" Because of the tax lien, the United States was joined with AIRC as a defendant, pursuant to 28 U.S.C. § 2410. On April 12, 1972, a judgment by default was entered against AIRC in the sum of $ 375,666.64.
A "Praecipe for Writ of Execution" was filed on July 19, 1974 by Attorney Donald Mazzotta on behalf of RIDC. By a letter dated July 24, 1974, Mazzotta notified the district director of the Internal Revenue Service that execution had been issued against AIRC and AIRC's real estate located in Butler County and that a sale of the property would take place on August 23, 1974. The letter stated that a full description of the property to be sold was attached to the notice. Appended to the notice was a complete description of the real property. A "Notice of the Filing of Writ of Execution" was received by the United States Attorney for the Western District of Pennsylvania no later than July 26, 1974 and by the United States Attorney General on July 29, 1974. The United States did not respond to either the letter or the notice.
AIRC had also defaulted on its security agreement with RIDC pertaining to personal property owned by AIRC. On July 30, 1974, Mazzotta wrote a letter to the Sheriff of Butler County instructing him to seize, levy upon, advertise and sell the personal property. The letter directed that the sale be held on August 23, 1974, the same date as had been fixed for the sale of the real estate. On July 31, 1974, the sheriff levied on the personal property. A notice of the sheriff's sale of the personal property was posted on August 9, 1974 in the sheriff's office and Jasper L. Deener, an Internal Revenue Service revenue officer stationed in Butler County, saw the notice. A separate notice was posted advertising the real property sale.
On the morning of August 23, 1974, plaintiff Robert Snyder, president of A. H. and R. S. Coal Corporation, and John Wall, Esquire, counsel for A. H. and R. S. Coal Corporation met with Deener at the Internal Revenue Service office. Deener told them that he had received no notice of the sale of the personal property. Later that day, Deener attended the personal property sale but took no part in it. He voiced no objections to the sale and did not mention the tax lien.
At the sale, the personal property was sold for costs of $ 19.25 to Attorney Mazzotta, who purchased the property on behalf of RIDC. After he had purchased the personal property and before the sheriff auctioned the real property, Mazzotta told bidders that the personal property would go to whomever bought AIRC's real property. Plaintiff A. H. and R. S. Coal Corporation purchased the real property for about $ 180,000.
On or about October 1, 1974, RIDC transferred the personal property to A. H. and R. S. for a nominal amount. Subsequently, the property was seized by the Internal Revenue Service because of the tax lien. In accord with an agreement reached by the plaintiffs and the United States, the amount of $ 17,000 was placed in an escrow account and the property was released to the plaintiffs. The $ 17,000 is to be awarded to the prevailing party in this lawsuit.
The issue is whether the procedure outlined above discharged the federal tax lien against the personal property. We find that the tax lien was not discharged.
A tax lien of the United States may be divested under local law only in the manner prescribed by 28 U.S.C. § 2410 or 26 U.S.C. § 7425. Section 2410 applies when the United States is named as a party in a civil action to quiet title or to foreclose a mortgage or other lien. When the United States is not joined as a party, § 7425 applies.
Plaintiffs argue that § 2410 controls the instant case since the United States was joined as a party in the mortgage foreclosure action brought by RIDC against AIRC. It is our opinion that the mortgage foreclosure was distinct from the repossession and sale of AIRC's personalty; the personal property sale resulted from the foreclosure of a separate security interest. Accordingly, the United States was not a party to the action concerning the sale of AIRC's personal property.
The determination of whether the federal tax lien was divested therefore must be based on § 7425. Section 7425(a) details the requirements to discharge a lien through a judicial sale while § 7425(b) applies to "other sales," which are referred to as non-judicial sales. Thus, it first must be decided how we should characterize the sale involving AIRC's personal property.
"What may accurately be denominated as a judicial sale is not very well settled" but a judicial sale must have certain basic ingredients. City of New Castle v. Whaley's Heirs, 102 Pa.Super. 492, 496, 157 A. 503, 504 (1931). A judicial sale is distinct from an execution sale which may "issue by mere praecipe of the judgment creditor." Yazoo & M. V. R. R. Co. v. City of Clarksdale, 257 U.S. 10, 42 S. Ct. 27, 66 L. Ed. 104 (1921); United States v. Branch Coal Corp., 390 F.2d 7, 9-10 (3d Cir. 1968). To be classified as a judicial sale, the sale "must be based upon an order, decree or judgment Directing sale." Baton Coal Co. Appeal, 365 Pa. 519, 523, 76 A.2d 194, 196 (1950).
The sale of AIRC's personalty did not emanate from a judgment. Nor was it authorized by the mortgage foreclosure default judgment. A mortgage foreclosure is a judgment against the land and it
"imposes no personal liability upon the mortgagors against whom the judgment is obtained. . . . The sole purpose of the judgment obtained through an action of mortgage foreclosure is to effect a judicial sale of mortgaged property. Once the foreclosure sale has taken place, the purpose of the judgment has been fulfilled and is rendered Functus officio."
Meco Realty Co. v. Burns, 414 Pa. 495, 498, 200 A.2d 869, 871 (1964). Since the personal property was not sold pursuant to a judicial decree, its sale should be classified as a non-judicial sale.
Under § 7425(b) a non-judicial sale divests property of a federal tax lien only if: (1) The United States failed to file record notice of the lien 30 days before the sale; or (2) the United States consents that the sale discharges the lien; or (3) the creditor complies with notice provisions prescribed by § 7425(c) and the regulations promulgated thereunder.
It is clear that the United States filed proper record notice of the lien and that the government did not consent to the sale. The parties disagree about whether proper notice was given.
The notice requirements are outlined in § 7425(c):
"(1) Notice of Sale. Notice of a sale to which subsection (b) applies shall be given (in accordance with regulations prescribed by the Secretary or his delegate) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary or his delegate."