Opinion ID: 675855
Heading Depth: 2
Heading Rank: 2

Heading: Relation back principle

Text: 38 Even if we were not persuaded that the IRS would prevail due to its status as a hypothetical judgment lien creditor, we would nevertheless conclude that the IRS prevails on the basis of its argument that the Treasury Regulations forbid application of a relation back principle to award an unperfected lien priority over the tax lien. Section 301.6323(h)-1(a)(2) of the Treasury Regulations provides in pertinent part: 39 (i) For purposes of this paragraph, a security interest is deemed to be protected against a subsequent judgment lien on-- 40 (A) The date on which all actions required under local law to establish the priority of a security interest against a judgment lien have been taken, or 41 (B) If later, the date on which all required actions are deemed effective under local law, to establish the priority of the security interest against a judgment lien. 42 For purposes of this subdivision, the dates described in (A) and (B) of this subdivision (i) shall be determined without regard to any rule or principle of local law which permits the relation back of any requisite action to a date earlier than the date on which the action is performed.... 43 Treas.Reg. Sec. 301.6323(h)-1(a)(2) (1976). Under Alabama law, after the mistaken satisfaction, the mortgagee retained an equitable right to have its mortgage reinstated, as opposed to a security interest which was valid against all judgment creditors. The final action required under local law would be the reinstatement of the mortgage. Applying equitable principles, a court reinstating the mortgage would permit the perfection of the mortgage to relate back to the original date of recording, but only in the absence of the intervention of rights of innocent third parties. It is precisely the application of this type of relation back principle which the Regulations forbid. The date of perfection for a security interest under federal law is to be determined without reference to any rule or principle of local law which permits the relation back of any requisite action. Because application of equitable reinstatement would permit the mortgagee's perfected interest to relate back to the earlier recordation, we conclude that the IRS prevails in priority over Secor's erroneously released mortgage.V. CONCLUSION 44 Based on the foregoing, we reverse the district court's subordination of the IRS's lien to that of Secor's. The judgment of the district court is 45 REVERSED.