The united States, as the second mortgagee of real estate
judicially foreclosed and sold to satisfy the first mortgagee's
lien in a proceeding in a state court to which the United States
was made a party under 28 U.S.C. § 2410, can redeem the property,
pursuant to § 2410(c), within one year from the date of sale,
notwithstanding a conflicting state statute giving the mortgagor
the exclusive right to redeem within that period. Pp.
364 U. S.
301-309.
185 Kan. 274,
341 P.2d 1002,
reversed.
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
The issue in this case is whether the United States, as the
second mortgagee of real estate judicially foreclosed in a
proceeding to which the United States was made a party under 28
U.S.C. § 2410, [
Footnote 1] can
redeem within one year from
Page 364 U. S. 302
the date of sale pursuant to 28 U.S.C. § 2410(c), despite a
conflicting state statute giving the mortgagor the exclusive right
to redeem within that period.
The facts are not in dispute and, insofar as here pertinent, may
be summarized as follows. Appellee John Hancock Mutual Life
Insurance Co. held a note for $25,000, secured by a mortgage on
certain Kansas real estate. The note was in default, and the
insurance company instituted proceedings in the District Court
of
Page 364 U. S. 303
Edwards County, Kansas, seeking a declaration that its mortgage
constituted a first lien on the property and asking foreclosure to
satisfy this lien. An agency of the United States, the Farmers'
Home Administration, held four notes executed by the mortgagors
against whom the insurance company was proceeding and one of these
notes, in the face amount of $10,565, was secured by a mortgage on
the property securing appellee's note. It is undisputed that the
United States' secured note was junior in priority to that held by
appellee. However, under Kansas law, a senior lienor must join
junior lienors in the foreclosure proceeding in order to cut off
the junior liens.
Motor Equipment Co. v. Winters, 146 Kan.
127, 69 P.2d 23. And the only way in which the United States can be
joined in its capacity as junior lienor is pursuant to the terms of
28 U.S.C. § 2410, since the United States has not otherwise waived
sovereign immunity in this type of situation. Consequently,
appellee insurance company joined the United States and the United
States cross petitioned for an adjudication that it held a second
lien on the property, inferior only to appellee's lien, in the
amount owed on all four notes. The Kansas District Court held that
appellee enjoyed a first lien entitling it to a judgment of
$26,944.78, and that the United States held a second lien by virtue
of its secured note, entitling it to $10,402.61. [
Footnote 2] The court ordered both liens
foreclosed. At the foreclosure sale, the insurance company bought
in the property in the amount of its own judgment. The United
States did not bid, and the sale was confirmed by the District
Court on February 5, 1958. Four months later -- on June 5, 1958 --
the United States instituted proceedings to
Page 364 U. S. 304
redeem the property pursuant to the terms of 28 U.S.C. §
2410(c). This section specifies that, when the United States is
joined in a foreclosure proceeding under § 2410 -- in particular §
2410(a) -- and a sale is held to satisfy a lien prior to that of
the United States, "the United States shall have one year from the
date of sale within which to redeem." Although the United States
satisfied the procedural requirements of Kansas law, Kan.Gen.Stat.,
1949, § 60-3451, its tender was refused, and consequently it moved
the court to compel the clerk to issue it a redemption certificate.
The District Court denied relief, and the Kansas Supreme Court
affirmed, [
Footnote 3] holding
that the United States' action was barred by the provisions of
state law granting the mortgagor the exclusive right to redeem his
property during a period of twelve months following the date of a
foreclosure sale.
The pertinent Kansas law provides that the mortgagor shall have
the exclusive right of redemption for twelve months following the
date of sale; thereafter, if the mortgagor has not redeemed, the
lien creditors enjoy a three-month period during which they, or the
mortgagor, may redeem. [
Footnote
4] Kan.Gen.Stat., 1949, § 60-3440. If the mortgagor redeems at
any time, all redemption rights are cut off.
Sigler v.
Phares, 105 Kan. 116, 181 P. 628. In this case, the mortgagors
redeemed within twelve months of the date of sale, but subsequent
to the attempt of the United States to redeem.
The narrow question for our decision is whether that part of §
2410(c) which grants the United States a right
Page 364 U. S. 305
to redeem applies to the present situation. If it does, then the
inconsistent provisions of state law must fall under the Supremacy
Clause of the United States Constitution. [
Footnote 5] U.S.Const. Art. VI.
On analysis, the question is not only narrow, but also
susceptible to rapid solution, since the plain language of §
2410(c) reveals no impediment to its applicability once resort is
had to § 2410(a). Moreover, an examination of the legislative
history of § 2410 shows that Congress considered the redemption
provision of § 2410(c) an important and integral feature of § 2410.
