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Puritan Dairy Products Co. v. Christoffers

Decided: January 30, 1959.


Scherer, J.s.c.


[54 NJSuper Page 103] The complaint in this case was filed August 12, 1957 to foreclose a mortgage given by defendants Alfred and Priscilla Christoffers to the plaintiff. The suit

proceeded as an uncontested foreclosure and final judgment was entered March 28, 1958. The property was sold at public sale by the Sheriff of Union County on June 11, 1958, and was bid in by one Helen Christoffers for $6,710. After the property was struck off to her the bidder had a title examination made and found that after the filing of the lis pendens in the cause three federal liens had been filed by the Internal Revenue Service against the defendant Alfred Christoffers. The filing dates were September 24, 1957 and July 29, 1958. The premises were owned by Alfred and Priscilla Christoffers as tenants by the entirety.

Helen Christoffers now moves for an order relieving her of her bid and directing the return of her deposit on the ground that there are liens and encumbrances of record against the property, i.e. , the federal tax liens, "which liens and encumbrances were not inserted in the notices and advertisements required by law and in the conditions of sale," nor disclosed at the time of sale.

The plaintiff, by a countermotion, seeks the entry of an order adjudicating that Helen Christoffers has defaulted in the terms of purchase and directing that an alias writ of execution be issued so that the property can be resold -- the costs of sale to be charged against the bidder's deposit -- and that the balance of the deposit, if any, be paid over to the plaintiff, if upon resale the amount realized shall not be sufficient to pay the amount due the plaintiff upon its judgment.

The motion of the bidder will be dealt with first, since, if that motion is decided in her favor, the plaintiff's motion must be denied.

The gist of the argument of the bidder is that the liens of the Federal Government established by the filing of the three notices in 1957 and 1958 were not barred or cut off by the foreclosure judgment in this case. No question is raised about the regularity of the foreclosure proceedings, and they appear to have been conducted completely in accordance with our rules and statutes. No issue is raised concerning the timely and proper filing of the lis pendens

under N.J.S. 2 A:15-6 et seq. It is the effect of this statute on the federal liens which is questioned.

The bidder relies principally upon the decision in Sherwood v. United States , 5 F.2d 991 (D.C.E.D.N.Y. 1925), where the District Court held that the lien of the United States was not extinguished by the foreclosure of a mortgage in the state court. The lien of the United States was filed after the filing of the lis pendens in the state court action but before the sale. The court held that under the decision in United States v. Snyder , 149 U.S. 210, 13 S. Ct. 846, 37 L. Ed. 705 (1893), the government lien was not extinguished.

There are several significant differences between the Sherwood case and the present one. In the first place, neither the provisions of the New York lis pendens act nor its effect on subsequent liens was discussed by the court, so that it is not clear whether that statute gave the same protection to the mortgagee in foreclosure actions as does the New Jersey statute. Next, the mortgagees in Sherwood conceded that the liens of the Federal Government constituted a cloud on their title. The plaintiff here takes exactly the opposite position. Further, the present federal statute, 28 U.S.C.A., sec. 2410, permitting the joining of the Federal Government as a party defendant to a mortgage foreclosure proceeding in the state court, was not then in effect. It was admitted by the Government in the Sherwood case that the lien of the mortgage was prior to the Government's tax liens and that taxes and other advances made by the mortgagees to protect the property were also prior to the tax liens.

The court in Sherwood based its decision upon the conclusions reached in United States v. Snyder, supra. Examination of the opinion in that case reveals that it does not stand for the rule of law for which it was cited in Sherwood. The question in the Snyder case was whether the failure of the United States to file its tax lien in the mortgage office of the Parish of New Orleans, as required by the Louisiana statute, deprived it of priority as against

a subsequent bona fide purchaser of property who had no notice of the lien. The federal statute at that time did not require the filing of the lien, but provided that the failure to pay any tax after demand made the tax a lien on all of the taxpayer's property and the Commissioner of Internal Revenue could enforce the lien by suit in the federal court and by sale. See 26 U.S.C.A. (I.R.C. 1954) sec. 6321. Payment of the tax had been demanded in 1879; the property had been sold by the taxpayer in 1881; and the suit to collect the tax by a sale of the property was instituted in 1885. The defense was that the failure of the Government to file its lien, as required by the Louisiana statute, made it unenforceable as against an innocent purchaser for value without notice. The court held that the sole question involved was whether or not the tax system of the United States was subject to the recording laws of any state, and decided that it was not and that the tax lien had priority. That decision, made in 1893, was before the enactment of 26 U.S.C.A., sec 6323, and its predecessors, which requires the filing of the Government's ...

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