Opinion ID: 159922
Heading Depth: 3
Heading Rank: 3

Heading: 1995 Payment during Redemption Period

Text: GOA next challenges the district court’s determination that Garcia was entitled to payment for the period between the GOA’s purchase of the property at the tax sale (June 7, 1995) and the expiration of Garcia’s redemption period 180 days later (December 4, 1995). GOA contends that its purchase of the property at the tax sale gave it conditional ownership of the property, and that it was entitled to any income generated by the property during the redemption period. We conclude the district court correctly found Garcia entitled to payment for this period. When the government sells seized property under 26 U.S.C. § 6335, it provides the purchaser with a certificate of sale. See § 6338(a). “In the case of -17- real property, such certificate shall set forth the real property purchased, for whose taxes the same was sold, the name of the purchaser, and the price paid therefor.” Id. For real property, the tax sale purchaser can exchange the certificate of sale for a deed to the property after the 180-day statutory redemption period has expired. See § 6338(b). Section 6339(b)(2) provides that the “deed shall be considered and operate as a conveyance of all the right, title, and interest the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto.” Thus, in Babb v. Frank , 947 F. Supp. 405, 407-09 (W.D. Wisc. 1996), the court rejected arguments, similar to those made by GOA, that the delinquent taxpayer’s ownership rights in the property transferred to the purchaser at the tax sale, or even to the government at the time of levy. Instead, it held that under the plain language of § 6339(b)(2), “[t]he tax sale purchaser does not receive the delinquent taxpayer’s right, title and interest to the property until he obtains the deed.” Id. at 407. The district court here relied on Babb in holding that Garcia was entitled to payment for the redemption period. While GOA criticizes Babb for not having “thought through” the implications of its holding, GOA does not argue that Babb ’s statutory analysis is incorrect. GOA cites two cases it claims indicates that the tax sale conditionally transferred title to it and gave it the right of possession. One, United States v. -18- Whiting Pools, Inc. , 462 U.S. 198, 211 (1983), involved personal property, which is governed by different rules from real property. See § 6339(a)(2) (certificate of sale transfers taxpayer’s right, title and interest in personal property). GOA’s other case, Roig Commercial Bank v. Dueno , 617 F. Supp. 913, 915 (D. P.R. 1985), is either simply incorrect or, as Babb indicates, based on superceded law, see Babb , 947 F. Supp. at 408-09. 10 We are more concerned with a case GOA did not cite but should have, since it is on point and would lead to the result GOA wants. In United Bank of Denver National Ass’n v. Ferris , 847 P.2d 146, 149-50 (Colo. Ct. App. 1992), the Colorado Court of Appeals held that state law governs the determination of who is entitled to income on property during § 6337(b)’s redemption period. In so holding, the court relied on a case from this court, Crow v. Wyoming Timber Products Co. , 424 F.2d 93 (10th Cir. 1970), to say that “the state court has jurisdiction to determine, in accordance with state law, the rights to and arising from a parcel of real estate redeemed under § 6337(b).” United Bank , 847 P.2d at 149. Though under Colorado law, the redeeming owner is entitled to income from 10 Doig stated that “[a] tax-sale certificate transfers title to the purchaser from the moment of the sale,” citing S.R.A. v. Minnesota , 327 U.S. 558, 567 (1946), which in turn relied on Van Brocklin v. Tennessee , 117 U.S. 151, 179 (1886). Doig , 617 F. Supp. at 915. Section 6339(b)(2), stating that the deed obtained in exchange for the certificate of sale transfers title, was part of the Internal Revenue Code of 1954. -19- the property during the redemption period, see id. at 150, the opposite result would obtain under New Mexico law, see N.M. Stat. Ann. 39-5-22 (Michie 1991); Western Bank v. Malooly , 895 P.2d 265, 273 (N.M. Ct. App. 1995). The question now becomes whether state law governs this issue. With all due respect to the Colorado court, we believe it read too much into Crow . There, we held that state law “rather than federal law determines the nature and extent of the taxpayer’s interest in property to which a federal tax lien can attach.” Crow , 424 F.2d at 96. The fact that state law governs a taxpayer’s substantive property rights does not mean that state law dictates when those rights are transferred to a purchaser under federal procedures governing tax sales, or more specifically, what the legal effect is of a certificate of sale issued pursuant to § 6338 of the Internal Revenue Code. We admit to being surprised at the absence of case law answering the latter question. State law gives differing effects to analogous sales. See 4 Richard R. Powell, Powell on Real Property § 37.46 (Rev. ed. 1997); 30 Am. Jur. 2d Executions and Enforcement of Judgments § 562, 580 (1994). But we see no reason to apply state law because we conclude the applicable federal statutes answer the question. We hold that a certificate of sale for real property gives the purchaser only the right to receive either the redemption price, see § 6337(b), or a deed, see § 6338(b), and that only on receipt of the deed does the purchaser obtain -20- the taxpayer’s right, title and interest in the property, see § 6339(b). Cf. Sari-Tech Enters., Ltd. v. Nassau County , 310 N.Y.S. 2d 107, 109 (N.Y. Sup. Ct. 1970) (“[U]ntil the deed is received [under § 6339(b)], a purchaser at the tax sale has no cognizable interest in the real property, but possesses merely a chose in action.”). We thus conclude that the district court correctly found Garcia entitled to the lease payments for the period of redemption.