avail in Garrett, 696 F. Supp. at 1387.

Since the plaintiff does not provide any legislative history to support its proposition, I am inclined to agree with Colorado Property and Garrett. Those cases are dispositive of this quiet title action.

As an alternative ground to disposing of the government's motion by following Colorado Property and Garrett, I conclude that the government's position is without merit because the second sale conducted July 2, 1986 , was proper and disposed of any interest the government might have claimed. After being informed by the IRS that it considered the first sale's notice to be deficient, Standard moved that the May 1, 1985 foreclosure sale be set aside. The government, by hiding its head in the sand and ignoring actual notice of the first sale, thus forced Standard to undergo the expense of delay of the second foreclosure sale. The government's contention that the second sale, where all the "i's were dotted and the t's were crossed," did not extinguish the IRS 's tax lien because the first sale was deficient, is without merit. Therefore, for all the reasons set out above, and because the second sale fully complied with all the notice requirements of 26 U.S.C. §7425(b) , the IRS 's cross motion for summary judgment is denied, and the defendant's motion is granted.

Accordingly, IT IS ORDERED that:

(1) the defendant's motion for summary judgment is GRANTED and the plaintiff's cross motion is DENIED; and

(2) judgment shall enter in favor of the defendant dismissing the plaintiff's complaint and action with prejudice.

¹ On April 7, 1988, judgments were entered individually against Jesus and Ruth Espinoza. On June 15, 1987, Intrawest Bank of Aurora filed a disclaimer of all right, claim, and interest in the real property. Century Mortgage Company, Inc. filed a similar disclaimer of interest on March 4, 1988. Thus, the only remaining claims to the property are those of the United States , Standard Federal Savings & Loan Association, and The Richard Gill Company. The Richard Gill Company is the servicing agent for Standard Federal Savings & Loan Association.