Lien for Unpaid Assessments is Superior to Unrecorded Tax Lien

Originally posted on December 12, 2011 by Ryan

Mira Owners Ass’n v. Lawrence, No. C10-630RAJ, U.S. Dist. Ct., W. Dist. Wash., Feb. 16, 2011.

An association member became delinquent on assessment payments and also failed to pay his federal income tax.  In November, 2008, the association brought suit to foreclose on its lien.  Subsequently, the IRS filed a federal tax lien on January 16, 2009.  The Washington district court determined that the association was a secured creditor and its lien related back to the time that the assessments became delinquent.  Additionally, the court also held that the association’s lien was automatically perfected at the time of delinquency; recording the lien was not necessary for perfection.  The association’s governing documents provided that the association’s lien was superior to all other liens except “liens for real property taxes and other governmental assessment or charges against the unit.”

Although a tax lien arises automatically when the tax is assessed and tax liens are usually superior to other liens, the court held that there is an exception to the general rule when the IRS and another secured party are battling for lien priority.  Priority then turns on when the IRS filed notice of its lien.  Because the federal tax lien was filed after the association’s lien became perfected, the association’s assessment lien had priority over the tax lien.

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