A bank made a loan secured by a mortgage on real estate.
Subsequently, the United States filed notice of a federal tax lien
against the mortgagor's property. Thereafter, liens for unpaid real
estate taxes and other local assessments attached to the property.
The bank instituted foreclosure proceedings, naming the United
States as a party.
in distributing the proceeds of a foreclosure
sale of the property, the federal tax lien should be given priority
over the liens for unpaid real estate taxes and other local
assessments, notwithstanding a state law providing that payments to
discharge such state tax liens shall be deemed "expenses" of a
mortgage foreclosure sale. Pp. 371 U. S.
11 N.Y.2d 31,181 N.E.2d 413, reversed.
In 1946, respondent Buffalo Savings Bank made a loan secured by
a real estate mortgage. The United States filed notice of a federal
tax lien against the mortgagor's property in 1953. Thereafter, in
1957 and 1958, liens for unpaid real estate taxes and other local
Page 371 U. S. 229
to the property. The bank instituted foreclosure proceedings,
naming the United States as a party. The trial court's decree
ordered the property sold and the payment of local real estate
taxes and other assessments as part of the expenses of the sale
prior to the satisfaction of the tax lien of the United States. The
United States appealed, and the New York Supreme Court, Appellate
Division, reversed, only to be reversed in turn by the New York
Court of Appeals, which reinstated the trial court's judgment on
the ground that the federal tax lien attached only to the
mortgagor's interest in the surplus after the foreclosure sale, and
therefore was subordinate to the local taxes as "expenses of sale."
11 N.Y.2d 31, 226 N.Y.S.2d 382, 181 N.E.2d 413.
We must reverse the judgment of the New York Court of Appeals
for failure to take proper account of United States v. New
Britain, 347 U. S. 81
case rules this one, for there, the Court quite clearly held that
federal tax liens have priority over subsequently accruing liens
for local real estate taxes, even though the burden of the local
taxes in the event of a shortage would fall upon the mortgagee
whose claim under state law is subordinate to local tax liens.
A similar argument based on the general character of the federal
tax lien was made and specifically rejected in New
Moreover, the state may not avoid the priority rules
of the federal tax lien by the formalistic device of characterizing
subsequently accruing local liens as expenses of sale. Cf.
United States v. Gilbert Associates, Inc., 345 U.
. Finally, respondent's reliance on United
States v. Brosnan, 363 U. S. 237
Crest Finance Co. v. United States, 368 U.
, is misplaced. Brosnan
with foreclosure procedures, not with priorities, and, in
connection with the latter subject, relied
Page 371 U. S. 230
upon New Britain,
among other cases. Crest
wholly inapposite here.
The judgment is therefore reversed, and the cause remanded for
further proceedings not inconsistent with this opinion.
Reversed and remanded.
MR. JUSTICE DOUGLAS dissents.