The pertinent excerpts reveal that Congress feared a situation
where the United States, as junior lienor, would find its lien
dissolved pursuant to § 2410 without having had a chance to protect
its right to any amount the foreclosed property might be worth in
excess of the senior lien. [
Footnote 6] As Congress
Page 364 U. S. 306
recognized, one method of protection for junior lienors is to
bid competitively at the foreclosure sale, thereby preventing
property worth more than the amount due on the senior lien from
being sold at a discount. However, it was noted that, barring
special circumstances, the United States could not pursue this
procedure unless it first secured an appropriation from Congress
and, thus, the one-year period of redemption was inserted to afford
the United States sufficient time to secure an appropriation and
protect its interests. The protective nature of the redemption
proviso in § 2410(c) was recognized in
United States v.
Brosnan, 363 U. S. 237,
363 U. S. 246,
where this Court stated that "the Government is guaranteed a
one-year right to redeem if the plaintiff proceeds under § 2410. .
. ." This proposition is in line with the well settled rule that
Congress may impose conditions upon a waiver of the Government's
immunity from suit.
See e.g., Soriano v. United States,
352 U. S. 270,
352 U. S. 276,
where we added that these protective conditions "must be strictly
observed, and exceptions thereto are not to be implied."
Appellees concede, as they must, that § 2410 was mandatorily
applicable to the present situation, since Kansas law required
joinder of the United States, and the United States can only be
joined pursuant to § 2410. However, they would have us find a
superseding congressional intent to afford the United States a
right of redemption only when no such right is granted under state
law; when some privileges of redemption are given by the State to
junior lienors, although of lessor magnitude than that provided
Page 364 U. S. 307
in § 2410(c), then the federal right is no longer pertinent. The
short answer to this contention is that no indication of such a
limitation appears in the body of the statute -- which specifies
that the United States "shall" have one year to redeem -- or in its
legislative history.
See Soriano v. United States,
supra.
Appellees also press upon us the fact that the federal agency
here concerned, the Farmers' Home Administration, could have
protected its junior lien without insisting on a right to redeem
under § 2410, since 7 U.S.C. (1952 ed.) § 1025 authorizes the
Secretary of Agriculture, who supervises the Farmers' Home
Administration, to bid at foreclosure sales. [
Footnote 7] But the significance of this section
and its effect on § 2410 is not clear. Concededly, if there were
some indication in § 1025 that the power of the Secretary of
Agriculture is limited to bidding at the foreclosure sale, then we
would be faced with a problem of resolving the two statutes.
Cf. United States v. Stewart, 311 U. S.
60. However, there is no conflict, either express or
implied, between § 1025 and § 2410. In effect, appellees would have
us read § 2410 as authorizing redemption "except where another
federal statute authorizes the particular agency concerned to bid
at foreclosure sales." The only support for such an interpretation
is the fact that some federal agencies are authorized to bid at
foreclosure sales. We think that the logical connection is
insufficient
Page 364 U. S. 308
to support such a violent graft on the language of the
statute.
Appellees advance several other contentions which require only
brief discussion. They argue, citing
Guaranty Trust Co. v.
United States, 304 U. S. 126,
that the United States, by seeking affirmative relief in a state
court, subjects itself to all the incidents of state law which
govern other suitors.
See Hart & Wechsler, The Federal
Courts and the Federal System 1112. However, we need go no farther
than the
Guaranty Trust case to uncover one of the several
special rules which favor the United States in preference to other
plaintiffs -- the rule that the United States is not subject to
local statutes of limitations.
See United States v.
Summerlin, 310 U. S. 414.
Other such rules, applicable in both federal and state courts, can
be found in 28 U.S.C. §§ 2404, 2405, 2407, 2408, 2413. Furthermore,
the present proceedings were not initiated by the United States,
but by appellee insurance company when it joined the United States
pursuant to § 2410.
Appellees also point to the first sentence of § 2410(c) --
"[a] judicial sale in such action or suit shall have the same
effect respecting the discharge of the property from liens . . .
held by the United States as may be provided . . . by the local law
of the place where the property is situated."
The contention is that this sentence governs all the succeeding
language in § 2410(c). However, this construction would render the
succeeding language nugatory. The more rational interpretation is
that the propositions following the first sentence in § 2410(c)
were designed as qualifications on the first sentence. This thesis
gains force from the fact that the sentence setting out the United
States' redemption privilege in § 2410(c) previously was preceded
by the words "And provided further." 46 Stat. 1529. This phrase was
eliminated in the 1948 revision of the Federal Judicial Code, but
the
Page 364 U. S. 309
Reviser's Note indicates that no substantive changes were
intended. 28 U.S.C.A. § 2410.
Therefore, the judgment of the Supreme Court of Kansas must be
reversed, and the case remanded with instructions to order the
issuance of a certificate of redemption to the United States in
accordance with its tender made in the District Court. However, in
case the mortgagors wish to redeem in turn from the United States
-- a procedure in which the United States has acquiesced -- we
intimate no opinion as to the amount due the United States. The
question whether the United States is entitled to payment of its
claims in full upon redemption by the mortgagors or only to such
debts as have been declared liens by the state courts is one to be
decided according to Kansas law.
