The opinion of the court was delivered by: KIRKPATRICK
The transactions which lie at the base of this controversy are rather complicated and I will not attempt to state more than such facts as appear to me to be necessary to its decision.
The proceeding is a civil action brought by the United States on August 7, 1957, for judgment against Code Products Corporation for outstanding federal tax assessments and for foreclosure, alleging the insolvency of the taxpayer. On August 27, 1957, the Court appointed a receiver to conserve and administer the taxpayer's assets during the pendency of the action.
The questions before the Court for adjudication relate to the order of priority of claims of the United States, the Commonwealth of Pennsylvania, the City of Philadelphia, Robert Sheerr, Sally Sheerr, Nicholas Lix, and Genevieve Stefanowicz.
The Government claims liens against all the assets. The earliest assessment of taxes for which it claims liens was on August 13, 1953. Notices of this and later assessments were filed in the prothonotary's office, as provided in 26 U.S.C. § 6323(a)(1), on May 11, 1954, October 15, 1954, and June 30, 1956. There is no dispute about the liability of Code Products for the taxes claimed.
In working out the order of priority of the claims, it will be convenient to deal separately with the various items of real estate and of personal property.
Real Estate Located at 4566 Baker Street
On the dates of the filing of the first two above mentioned notices of lien, title to this property was in Nicholas Lix, Jr., and unencumbered. Any rights which Code Products may have had in it had lapsed on January 8, 1954, as a result of Code Products' failure to carry out an agreement which it had with Lix to buy the property from him. At the time of filing the third of the above notices of lien, the title to the property was nominally in Dorothy Lewis.
It was then subject to a first mortgage of $ 100,000. to Mutual Trust Life Insurance Company placed by Dorothy Lewis and to a second mortgage for $ 9,791.46 to Lix. The first of these mortgages was subsequently purchased from Mutual, the mortgagee, on March 12, 1956, by the claimant, Sally Sheerr. She claims priority over the Government liens for the principal of the mortgage as well as for interest to the date of the present receivership, maintenance, attorney's fee, etc., amounting in all to $ 27,564.61. In addition, she claims the sum of $ 25,660 for interest accruing since the date of the receivership. Thus her total claim based on the mortgage is $ 153,224.61.
The question to be considered first is whether the federal liens have priority over the two mortgages just mentioned and, if so, to what extent.
The statute provides that federal taxes are a lien upon all 'property and rights to property' belonging to the taxpayer but that the lien shall not be valid as against any mortgagee, etc., until notice thereof has been filed as thereafter provided. The lien arises when the assessment is made. In the present case the first two notices of assessments were filed prior to the mortgage. The third notice (June 30, 1956) was filed nearly a year and a half after the mortgage was placed and, although it contained as its first item an assessment of $ 4,779.65 made November 23, 1954, priority cannot be accorded as to any part of the tax covered in view of the express terms of the statute requiring that notice shall be filed before the lien of the assessment may be valid as against a mortgagee.
The claimant points out that Code Products does not appear in the chain of title to 4566 Baker Street until December 2, 1955, when the property was conveyed to it by Dorothy Lewis. It was, of course, at that time subject to the $ 100,000 mortgage which the Mutual Trust Life Insurance Company later sold to Sally Sheerr. However, it is perfectly plain that, when Dorothy Lewis took title on January 27, 1955, and on the same day executed the mortgage to Mutual, she was acting as nominee of and trustee for Code Products. So far as this proceeding is concerned, she was to all intents and purposes Code Products itself, being a mere straw party -- a fact which was at the time known to Mutual. Thus her nominal and temporary ownership may be disregarded and the case treated as though Code Products had taken title to the property on January 27, 1955, and had given the mortgage.
Inasmuch as liens for federal taxes attach to property acquired after the date of assessment as well as property owned at the time, the lien of the first two assessments (notices of which had been filed) attached to 4566 Baker Street on January 27, 1955. A person having statutory notice of the existence of federal tax liens may not, by the device of taking title in the name of a straw party, prevent those liens from attaching to real estate when it is acquired. Nor will the lien be subordinated to a mortgage (other than a purchase money mortgage) given at the time title vests to a mortgagee having knowledge of the fact that the nominal owner is a straw. In other words, a prospective mortgagee cannot achieve priority for his mortgage over properly filed federal tax liens by seeing to it that the prospective mortgagor takes title in the name of a straw party and then getting the mortgage from that straw party.
It therefore appears that, although the amount of principal representing proceeds applied to the purchase of the property ($ 55,204.95) together with interest takes priority over the federal tax liens, the balance of principal and interest is subordinate to the liens noticed, respectively, May 11, 1954, and October 15, 1954.
Sally Sheerr also seeks priority for a prepayment fee. I find no provision in the mortgage making such a fee part of the mortgage and, if it is in fact owed ...