The opinion of the court was delivered by: Michael J. Seng United States Magistrate Judge
ORDER GRANTING BEDROCK FINANCIAL, INC.'S MOTION FOR SUMMARY JUDGMENT AND DENYING THE UNITED STATES OF AMERICA'S THE UNITED STATES OF AMERICA, MOTION FOR SUMMARY JUDGMENT Counterclaimant, (ECF Nos. 70, 77 & 78)
This case arises from a dispute over priority of interests in property in Merced County California.
The case originated with an action filed May 3, 2010, by Bedrock Financial, Inc., a California Corporation ("Bedrock"), against the United States Internal Revenue Service ("IRS") in California Superior Court, Merced, case number CV001026. Bedrock, holder of a deed of trust on the subject property, sought to be subrogated to an earlier mortgage on the same property so as to establish priority over a federal tax lien which attached after the mortgage but before Bedrock's deed of trust. The United States ("U.S.") appeared in the action and removed it to this Court. Subsequently, the IRS was dismissed, leaving the U.S. as the only defendant. The government answered and filed a third party complaint against First American Title Insurance Company and a counter claim against Bedrock. Apparently as a result of issues relating to Bedrock's corporate status and the fact that First American Title Company is a separate corporate entity from the one initially named by the U.S., the pleadings ultimately were amended and two actions morphed into a single consolidated action captioned as above and reflecting a claim by Bedrock against the U.S. and U.S. claims against both First American entities (hereinafter at times referred to jointly as "First American") and Bedrock, all relating to priority of the IRS and Bedrock claims against the property.
All parties have consented to the jurisdiction of the United States Magistrate Judge for all purposes pursuant to 28 U.S.C. § 636 (c)(1).
Bedrock and the U.S. have filed cross-motions for summary judgment which have been deemed submitted and are now before the undersigned for decision. (ECF Nos. 70, 77 & 78.)
Bedrock seeks the Court's finding and declaration that $171,107 of its lien on the property should be given priority over the government's tax lien and it seeks to foreclose on its lien.
The U.S. seeks a declaration that the $38,369 balance (as of July 16, 2012) due on its federal tax lien maintains priority over the Bedrock lien. It too seeks to foreclose on its lien. (Other claims by the government for conversion and injunctive relief have been dismissed.)
These competing claims arise out of the following series of facts and occurrences which are not in dispute.
The essential and undisputed facts*fn1 in this case are outlined chronologically as follows:
The property at issue is located in Atwater, Merced County California and identified as APN 004-110-005. In 2006, the property was owned by Jose and Irma Fuentes. In that year the Fuenteses borrowed $150,000 from R.K Lowe and secured repayment by giving Lowe a first deed of trust on the property. The deed of trust was recorded in Merced County in August 2006.
In September 2005, the U.S. Secretary of the Treasury created a statutory lien on all property owned by the Fuenteses to secure a tax (plus penalties and interest) assessment of approximately $42, 021.
In July 2007, the U.S. recorded a Notice of Tax Lien against the Fuenteses in Stanislaus County, California (not the county in which the subject property is located).
In October, 2007, the U.S. recorded its Notice of Tax Lien, then in the amount of $42,458, against the Fuenteses in Merced County, California, the county in which the subject property sits.
In July, 2007, the creditor on the Lowe deed of trust, who was then owed a balance of $171,107, initiated foreclosure proceedings on the subject property. The Fuenteses sought refinancing from Bedrock. At that time there were two recorded liens on the subject property, the Lowe deed of trust and the above-referenced tax lien. The property was appraised at $427,000, i.e., $213,436 over and above both liens.
First American created a preliminary title report on the subject property in connection with the proposed refinance. First American's search in connection therewith identified the 2007 tax lien on the property, but inexplicably did not report that the tax lien applied to these debtors and this property or affirmatively disclose it on its title report. There is no evidence First American made the tax lien known to Bedrock. Instead, its title insurance policy ensured Bedrock its deed of trust would be and was the first lien on the property.
Bedrock's files include a January 31, 2008 credit report reflecting a tax lien against the Fuenteses in Stanislaus, but not Merced, County.
The U.S. did not try to collect on its lien at the time of the refinance or later when Bedrock undertook to foreclose on its note and deed of trust on the property. There is a ...