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Moco Investments, LLC v. United States of America

2008 WL 305547 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

LIENS; RECORDING; TAXATION — Federal tax assessments cause federal tax liens to immediately arise and attach to a property when made and therefore, although the delivery of a date make a deed valid under New Jersey law, it is the act of recording a deed that determines whether the tax assessment affects the new owners’ property interest.

A property owner was assessed for federal tax liabilities. On December 7, 2005, the Internal Revenue Service filed notices of the federal tax liens against the property owner. However, seven months earlier, the property owner had sold the property to an unrelated party and delivered the deed at that time. The deed, however, was not recorded until January, 2006. Then, on November 27, 2006, certified transcripts were issued by the Internal Revenue Service showing that the assessments were made against the original property owner on May 24, 2004 and then on May 23, 2005, before the sale.

The new property owner argued that the tax liens had not attached to the property at the time it bought it because the liens were not perfected until December 7, 2005, almost seven months after it had received the deed to the property. The Court, however, rejected that argument holding that the critical time with respect to the deed was when it was recorded, not when it was delivered. According to the Court, the tax assessments “caused federal tax liens to immediately arise and attach to the property” when made, i.e., in 2004 and 2005. “The general federal tax lien arises at the time the time the assessment list is received by the collector unless another date is specifically fixed by law, and continues until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.” The new property owners were arguing that had the deed been recorded at the time of delivery, it would have been protected and would not have been subject to the lien.

“Property rights are determined by the state law in which the property sits. ... Whether the taxpayer’s interest is a property interest to which liens may attach is a question of federal law. ... Here, the property [was] in New Jersey, so property rights [were] construed under New Jersey law.” While the delivery date of a deed makes the deed valid under New Jersey law between the grantor ... and grantee ..., delivery of a deed is not sufficient to protect the grantee against subsequent purchasers; recording the deed is necessary for such protection.” Under federal law, a “purchaser” is a person who, “for adequate and full consideration in money or money’s worth, acquires an interest ... which is valid under local law against subsequent purchasers without notice.” In this case, for the new owners’ interest in the property to have been valid against subsequent purchasers without notice, its deed would have had to be recorded.

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