Opinion ID: 358075
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Heading: Is the fund property or a right to property belonging to

Text: 3 the mortgagor? 4 The government's claim rests on the federal tax lien statute, which provides, If any person liable to pay tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. 26 U.S.C. § 6321. The threshold question is whether the disputed insurance fund constitutes property or a right to property belonging to the mortgagor, who is the taxpayer in this case. 2 We conclude that it does.A. The mortgagee's rights under the insurance policy. 5 The insurance policy has a loss payable clause in favor of the mortgagee's predecessor in interest. 3 The clause is a standard mortgage clause, also known as a New York or union mortgage clause. 5A J. Appleman, Insurance Law and Practice § 3401, at 282. It is customarily used with real property insurance and is regarded as a separate contract between mortgagee and insurer. Id. at 286-88. Glens Falls Ins. Co. v. Porter, 44 Fla. 568, 33 So. 473, 478 (1902). 6 Because the mortgagee has a contractual right to money payable under the loss payable clause, the mortgagor has no right to that money. Thus the money or right to receive the money is not property or a right to property belonging to the mortgagor. The loss payable clause, however, is expressly limited to buildings only. The policy defines buildings to exclude most personal property. 4 Thus the mortgagee does not have a contractual right to the portion of the insurance fund relating to the excluded personal property. 7 The mortgagee argues that the limitation to buildings only is inconsistent with the provision that the loss shall be payable to the mortgagee as interest may appear under all present and future mortgages because his interest under the mortgage extends to personal property. We see no inconsistency. The quoted language is simply language of limitation, which recognizes that the mortgagee can have no greater interest in the insurance fund than in the insured collateral. 5A J. Appleman, Insurance Law and Practice, § 3404, at 305-06. The language does not operate to expand the clause beyond its express limitation to buildings only. 5 8 B. The mortgagee's equitable rights. 9 The mortgagee does have, however, an equitable right to the disputed insurance fund. The mortgagor agreed to keep the building and all equipment and personal property now or hereafter on said premises covered by insurance against loss by fire or other casualty in an amount sufficient to protect the mortgagee's interest. The mortgagor procured the insurance policy pursuant to this agreement. Florida law provides that when a mortgagor has procured an insurance policy pursuant to such an agreement the mortgagee has an equitable lien on the insurance fund. Atwell v. Western Fire Insurance Co.,120 Fla. 694, 163 So. 27 (1935). Although Florida case law has characterized the mortgagee's rights as being fixed at the time of loss, 6 the mortgagee must act to protect his rights by giving notice of his claim to the insurer. If he does so, the insurer cannot pay a claim under the policy until the rights of the mortgagor and mortgagee are adjusted. See also Annot., 92 A.L.R. 559 (1934). 10 We hold that the portion of the insurance fund that is not payable to the mortgagee under the loss payable clause is property or a right to property belonging to the mortgagor. The mortgagor has a contractual or legal right to this fund. The mortgagee on the other hand has only an equitable right, specifically an equitable lien. The mortgagee cannot obtain the fund by proceeding directly against the insurer. 7 Rather he will not have a legal right to the fund until his rights and the mortgagor's have been adjusted. 8 Thus we conclude that the disputed insurance fund is, at least initially, property belonging to the mortgagor. 9 11