Susquehanna Bank v. USA/IRS (In re Restivo Auto Body)

Susquehanna Bank v. USA/IRS, No. 13-2249 (4th Cir. October 31, 2014)
The Fourth Circuit Court of Appeals parsed the langue of Section 6323(h)(1) of the Internal Revenue Code to determine the priority under Maryland law of an IRS tax lien and a bank deed of trust executed before the IRS filed its notice but recorded later. In a 2-1 decision, the Court held that the Maryland relation back statute did not apply; however, under the Maryland doctrine of equitable conversion, the bank was accorded the same protection as a BFP: as long as it acquired equitable title to the real property before the IRS, its claim was superior.
Procedural context:
The Fourth Circuit affirmed the judgment of the District Court for the District of Baltimore affirming an appeal from the bankruptcy court but reversed the lower court finding that Maryland's relation back statute applied. Instead, the Court upheld the alternative holding of the District Court that the Maryland doctrine of equitable conversion gave the bank deed of trust priority over the IRS lien.
Debtor borrowed $1 million from Susquehanna Bank and on January 4, 2005, executed a note and a deed of trust on real property in Eldersburg, Maryland. Six days later, the IRS filed a notice of its federal tax lien. On February 11, 2005, the bank recorded its deed of trust. The Debtor filed bankruptcy under Chapter 11 in April 2011. The bank challenged the priority of the IRS lien under Md. Code Ann., Real Prop. § 3-201 which provides that, upon recordation, the effective date of a deed relates back to the date of execution. The Court parsed the language of IRC 6323(h)(1)(A) and determined that “Congress’ use of the present perfect tense” in the federal statute did not permit later application of Maryland’s curative statute because the applicable date for determining the effect of the IRS lien was on the date the IRS recorded its lien and the subsequent recording the deed of trust could not retroactively cure the effectiveness of the bank’s lien. The Court then looked to the law of equity and determined that Maryland “local law” gave the bank an equitable interest in the property as of the date of execution and delivery of the deed of trust, regardless of when the deed was recorded. Because the grantor executed and delivered the deed of trust before the IRS recorded its notice of lien, the deed of trust took priority over the IRS lien.
Before Circuit Judges NIEMEYER, WYNN, and FLOYD.

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