Cf. First National Bank &
Trust Co. v. MacGarvie, 22 N.J. 539, 547,
126 A.2d
880,
885.
Reversed and remanded.
[
Footnote 1]
"Actions affecting property on which United States has
lien."
"(a) Under the conditions prescribed in this section and section
1444 of this title for the protection of the United States, the
United States may be named a party in any civil action or suit in
any district court, . . . or in any State court having jurisdiction
of the subject matter, to quiet title to or for the foreclosure of
a mortgage or other lien upon real or personal property on which
the United States has or claims a mortgage or other lien."
"(b) The complaint shall set forth with particularity the nature
of the interest or lien of the United States. In actions in the
State courts service upon the United States shall be made by
serving the process of the court with a copy of the complaint upon
the United States attorney for the district in which the action is
brought or upon an assistant United States attorney or clerical
employee designated by the United States attorney in writing filed
with the clerk of the court in which the action is brought and by
sending copies of the process and complaint, by registered mail, to
the Attorney General of the United States at Washington, District
of Columbia. In such actions, the United States may appear and
answer, plead or demur within sixty days after such service or such
further time as the court may allow."
"(c) A judicial sale in such action or suit shall have the same
effect respecting the discharge of the property from liens and
encumbrances held by the United States as may be provided with
respect to such matters by the local law of the place where the
property is situated. A sale to satisfy a lien inferior to one of
the United States, shall be made subject to and without disturbing
the lien of the United States, unless the United States consents
that the property may be sold free of its lien and the proceeds
divided as the parties may be entitled. Where a sale of real estate
is made to satisfy a lien prior to that of the United States, the
United States shall have one year from the date of sale within
which to redeem. In any case where the debt owing the United States
is due, the United States may ask, by way of affirmative relief,
for the foreclosure of its own lien and where property is sold to
satisfy a first lien held by the United States, the United States
may bid at the sale such sum, not exceeding the amount of its claim
with expenses of sale, as may be directed by the head of the
department or agency of the United States which has charge of the
administration of the laws in respect of which the claim of the
United States arises."
[
Footnote 2]
Judgment for $2,642.39 was entered in favor of the United States
on the three unsecured notes. While the United States sought to
include these notes in its second lien on the property, the court
decreed that this lien extended only to the amount of the secured
note.
[
Footnote 3]
John Hancock Mutual Life Ins. Co. v. Hetzel, 185 Kan.
274,
341 P.2d
1002.
[
Footnote 4]
From the fifteenth to and including the eighteenth month, the
mortgagor resumes enjoyment of the exclusive right to redeem.
Kan.Gen.Stat., 1949, § 60-3439. Upon the expiration of eighteen
months without redemption, the purchaser's certificate of title
becomes absolute. Kan.Gen.Stat., 1949, § 60-3438.
[
Footnote 5]
Appellees argue briefly that Congress does not have the power to
establish rules governing state-created property rights, citing
United States v. Bess, 357 U. S. 51. This
contention was raised and rejected in
United States v.
Brosnan, 363 U. S. 237,
363 U. S.
240-241.
[
Footnote 6]
Initial concern was expressed by Representative Bloom in a
colloquy reported at 72 Cong.Rec. 3120-3121. Despite the
apprehension expressed in this exchange, the bill that eventually
became § 2410 passed the House with no provision to protect the
United States' rights as junior lienor. The Senate, however, added
a new section authorizing the United States to bid at the
foreclosure sale and a delay of the sale until the completion of
the next succeeding session of Congress so as to allow the
Government time to obtain a congressional appropriation with which
to make its bid. S.Rep. No. 351, 71st Cong., 2d Sess. 1-2.
This addition was stricken by the Conference Committee, and the
redemption provision now in § 2410(c) was substituted. In rejecting
the Senate proposal for protecting the rights of the United States
as a junior lien holder, the Conference Committee concluded that a
federal redemption provision was a more effective method for
protecting those rights. It stated:
"The Senate amendment contains a clause allowing the court to
stay proceedings on sale until the expiration of the next session
of Congress. This was no doubt intended to allow Congress to
appropriate money to enable the United States, if a junior lien
holder, to bid enough at the sale to take care of prior liens and
thus protect its own. In place of that, the substitute bill
provides that, if a junior lien holder, the United States shall
have a year in which to redeem. That does away with any necessity
for a delay of sale."
H.R.Conf.Rep. No. 2722, 71st Cong., 3d Sess. 4.
[
Footnote 7]
"The Secretary is authorized and empowered to bid for and
purchase at any foreclosure or other sale, or otherwise to acquire
property pledged or mortgaged or conveyed to secure any loan or
other indebtedness owing to or acquired by the Secretary under
sections 1001-1005d, 1007, and 1008-1029 of this title; to accept
title to any property so purchased or acquired; to operate for a
period not in excess of one year from the date of acquisition, or
lease such property for such period as may be deemed necessary to
protect the investment therein; and to sell or otherwise dispose of
such property in a manner consistent with the provisions of section
1017 of this title."