Real estate sold at tax sale in tug of war

Defendant Georg Jensen owned real property that was subjectto several IRS income tax liens. The IRS levied on Jensen’s property, and thesale for unpaid IRS taxes was held on Nov. 14, 2003.

Defendant Ross Lay was the successful highest bidder for$60,500 at the IRS public auction sale. The IRS issued a Certificate of Sale ofSeized Property to Lay.

Purchase Bob Bruss reports online.

On May 12, 2004, Georg Jensen signed a mortgage on theproperty to plaintiff Westland Holdings Inc. The mortgage was givenspecifically to provide Westland with an interest in the property to redeem itunder federal law after the IRS sale.

Federal law (26 U.S.C. 6337(b)(1)) provides a redemptionperiod “within 180 days of the sale.” Plaintiff Westland HoldingsInc. tendered to the IRS $60,500 on May 12, 2004, to redeem the property.

But the IRS rejected the plaintiff’s redemption, stating theredemption was not within the 180-day time period and that the date of the saleis included in calculating the 180-day period.

The IRS then issued its quitclaim deed transferring propertytitle to defendant Lay. But Westland Holdings sued Lay, alleging its redemptionwas within the 180 days allowed by federal law.

The IRS and the other defendants argued the 180 days beginsrunning on the date of the sale so Westland was one day late redeeming.

If you were the judge would you allow mortgage lenderWestland to redeem the property?

The judge said yes!

The only issue in this case, the judge began, is whether thefederal 180-day redemption period after an IRS tax-seizure sale begins to runon the day of the sale or the day after.

Several cases citied by the parties are not much help, thejudge explained, because they are unclear on whether the courts began countingon the date of the sale or the day after.

Plaintiff Westland cites Federal Rule of Civil Procedure6(a), which says in computing any period of time, the day of the act, event ordefault from which the time period runs shall not be included, the judge emphasized.

Because the federal 180-day redemption law does not statewhen that period begins to run, he continued, that statute alone does notsupply the answer. However, ever since the earliest federal court decisions in1869 and 1870 involving redemption of property seized for failure to pay taxes,”Leniency to the owner in the exercise of this right has always been therule of thumb,” the judge noted.

Based on the language of the 180-day redemption statute andthe cases interpreting that law, the date of sale should not be counted indetermining the statutory redemption period, the judge ruled. Therefore,redemption by Westland for $60,500 was tendered within the 180-day statutoryredemption period, which ended on May 12, 2004, so Westland shall be entitled toredeem the property, the judge concluded.

Based on the 2006 U.S. Court of Appeals decision in WestlandHoldings Inc. v. Lay, 462 Fed.3d 1228.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2007 Inman News

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