Prior Recorded Condo Lien Takes Priority Over Federal Tax Lien, But Only to Assessments, Costs, and Attorney Fees Accruing Prior to Recording of Federal Tax Lien

In Yarmouth Commons v Norwood, a case removed from Macomb County Circuit Court to the US District Court for the Eastern District of Michigan, the condominium association recorded a lien for unpaid assessments.  The IRS subsequently recorded a federal tax lien against the property.  The association sought judicial foreclosure of its condominium lien.  The IRS removed the case to the federal district court.  On cross motions for summary judgment, the court ruled that the Association’s lien was a perfected security interest in the condominium unit at the time of recording of the tax lien and thus was entitled to priority under 26 USC §6323(a), but only as to the amount stated in the recorded notice of lien.

The interesting thing about the opinion is that it discussedand rejected MCL §559.208, which provides that a condominium lien has priority over other liens "except tax liens on the condominium unit in favor of any state or federal taxing authority.”  The court rejected the argument that state law should apply to give the IRS priority, because federal law provides that federal courts apply federal law in deciding priority disputes without regard to the effect of any state law pronouncements.  Because under the federal statute, the condominium lien was "protected under local law against a subsequent judgment lien arising out of an unsecured obligation within the plain language of 26 USC §6323, the condominium lien had priority over the federal tax lien.

© Steve Sowell 2018