COOLAHAN, Chief Judge:
The not uncommon quest for lien priority has, at times, been a setting for the interplay of jurisprudential reasoning involving the reconciliation of the scope of authority shared by the state and federal government in their respective roles as sovereign states. The present case presents such a situation and raises issues within a framework of conflicting laws promulgated by diverse sovereigns. The facts, unlike the legal arguments involved, are not in dispute.
On March 7, 1967 Government Service Administration (G.S.A.), an agency of the United States Government, conducted a sealed bid sale of property which had previously been condemned and was, at that time, owned by the United States. The property in question is river front acreage located in the Hudson County, New Jersey municipalities of Hoboken and Weehawken. Supermarine, Inc., (Supermarine) was the low bidder. A purchase price of $500,000 was agreed upon, $100,000 to be paid in cash and $400,000 to be paid quarterly over a ten year period. G.S.A. took back a purchase money mortgage to secure Supermarine's note in the amount of $400,000. Yervant Maxudian signed the note individually and as president of Supermarine, Inc. Title closing took place on May 21, 1969 and on the following day the mortgage was duly recorded in the office of the Hudson County Register.
Supermarine, from the outset, had difficulty in making the agreed upon quarterly payments. Despite the defaults, G.S.A. granted a moratorium on principal payments from November 22, 1969 to February 21, 1971. No payments were made on the debt during this period. Consequently, G.S.A. elected, pursuant to the mortgage terms, to have the entire indebtedness become due and payable. On October 3, 1971 the United States filed a complaint in the United States District Court for the District of New Jersey, seeking the following:
Wherefore, plaintiff demands judgment:
(a) Fixing the amount due on its mortgage.
(b) Barring and foreclosing the defendants and each of them from all equity of redemption in and to said lands and premises.
(c) Directing that plaintiff be paid the amount due on its mortgage with interest and costs.
(d) Decreeing that said lands and premises be sold according to law to satisfy the amount due plaintiff.
(e) Appointing a receiver of rents, issues and profits, if necessary, of said lands and premises.
(f) For an order granting possession of the premises to the plaintiff.
(g) For a judgment on the deficiency which may result from this foreclosure action.
(h) For such further relief as the Court may deem equitable and proper.
In addition to the defaults as to interest payments, the complaint also alleges as elements of default a) permitting a policy of insurance in favor of the United States to lapse and b) failure to pay real estate taxes. Because of the possibility that local tax liens against the property may exist the State of New Jersey and the municipalities of Hoboken and Weehawken were also named as party defendants in the foreclosure suit. Seatrain, Inc., is a lessee of the property.
As anticipated by the government, both municipalities filed answers claiming liens for real estate taxes due and asserting that such liens are paramount to the mortgage lien held by G.S.A. Under the laws of the State of New Jersey taxes on real property are a lien on the land assessed.
It is further provided that such lien shall be "paramount to all prior or subsequent alienations. . ."
if the mortgage held by G.S.A. was one held by a private individual, rather than by an agency of the United States, the laws of New Jersey would operate to make the mortgagee's lien inferior to the lien of a city for taxes. See, e. g. In re Lieb Bros., Inc., 150 F. Supp. 68 (D.C.N.J. 1957) aff'd 251 F.2d 305 (3rd Cir. 1958).
In the present case, the United States being the owner of the property until transfer of title on May 21, 1969, no tax could be assessed or become due on the property in question. Clallam County, Wash. v. United States, 263 U.S. 341, 44 S. Ct. 121, 68 L. Ed. 328 (1923). As of the date title was transferred to Supermarine, however, tax immunity was lost and the property could be, and in fact was, assessed. According to N.J.S.A. 54:5-6 the lien would have arisen as of January 1, 1969. Defendants contend that as a consequence their tax liens relate back to January 1, 1969, and therefore are prior in time to the mortgage lien of the United States. Again, were the concern here with a private mortgagee, the power of the legislature to make taxes a lien paramount to prior claims would be recognized and would compel the conclusion that the tax lien must prevail. Provident Institution for Savings v. Jersey City, 113 U.S. 506, 5 S. Ct. 612, 28 L. Ed. 1102 (1885). Where, however, the federal government is involved the relative priority of a United States lien is governed by federal law. This fact unfortunately provides no simple solution to the problem at hand.
In the absence of a specific statute establishing a priority in regard to a federal lien the court must apply the principles of the common law. The rule in question has been succinctly stated by Chief Justice Marshall in Rankin v. Scott, 25 U.S. (12 Wheat.) 177, 179, 6 L. Ed. 592 (1827).
"The principle is believed to be universal, that a prior lien gives a prior claim, which is entitled to prior satisfaction, out of the subject it binds . . ."